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twisting insurance

twisting insurance“Twisting” in insurance refers to an unethical practice where an insurance agent or broker uses deceptive tactics to convince a policyholder to surrender their existing insurance policy and replace it with a new one, typically from a different insurance carrier. The new policy often offers similar or inferior benefits to the original policy. The primary motivation behind twisting is the financial gain for the agent or broker, as they earn commissions on the sale of the new policy.

Twisting is often compared to a bait-and-switch tactic. It involves misrepresentations, false statements, or other unethical means to persuade the policyholder that the replacement policy is more advantageous or better suited to their needs. In reality, the agent is driven to secure a new commission by convincing the policyholder to abandon their current policy.

This practice can occur in any insurance but is widespread and harmful with life, auto, and homeowners insurance. For example, in life insurance, an agent might convince a policyholder to cancel their existing policy and replace it with a new one that appears very similar. Yet, they’ve used misrepresentations and fraud to get the policyholder to switch.


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Twisting is not only unethical but also illegal in most jurisdictions. It’s considered a form of insurance fraud because it essentially defrauds consumers. It does not allow consumers enough time and resources to make informed decisions regarding their insurance policies. Furthermore, it could threaten their financial security if the consumer ends up with inadequate coverage due to these deceptive practices, suffering financial losses after they have made a purchase falsely believing they are covered.

In states with anti-twisting laws, penalties for agents found guilty range from civil fines to criminal penalties and can include the agent losing their insurance license. Despite these regulations, twisting remains a significant issue in the insurance industry, highlighting the importance of consumer education and vigilance when purchasing or changing insurance policies.

The Impact of Twisting on Policyholders

Insurance twisting can negatively impact policyholders, including financial loss and inadequate coverage.

When an insurance agent convinces a policyholder to switch their existing policy for a new one, the policyholder may incur unnecessary costs. These costs can arise from surrender charges for early termination of the original policy, higher premiums on the new policy, or loss of accumulated benefits such as cash value in a life insurance policy.

For example, in a life insurance scenario, an agent might persuade a policyholder to cancel their existing whole-life policy and replace it with a new one. Even if the new policy is identical to the old one, the policyholder’s insurance cost will be higher because they are older. Additionally, the cash value of the new policy will grow slower due to the higher premiums and new commissions paid to the agent.

Inadequate coverage is another significant risk for policyholders. Agents involved in twisting may downplay the benefits of the existing policy or provide incomplete comparisons between the old and new policies. As a result, policyholders may end up with a policy that offers less coverage or benefits than their original policy. This could leave policyholders financially vulnerable, especially in the event of a claim.

Furthermore, the instability caused by frequent policy changes can disrupt the continuity of coverage. This can be particularly problematic in the case of health insurance, where gaps in coverage can lead to significant out-of-pocket costs for policyholders.

The financial harm caused by twisting is taken seriously because it can lead to significant losses for policyholders. The total cost of insurance fraud, including practices like twisting, is estimated to be more than $40 billion annually. This cost is often passed on to consumers through increased premiums, costing the average U.S. family between $400 and $700 annually.

Regulations and Legal Aspects of Insurance twisting

The National Association of Insurance Commissioners (NAIC) plays a significant role in preventing insurance twisting. The NAIC has developed the Life Insurance and Annuities Replacement Model Regulation, which assigns responsibility for preventing twisting to insurance producers and insurers. This model regulation includes guidelines for producers, such as reviewing potential conflicts with the applicant when recommending a new product and implementing a system to review the appropriateness of each replacement transaction.

In addition to the NAIC’s model regulations, individual states have laws to discourage twisting. For instance, in California, the law stipulates that any insurance agent, broker, or solicitor who knowingly violates the provisions against misrepresentation of policies can have their license suspended for up to three years. Furthermore, the law imposes penalties for twisting, with fines ranging from $1,000 for the first violation to up to $300,000 for each subsequent violation.

