Life insurance marketing regulations share a common objective across states: to ensure that advertisements are truthful, transparent, and not misleading. Federal regulations, enforced by entities such as the SEC, alongside state regulations, pursue their goal of promoting trustworthy and truthful advertisements. While the SEC and FINRA typically do not regulate life insurance—classifying only specific types as securities—state life insurance marketing regulations often closely align with other financial marketing rules. These rules, such as FINRA Rule 2210 and the SEC Marketing Rule, govern communications with the public by financial institutions. State insurance regulators aim to accomplish a similar goal, with variability in how they accomplish this goal across states.
Four regulatory principles stand out as a common theme across state life insurance marketing regulations. These themes align with those of federal securities marketing regulations. State regulators pursue their goal of promoting trustworthy and truthful advertisements by:
- Banning misleading language and comparisons.
- Prohibiting particular words and phrases.
- Restricting promissory language and pressure tactics.
- Mandating accuracy by prohibiting exaggerations.
Regulatory overview
The National Association of Insurance Commissioners (NAIC) drafts model code that serves as a guide for the states when developing their regulation, such as the The NAIC Model Law Advertisements and Life Annuities Model Law (MDL-570). As of 2021, 24 states have adopted a substantially similar version of MDL-570. Two of those states (Florida and Kansas) have adopted further regulation, statutes, or administrative guidance that are related, but not substantially similar to MDL-570. Thirteen states have only adopted regulation, statutes, or administrative guidance that are related, but not substantially similar to MDL-570.
States that do not follow the NAIC model employ their own varying legislation and regulation. Usually, these states still enact regulations and legislation that attempt to prevent “misleading,” “deceptive,” or “inaccurate” life insurance advertising. However, they are varied in length and often not as comprehensive as what is recommended in MDL-570.
We will consider three states’ regulations—which have gone further than NAIC—due to their significant size and influence in the insurance sector: New York, California, and Illinois. Consider the parallels to securities laws in each of the four areas below.
Misleading language and comparisons
The NAIC and all mentioned states have provisions that ban “misleading” advertising in general. The NAIC states that insurance advertising “must be truthful and not misleading in fact or by implication.” Even some states that have not adopted MDL-570 use similar language, though their laws are not as robust. Hawaii and Massachusetts law, for instance, both state that life insurance advertising must be “truthful, accurate, and not misleading in fact or implication.”
A common theme shared by financial product and/or service marketing regulations in general is the prohibition of misleading comparisons and language. FINRA Rule 2210 forbids misleading communications with the public and requires disclosure of any material differences between an advertiser and their competitor when making comparisons for securities, promoting fairness and balance. Similarly, The NAIC explicitly forbids the “unfair or incomplete comparisons of policies, benefits, dividends or rates of other insurers.”
Following the same principle, New York statutes go further and explicitly forbid the use of statistics, illustrations, and statements that may mislead the public. However, in California and Illinois state law, life insurance marketing regulations explicitly prohibit “twisting,” which the California Insurance Code defines as “knowingly making incomplete or fraudulent comparisons of any insurance policies or insurers,” ensuring that comparisons are free from fraudulent practices.
Prohibited words/phrases
In the securities world, the SEC Marketing Rule emphasizes the importance of accurate and non-deceptive advertising practices in marketing. Moreover, a seasoned compliance professional can predict that FINRA will have issue with words such as “guaranteed,” as FINRA Rule 2210(d) prohibits promissory statements.
In life insurance marketing regulation, MDL-570 prohibits words such as “investment,” “profit,” “founder’s plan” and “savings,” “free,” “no cost,” “without additional cost” or similar phrases unless true.
Similarly, Hawaii and Massachusetts also ban the words “free” and “no cost” when referring to purchasing a policy. California, Illinois, and New York ban misleading statements and deceptive names. For example, California and Illinois restrict terms like “seminar,” “class,” and “informational meeting” to prevent misrepresentation of sales pitches as educational events. New York, California, and Illinois also prohibit many other words and phrases because of their tendency to mislead. For instance, all three states prohibit the inaccurate use of the word “guaranteed” to describe a benefit or feature, especially when paired with the word “savings.”
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Promissory statements and pressure tactics
FINRA Rule 2210 bans the use of pressure tactics and promissory language in securities marketing. The NAIC does not explicitly mention this kind of marketing, and some state regulations do not address these tactics.
However, in California state law, life insurance companies cannot promise coverage without considering the applicant's health, physical condition, or medical history. This measure aims to prevent deceptive practices where insurers might imply guaranteed acceptance without proper underwriting, thereby protecting consumers from false promises.
The California Insurance code explicitly prohibits high-pressure sales tactics, defined as “employing any method of marketing… to induce the purchase of insurance through force, fright, threat, whether explicit or implied, or undue pressure to purchase.” Illinois prohibits high pressure sales tactics as well. These rules ensure that consumers can make informed decisions without undue pressure from sales agents. While New York shares similar concerns regarding high-pressure tactics, it also uniquely forbids advertisements from drawing attention to unauthorized insurers. This provision helps maintain market integrity by ensuring that marketing materials direct consumers only toward legitimate and authorized insurance providers.
Exaggerations
FINRA Rule 2210 explicitly bans exaggerated and unwarranted language in any securities marketing, particularly in relation to claims regarding a security’s performance. This restriction’s goal is to prevent marketing from misleading consumers about the nature of the security. While some life insurance products are securities and therefore subject to FINRA Rule 2210’s restrictions on exaggeration, the rest are not. Nevertheless, life insurance regulations enforce similar standards to help ensure accuracy and prevent misleading claims.
The NAIC does not allow exaggeration in the specific instance of describing a provider’s licensing status. New York, California, and Illinois life insurance advertisements go further in regulating exaggerations more broadly. In New York, all life insurance marketing must be accurate, meaning marketing materials cannot overstate the benefits of any insurance program. In Illinois and California, life insurance cannot be misleading by implication, which applies to any exaggerated statements as to the efficacy and capability of insurance plans.
States emphasize accuracy and urge caution with implications because it is easy for marketing materials to overexaggerate benefits even unintentionally. Therefore, when creating life insurance marketing materials, insurance providers must pay careful attention to detail so that they do not mislead consumers through exaggeration.
The goal of marketing regulations
The primary goal of marketing regulation is to protect customers by promoting truthfulness and transparency. In both securities and life insurance marketing, federal and state regulators seek to achieve this goal by requiring that the advertisements used by entities under their jurisdiction are fair, balanced, and not misleading. There are similarities in the ways states, from the ones who have adopted the NAIC model to those who drafted their own policies, address misleading advertising. Regulators follow the four principles outlined in this article and prohibit misleading language and unfair comparisons, key words and phrases, promissory statements and pressure tactics, and exaggerations.
The opinions provided are those of the author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.
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