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Life Health > Life Insurance > Term Insurance

The Producer's Role In Avoiding Misleading Ads

By Danette Kennedy

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“Puffery” is a legal term referring to promotional claims that express subjective rather than objective views. An example would be an advertisement declaring that amber-colored beer is crisp and clear.

Puffery provides a legal protection for companies’ claims so long as a reasonable person would not take the statement literally. This legal technicality is critical to advertising.

Why, then, are insurance regulations seemingly vacant of this protection?

All insurance jurisdictions have unfair and deceptive trade practice laws which prohibit an insurance product from being sold through misleading or deceptive means. Producers consistently ask for clarification or examples of what regulators consider “misleading” or “deceptive” when it comes to advertising insurance products and their services.

Recently, the insurance industry has taken issue with certain designations used by producers claiming such may mislead a consumer, especially a senior, to believe the insurance producer is engaged in a business other than the sale of insurance.

Example: It may be deemed misleading or deceptive if someone uses a designation to promote that they specialize in working with seniors, but does not make clear that the true nature of their relationship is based on selling insurance.

Another example: A regulatory action was brought in Texas against an agent who advertised his senior advocacy organization. Not only had the organization been administratively dissolved by the Texas Secretary of State for failure to file an annual report, it was also viewed as a guise for the insurance producer to sell products. Regulators determined the use of such an organization was misleading and deceptive to the public.

In California, regulators cited an insurance producer for using a senior designation and calling himself an “estate planner,” although he was not a licensed attorney. The complaint noted that most people assume that professionals providing estate planning services are lawyers. The insurance producer in this case was seen as making a misleading implication that he was an attorney. Again, the true nature of the producer’s business, selling insurance, was not clear from the face of the advertisement.

Notably, California now requires all insurance producers to clearly state their California insurance license number on all advertisements.

Other jurisdictions have taken issue with third-party mail houses that use a central processing center for a return address. Some lead generating advertisements that do not reference the specific producer’s name or return address have been called into question. The comments center on the need for the producer to be clearly identified at all times. The concern here is that using a processing center with an address other than the producer’s actual address may mislead the public.

Insurance carriers offer significant direction to producers on avoiding the use of misleading or deceptive advisements. Through the use of advertising guidelines, published by each carrier, producers are given additional examples and in some cases, pre-approved language and descriptions.

Most carriers use the definition of advertising developed by the National Association of Insurance Commissioners. This includes any material designed to create public interest in an insurance or annuity product, an insurance company, an agent; or to induce the public to purchase, increase, modify, surrender, borrow on, reinstate or retain a policy. Such advertisements must be submitted to the carrier for review, modification (if necessary) and final approval.

In addition, carriers often require recruiting material to be submitted for compliance review. In all cases, the use of a carrier’s logo or likeness must be submitted prior to use.

Not all producers, unfortunately, submit their advertisements to the carrier for compliance review. The most common objections these producers give are that the review process takes too long or the guidelines are too inflexible.

As a practical matter, submitting all advertising is a safety net for producers. The carrier keeps a copy, as should the producer. This can be shown during state department of insurance market conduct exams. If an advertisement is questioned, the producer will need written documentation that the carrier approved the advertisement before use with the public.

In all cases, producers should consider how the public may view the advertisement. What may be clear and obvious to a producer with years of experience may be subject to misinterpretations by a lay person. Avoiding misleading or potentially deceptive advertisements is often achieved by disclosing the true nature of the producer’s business.

Danette Kennedy is president of Gorilla Insurance Marketing, Inc. Waukee, Iowa. Her e-mail address is [email protected].

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