Recent cases highlight the risks of insurance marketing
Insurance companies must understand the complex set of marketing regulations in order to avoid regulatory risk.
In the age of InsurTech and ever-evolving affinity marketing strategies, recent high profile matters serve as a sober reminder that marketing techniques in the insurance business are highly regulated and that the simple act of marketing an insurance product can be a risky and costly endeavor.
These cases emphasize to the insurance producer industry — and to unlicensed market participants — the critical importance of understanding the complex set of marketing regulations in order to avoid regulatory risk.
NRA case spotlights regulatory risk
Back in May 2018, a Consent Order was entered by the New York State Division of Financial Services (NYSDFS) wherein Lockton Affinity, LLC, a licensed insurance producer, agreed to pay a $7 million fine and to no longer participate in the Carry Guard Program or any other insurance program involving the National Rifle Association (NRA) in the State of New York, after it was accused of allowing a non-licensed entity — the NRA — to directly solicit for the Carry Guard insurance program.
Earlier this year, on February 5, the NYSDFS took matters a step further and went after the NRA itself. The NYSDFS charge against the NRA alleged that the NRA violated various New York State insurance laws, including acting as an insurance producer without a license, in endorsing and marketing insurance programs and engaging in misleading marketing practices which deceived its members. Specifically, the charge alleges that the NRA worked with Lockton and marketed the insurance programs to its members through NRA-affiliated websites and email marketing, even though the NRA does not hold an insurance producer license from NYSDFS.
The charge also alleges that the NRA received substantial compensation based on a percentage of the insurance premiums paid by its members, in violation of New York law, which requires that an entity be licensed by the NYSDFS to engage in sale and marketing of insurance products in the state. The charge alleges that the NRA participated in the production of more than 28,000 such policies in New York and that the NRA unlawfully received royalties of about $1.8 million between 2000 and 2018 from Lockton on these policies. The Carry Guard Program is also being accused of violating a New York law barring insurance for intentional acts or criminal defense costs, as well as violating New York’s excess lines insurance rules. The NYSDFS seeks civil monetary penalties as high as $14 million as well as injunctive and other appropriate relief.
The NRA sought to stay a July 29, 2020, hearing before the NYSDFS on the basis that it should be postponed until the NRA’s lawsuit claiming that the agency was singling it out for discriminatory enforcement was resolved. But U.S. District Federal Judge Thomas McAvoy of the Northern District of New York denied the NRA’s request to block the July 29 hearing before the NYSDFS, reasoning that the issues in the regulatory hearing were different from those before him. Judge McAvoy stated, “The subject matter of the administrative hearing is to determine whether the NRA violated the Insurance Law, not whether defendants retaliated against the NRA for its speech or whether Superintendent Vullo selectively enforced the Insurance Law against the NRA affinity-insurance programs.”
‘Analyzing insurance marketing strategies against the legal framework’
Another recent case also comes to serve as a reminder to the industry of the importance of analyzing insurance marketing strategies against the legal framework. On September 13, 2017, plaintiffs filed an action captioned Horn v. iCan Benefit Group LLC in the Southern District of Florida. The plaintiffs alleged that iCan, the seller of a variety of health insurance products, violated the Telephone Consumer Protection Act by engaging in a “wide-scale” marketing campaign in which it sent “repeated, unsolicited” texts to prospective customers’ cellphones without their consent. Specifically, the complaint alleged that iCan “not only invaded the personal privacy of plaintiffs and members of the putative classes but also intentionally and repeatedly violated the TCPA.”
Ultimately, the parties in the case settled by agreeing to enter a consent judgment against iCan for $60,413,112. Critically, the settlement was made with the caveat that plaintiffs would only seek to collect that sum from iCan’s insurance carrier, Liberty Mutual. The case — and the lessons it teaches to the insurance producer industry — has recently resurfaced through a 2018 suit brought by plaintiffs against Liberty in Florida federal court, looking to force the insurer to pay the settlement amount. In early 2019, the parties filed competing motions for summary judgment. In May 2019, the district court granted Liberty’s motion and held that Liberty did not need to cover the settlement because the underlying TCPA class action revolved around allegations that iCan invaded consumers’ privacy with the unwanted texts, thereby triggering the invasion of privacy exclusion in iCan’s policy. On February 19, 2020, plaintiffs filed an appeal with the Eleventh Circuit, arguing that since the Liberty policy does not exclude from coverage the conduct that constitutes the elements of a cause of action for TCPA violations, the exclusion does not apply.
It will be interesting to see how the appeal develops, but in the meantime, the whole litigation should be used to remind the industry just how important it is to make sure that marketing strategies comply with the applicable laws and regulations.
In another matter, NYSDFS has fined Asurion Insurance Services Inc. and Asurion Protection Services LLC (Asurion) $4 million for providing inadequate consumer disclosures for insurance offerings for mobile phones, tablets and other wireless communication equipment and for improperly bundling such insurance with other products.
Asurion is a New York-licensed insurance producer that assists wireless communications equipment vendors by packaging insurance programs and designing brochures and other materials.
“Licensees are expected to follow the Department’s direction,” DFS Superintendent Linda Lacewell said in a DFS press release. “DFS is committed to ensuring that the New York insurance market is transparent and that consumers receive the disclosures they need to make the best purchasing decisions for themselves. When companies fail to comply with laws and regulations, particularly after the department draws attention to potential deficiencies in compliance, DFS will step in and robustly enforce the insurance law for the benefit of consumers.”
Asurion provided brochures that failed to properly disclose, among other things, how Asurion was compensated and bundled insurance with other products at a discount, providing an impermissible inducement to the purchase of the insurance. These violations persisted for more than a year following guidance DFS issued that addressed these shortcomings in the industry.
Insurance Circular Letter No. 1 (2018) identified six improper practices in the industry, including failure to provide required notices and disclosures, and tying insurance with non-insurance. The letter advised wireless communications equipment vendors and their producers that all companies selling this type of insurance must disclose to consumers, in brochures or other written materials, information concerning how the producer is compensated, the availability of premium credits for holders of third-party service contracts, and fees imposed upon failure to return a device after replacement.
As part of the settlement, Asurion has submitted amended materials to DFS and agreed to comply with all laws and regulations addressed in the circular letter.
In closing, it is critical for the insurance industry to analyze how existing regulations might apply to any given product marketing strategy.
The authors are members of the Insurance Law Practice Group at Genova Burns LLC. For questions about this article, please contact James M. Burns, Esq. via email at jburns@genovaburns.com or Lauren W. Gershuny, Esq. via email at lgershuny@genovaburns.com.
This article was originally published by Genova Burns on JD Supra and is republished here with consent.
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