Moreover, the law requires restitution to the victim before any fine imposed by this section is collected. Suppose an insurer knowingly violates any provision of the sections against misrepresentation. In that case, the commissioner may require rescission of any contract found to have been marketed, offered, or issued in violation of this article.

How to Identify and Avoid Twisting

Insurance twisting is a fraudulent practice where an insurance agent convinces a policyholder to cancel their existing policy and replace it with a new one, often for the agent’s gain. This practice can lead to policyholders paying more premiums and being exposed to additional risk. Here are some tips and advice on how to identify insurance twisting and how to avoid falling victim to it:

**Identifying Insurance Twisting**

**Too Good to Be True**: If an offer seems too good, it probably is. Be wary of agents who promise significantly lower premiums for the same or better coverage.

 **Pressure to Cancel Existing Policy**: If an agent pressures you to cancel your existing policy before it expires, this could be a sign of twisting. Agents who engage in twisting often push for a quick policy switch.

**Incomplete or Misleading Information**: Twisting constantly involves misrepresentations or incomplete comparisons of the advantages and disadvantages of the two policies. Be cautious if the agent is not transparent about the terms and conditions of the new policy.

**Direct Payment to Agent**: If an agent asks you to pay the premium directly to them, this is a major red flag. Premiums should always be paid to the insurance company.

**Avoiding Insurance Twisting**

**Ask Questions**: Before purchasing a policy, ask your agent about the terms and conditions, the premium, the deductible, and the coverage. If the policy replaces a different insurance policy, ask why it is being replaced and what will happen to the old one.

 **Conduct Thorough Research**: Review policy documents and terms provided by insurance companies carefully. Seek guidance from a knowledgeable financial advisor if needed.

**Annual Reviews**: Conduct annual reviews of your insurance portfolio. Assets are acquired over time, and risk appetites change. By conducting annual reviews, gaps in coverage may not be revealed until a claim is denied.

**Keep a Safe Distance**: In the context of auto insurance, keep a safe distance from the vehicle in front of you to avoid being a victim of staged accidents, which can be a form of insurance fraud.

 **Pay Premiums to the Insurance Company**: Always pay insurance premiums by check or money order to the insurance company instead of the producer. Ensure you have a receipt showing that you paid the premium.

By being aware of these red flags and taking these precautions, you can protect yourself from falling victim to insurance twisting.

The Role of the Insurance Agent

Insurance agents are crucial in providing accurate and beneficial advice to clients. They are responsible for understanding each client’s unique needs and circumstances and recommending suitable insurance solutions. This involves clear, transparent communication, active listening, and personalized service. Agents should use simple, jargon-free language to explain insurance policies, coverage options, and terms, ensuring clients fully understand their purchase. Regular follow-ups with clients to ensure their insurance coverage remains appropriate are also part of an agent’s role.

However, this contrasts with twisting, where an agent convinces a policyholder to cancel their existing policy and replace it with a new one, often for the agent’s gain. This practice can lead to policyholders paying more premiums and being exposed to additional risk.

Client Education

Educating clients about insurance policies, coverage, and potential scams like twisting is vital to an insurance agent’s role. This education can help clients understand the benefits and uses of specific insurance policies, making them more likely to pursue appropriate coverage options. It can also help clients avoid falling victim to unethical practices like twisting.

As an independent insurance agent, prioritizing client education involves providing clients with informative resources that help them understand insurance concepts and make informed decisions. This can include articles, guides, and personalized advice based on a client’s needs and circumstances.

Continuous learning and professional development are also crucial for insurance agents to stay up-to-date with industry trends, regulations, and product knowledge. This enhances their expertise, allowing them to offer clients valuable insights and tailored solutions.

The role of an insurance agent goes beyond selling policies. It involves building strong relationships, providing personalized service, and educating clients about their insurance needs and potential risks. By doing so, agents can help clients make informed decisions about their insurance coverage and avoid falling victim to unethical practices like twisting.