Twisting in Insurance: Understanding Its Definition, Effects, and Prevention

Insurance policies are expected to provide consumers with protection from financial risks. However, some unscrupulous agents and brokers engage in a harmful practice called “twisting” that can leave policyholders vulnerable to inadequate coverage and financial losses. In this article, we will discuss what twisting is, its effects, and how it can be prevented.

What is twisting?

Twisting occurs when an insurance agent or broker convinces a policyholder to cancel an existing policy and purchase a new one with the same or another insurer. This practice is done to generate commissions or fees for the agent or broker, even if it is not in the best interest of the policyholder.

It is important to note that not all policy changes are considered twisting. For example, policy changes that are initiated by the policyholder, such as increasing or decreasing coverage, are generally not considered twisting. The crucial element of twisting is that the policyholder is convinced to switch policies without fully understanding the reasons behind the change.

What are the effects of twisting?

Twisting can have a variety of harmful effects on policyholders. Some of these effects include:

Aside from the financial effects, twisting can also erode trust between policyholders and their insurance agents or brokers. This can make it more difficult for policyholders to access reliable advice and coverage recommendations in the future.

How can twisting be prevented?

Preventing twisting requires a joint effort between regulators, insurers, and policyholders. Some effective prevention strategies include:

Regulatory measures

Regulators can implement measures to prevent twisting by:

• Mandating training and education requirements for insurance agents and brokers to ensure that they understand the negative effects of twisting and the importance of acting in the best interest of policyholders.
• Establishing clear guidelines and regulations that prohibit twisting practices and provide penalties for agents and brokers who engage in these practices.
• Conducting regular audits and investigations to ensure that twisting practices are not occurring within the insurance industry.

Insurer measures

Insurers can also take steps to prevent twisting by:

• Banning the payment of commissions or fees for policy changes that are not initiated by the policyholder.
• Providing policyholders with clear and transparent information about the differences between policies, including coverage, premiums, and fees.
• Creating internal procedures and guidelines that ensure that policy changes are in the best interest of policyholders.

Policyholder measures

Finally, policyholders can protect themselves from twisting by:

• Being aware of the signs of twisting, such as aggressive sales tactics, lack of transparency, and pressure to make immediate decisions.
• Seeking advice from multiple sources, such as other insurance agents, financial advisors, or industry regulators, before making any policy changes.
• Reviewing policy documents and asking questions to ensure that they fully understand the terms and conditions of their policies.

FAQs

What is the difference between twisting and churning?

Twisting and churning are both practices that involve changing insurance policies for the purpose of generating commissions or fees. However, there is a key difference between the two. Twisting involves convincing a policyholder to cancel an existing policy and purchase a new one, while churning involves frequent policy changes within the same insurer to generate commissions.

What are some signs that an agent or broker may be engaging in twisting?

Some signs that an agent or broker may be engaging in twisting include:

• Pressure to make immediate decisions
• Lack of transparency about the differences between policies
• Aggressive or manipulative sales tactics

Can insurers be held liable for twisting practices?

Yes, insurers can be held liable for twisting practices committed by their agents or brokers. Insurers have a duty to ensure that their agents and brokers are acting in the best interest of policyholders and can be penalized for failing to do so.

Is it always bad to switch insurance policies?

No, it is not always bad to switch insurance policies. Policyholders may switch policies if they find coverage that better suits their needs or if they can find a better deal on premiums. However, it is important to carefully review policy documents and seek advice before making any changes to ensure that the new policy provides adequate coverage and is in the best interest of the policyholder.

How do I report twisting practices?

If you suspect that an agent or broker is engaging in twisting practices, you can report it to your state insurance department or regulatory agency. Providing specific details and evidence can help regulators investigate and prevent future occurrences of twisting.