Advertising & Direct Mail
Advertising and direct mail present a special compliance challenge, especially for someone in the insurance business. The overriding consideration from an ethical perspective is that the reader of the advertising or direct mail not be misled by the communication.
It is vital that special care be taken to present the material in an honest way but also to be understandable. To accomplish this, the practitioner needs to ensure that the language used not only be truthful but that it also consider the level of understanding of the target audience. The practitioner's deliberate use of truthful information which would serve to deceive because of the target audience's lack of sophistication is unethical.
Direct mail is normally used to generate interest in the recipient in order to schedule a sales appointment. Obviously, it is important to generate the maximum interest possible in the financial products and services highlighted in the direct mail being used. The principal ethical difficulty with respect to direct mail and advertising is its relative brevity. It is often impossible to make a full disclosure in a piece of direct mail or in an advertisement. There just isn't sufficient time. Since the advertising or direct mail used must be brief as well as capable of generating prospective client interest it is particularly important that care be taken to ensure that the practitioner not misrepresent either the product or himself.
Since reader interest must be caught quickly, there may be a tendency to puffery-to present the product in an exaggerated manner by ascribing to it qualities it does not have. For example, the writer may describe the product as new and unique or revolutionary. In many cases involving products other than insurance or investment products, these words are just puffery. In the insurance and investment business, however, the use of language that describes the offering as "new" or "best"-unless it clearly is and can be verified-or any other exaggeration must be scrupulously avoided. Both legally and ethically, it must not be done.
The limited space normally available in direct mail letters makes including qualifying information that might be necessary to a complete understanding of the offering difficult. As a result, information concerning exclusions, conditions, and other limitations is not included.
One of the important advantages enjoyed by life insurance products is its favorable tax treatment. An agent may want to emphasize that benefit in direct mail letters. Language such as "tax-free," "tax-favored," "tax-advantaged," or other words that point to the tax benefits of life insurance should not be used without additional qualifying language that invites the reader to check with his tax adviser for applicability in his specific situation.
Because of the inability to provide complete disclosure, it is a good idea to avoid discussing specific products or product features in advertising or direct mail. Unless the product or feature can be explained completely, the direct mail or advertising that discusses them runs a good chance of misleading the reader. Because full disclosure is generally impractical in these communications, specific product discussion should usually be avoided. Furthermore, the use of superlatives-words like best, lowest cost, lowest risk, safest, and other similar words-unless they are true and can be verified could mislead the reader and should be avoided.
SPECIFIC FLORIDA LAWS AND RULES
Florida law specifically outlaws misleading or false advertising under Section 626.9541(a) and (b):
(a) Misrepresentations and false advertising of insurance policies.--Knowingly making, issuing, circulating, or causing to be made, issued, or circulated, any estimate, illustration, circular, statement, sales presentation, omission, or comparison which:
1. Misrepresents the benefits, advantages, conditions, or terms of any insurance policy.
2. Misrepresents the dividends or share of the surplus to be received on any insurance policy.
3. Makes any false or misleading statements as to the dividends or share of surplus previously paid on any insurance policy.
4. Is misleading, or is a misrepresentation, as to the financial condition of any person or as to the legal reserve system upon which any life insurer operates.
5. Uses any name or title of any insurance policy or class of insurance policies misrepresenting the true nature thereof.
6. Is a misrepresentation for the purpose of inducing, or tending to induce, the lapse, forfeiture, exchange, conversion, or surrender of any insurance policy.
7. Is a misrepresentation for the purpose of effecting a pledge or assignment of, or effecting a loan against, any insurance policy.
8. Misrepresents any insurance policy as being shares of stock or misrepresents ownership interest in the company.
9. Uses any advertisement that would mislead or otherwise cause a reasonable person to believe mistakenly that the state or the Federal Government is responsible for the insurance sales activities of any person or stands behind any person's credit or that any person, the state, or the Federal Government guarantees any returns on insurance products or is a source of payment of any insurance obligation of or sold by any person.
(b) False information and advertising generally.--Knowingly making, publishing, disseminating, circulating, or placing before the public, or causing, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public:
1. In a newspaper, magazine, or other publication,
2. In the form of a notice, circular, pamphlet, letter, or poster,
3. Over any radio or television station, or
4. In any other way,
an advertisement, announcement, or statement containing any assertion, representation, or statement with respect to the business of insurance, which is untrue, deceptive, or misleading.
The Department of Financial Services has issued lengthy regulations governing advertising of insurance products. These rules are designed to provide clear, unambiguous and truthful advertisements. Its aim is to provide the insuring public with accurate information to make informed decisions. For regulations on life insurance advertisements refer to Rule 4-150.
The definition of advertisement covers a broad range of marketing media designed to solicit insurance business including:
printed or published literature used by or on behalf of an insurer,
audio-visual presentations, including radio and television broadcasts,
direct mail pieces, brochures, pamphlets, circulars,
billboards and other displays, and
prepared sales talks, presentations, and announcements.
Items not considered advertisements are:
materials used for employee/agent training purposes,
materials and communications designed for exclusive internal use,
individual communication with existing policyholders concerning existing coverage (communications with existing clients for renewal or expansion of coverage are considered advertising),
announcements by group policyholders to eligible participants,
correspondence with a group policy holder as part of a negotiation of a group contract, and
court approved materials sent under a court order.
