Legal Definitions - twisting

Twisting

In the context of insurance, twisting refers to an unethical and often illegal practice where an insurance agent or company persuades a policyholder to cancel an existing insurance policy and purchase a new one, typically from a different insurer. This persuasion is achieved through deceptive means, such as providing false or misleading information, misrepresenting facts about either the old or new policy, or presenting an incomplete comparison of the policies' benefits and drawbacks. The core element of twisting is the use of deceit to induce a policyholder to switch policies, often to their financial detriment.

• Example 1: Misleading Comparison for Life Insurance

  An insurance agent approaches a client who has held a whole life insurance policy for 15 years. The agent tells the client that their current policy is "outdated" and "inefficient," claiming it has excessively high fees and poor returns, without acknowledging the policy's significant accumulated cash value, guaranteed death benefit, or the fact that premiums are now fully paid up. The agent then strongly recommends a new, cheaper universal life policy from a different company, highlighting only its lower monthly premium and potential for higher investment growth, while failing to mention the new policy's higher surrender charges, variable interest rates, or the fact that the client would lose the guaranteed benefits of their existing policy.

  How this illustrates twisting: The agent uses misleading statements about the "outdated" nature and "inefficient" fees of the existing policy, and provides an incomplete comparison by omitting crucial benefits of the old policy (cash value, guaranteed death benefit) and potential drawbacks of the new policy (surrender charges, variable rates). The intent is to induce the client to switch policies based on deceptive information.

• Example 2: Deceptive Practices in Health Insurance

  A health insurance broker convinces a small business owner to switch their company's group health insurance plan from Company A to Company B. The broker emphasizes that Company B's plan has a significantly lower monthly premium, which would save the business money. However, the broker deliberately fails to disclose that Company B's plan has a much narrower network of doctors and hospitals, higher deductibles for employees, and does not cover several specialized treatments that some of the business's employees currently rely on under Company A's plan.

  How this illustrates twisting: The broker uses an incomplete comparison by highlighting only the lower premium of the new plan while intentionally omitting critical information about its reduced coverage, higher out-of-pocket costs for employees, and restricted provider network. This deceptive presentation is designed to induce the business owner to switch plans, potentially leaving employees with inadequate coverage.

• Example 3: Misrepresentation for Annuity Products

  An agent advises a retired couple to surrender their existing fixed annuity, which has a guaranteed interest rate and no further surrender charges, and purchase a new variable annuity from a different insurer. The agent exaggerates the potential for high investment returns with the new variable annuity, showing hypothetical best-case scenarios. However, the agent fails to adequately explain the market risks associated with variable annuities, the higher annual fees, or the fact that the couple would incur a significant surrender charge by canceling their current annuity prematurely, diminishing their principal.

  How this illustrates twisting: The agent misrepresents the benefits of the new policy by overstating potential returns and fails to fully disclose the risks and fees associated with it. Crucially, the agent also omits or downplays the financial penalty (surrender charge) the couple would face by canceling their existing policy. This combination of misrepresentation and incomplete information is intended to persuade the couple to switch annuities.