An insurance company is responsible for any advertisement that directly or indirectly benefits the company. This applies to ads placed directly by the company, or advertisements placed by agents, brokers or others (who have the actual or apparent authority to do so) on behalf of the company. Department rules require agents and agencies to obtain insurance company approval before placing an advertisement that benefits the company (and was not furnished by the company).* Agents may either receive written permission before placing the ad, or obtain prior verbal approval with subsequent written approval from the insurer. Insurers must remind their agents, at least once each year, that prior approval by the insurer is required when placing ads that were not provided by the insurer. Please note: even minor changes to the wording of an advertisement may change the meaning so that it no longer complies with the Department's rules. Agents should either use company-provided advertisements exactly as written, or obtain company approval before making any changes. If an agent places an advertisement that may benefit more than one company, the agent should obtain approval from at least one of the companies. *Most agent contracts contain a prior approval provision for any agent-placed advertising.
Department regulations require insurers to print an identifying form number on each individual marketing piece. Insurers must keep a file, for four years, of all printed advertisements of its individual policies and samples of group insurance advertisements - including advertisements submitted to the insurer by agents or others. The company must note the manner and extent of its distribution in Florida. Insurers must, as part of their annual reporting to the Department, file a Certificate of Compliance stating that the firm's advertising complies with Department rules.
The Department may also require insurers to file advertisements 30 days before first use. The Department currently requires 30-day prior approval of any advertisement by radio, television and cable broadcasts that will be distributed to more than 25% of Florida's population.
Types of advertisements
Department regulations classify advertisements in several ways: "institutional", "invitation to inquire", "invitation to contract". Institutional advertisement is promotion of insurance or annuity products as a concept, or general promotion of the company. This is advertising of the most general type - details of specific policies are not discussed. Invitations to inquire aim to create a desire for more information concerning an insurance product. This type of advertisement contains a brief description of the policy, but does not mention costs or rates. That information is provided by contacting the agent or company. Invitations to inquire must contain a statement (if applicable) that the policy may be subject to exclusions, limitations or reductions in benefits. Any advertisement that is not institutional or an invitation to inquire is an invitation to contract. Invitations to contract are the most specific type of advertising and may contain rate information and other detailed policy provisions.
Each "invitation for contract" must contain the name of a Florida agent licensed to handle that kind of insurance. In addition, this type of advertisement must clearly describe the type of plan offered, the identifying form number, the premium amount and payment period, and any changes to the contract's face value. The advertisement also must mention any limitations or exclusions affecting the basic provisions of the policy. Actual insurance coverage cannot begin until the policy has been explained to the client and an application is completed. All advertisements containing an application must contain the name of a resident Florida agent and a space for the agent's signature. These applications must be returned to a Florida resident agent.
Disclosures required by law or Department rule must be in the same size type as the body of information - and the disclosure must be presented near the information it discusses. Any attempt to minimize or obscure these disclosures is deemed deceptive and illegal. "Invitations to contract" also must reveal any policy limitations, exclusions or reductions in benefits. If the ad displays an interest rate or rates of return, it also must mention any limitations or conditions that affect ultimate return such as administrative charges, surrender charges, etc.
Advertisements must clearly identify the product advertised as either an "insurance policy" or "annuity contract". In addition, the advertisement must refer to the product's "generic name", such as "whole life insurance", "group term life", or "deferred, variable annuity contract". To avoid deception, advertising materials must be truthful, unambiguous and not misleading. Insurance jargon is not permitted; nor are deceptive names and titles. For example, an advertisement may not refer to a fixed annuity as a "CD annuity" or any other phrase implying a negotiable instrument, deposit insurance, or anything other than an annuity contract. Similarly, premium payments may not be called "deposits". Advertisements may not imply government approval or use names or logos deceptively similar to the name or logo of any government agency. The rules also prohibit advertisements designed to create undue anxiety. Direct mail or direct response materials may not use phrases such as "no salesperson will call" or "by eliminating the agent we can offer at a lower cost".
Other Advertising Rules
All statements regarding policy dividends must clearly say that dividends are not guaranteed. Nor may the statement create the impression that the policyholder will benefit from the growth of the company. Any comparisons between participating (par) policies that may pay dividends, and non-participating (non-par) policies that do not pay dividends must be fair and accurate. Department rules require agents to compare par and non-par policies using net premiums.
Agents and companies may, for advertising purposes, provide applicants with gifts valued up to $25. Department rules define gifts as "articles of merchandise".
The Department does not recognize gift certificates, memberships or other services as "merchandise". Consequently, agents who give away auto club memberships, gift certificates or cash violate the Insurance Code.
Advertisements may not contain disparaging comments when comparing competing policies or competitors. Comparisons must be between policies of equal terms and conditions. Incomplete comparisons are deceptive and prohibited.
Endorsements and testimonials must be genuine and represent the current opinion of the author. If a company spokesperson has a financial interest in the insurance company (subsidiary or parent company), exercises control over the insurer, or is compensated for the testimonial the endorsement must be labeled as a "paid endorsement".
When using statistics in an advertisement, the ad must reveal the source of the statistics, and the policy to which the statistics apply. If an advertisement refers to a rating system, the ad must explain the purpose and limitations of the rating.
Department rules allow the use of such terms as "introductory", "initial", "special" only if the policy's rates, provisions or benefits will change substantially in the future, or the coverage is available to certain persons only.