Deceptive sales are a common problem in the insurance industry, where it is not uncommon for companies and their agents to sell products or policies that do not meet customer expectations. This can lead to unpaid claims, wasted money and other negative consequences.
The FTC Act prohibits unfair or deceptive acts or practices that are likely to affect a consumer’s decision to buy a product or service. To determine whether an act or practice is deceptive, the Commission considers three factors: (1) the representation, omission or practice must mislead the consumer; (2) the consumer’s interpretation of the representation, omission or practice must be reasonable under the circumstances; and (3) the misleading representation, omission or practice must be material.
A deceptive sales practice may occur in any type of sales situation, including door-to-door sales and in the context of advertising or selling by representatives. However, it is most common in the auto-insurance, health and life insurance industries.
One common deceptive sales practice involves a bait-and-switch. A retailer advertises a product at a reduced price, and then, once the product is sold out or not in stock, disparages it and tells the customer that he should buy a different, more expensive model.
Another deceptive sales practice involves odometer tampering. In the United States, odometer tampering is a criminal offense, and can result in a fine or incarceration.
Many people are not aware that it is a crime to change a vehicle’s odometer. The odometer can be altered, disconnected, or repositioned to mislead consumers into believing that they have more miles than they actually do. This can cause customers to pay more for the vehicle than they should have, and in the worst cases, it can cause them to be unable to file a claim when their car has run out of gas or broken down.
Other common examples of deceptive sales practices include the use of testimonials and misleading information about prices or savings. These practices are particularly dangerous in the health, life, and disability insurance industries where consumers often face a high degree of uncertainty about the suitability of the insurance plan for them.
The salesperson should be honest about his own areas of ignorance when answering questions from a prospective customer and should not be tempted to give false answers or to mislead the consumer by omitting information that might be important to the consumer’s decision.
In addition, a salesperson should be honest about the amount of information she needs from the customer to fully answer his questions and not try to hide this knowledge or use it as an opportunity to mislead the customer. This can be difficult for a salesperson to do, and it is especially critical when a consumer’s questions are sensitive or personal in nature.
The deceptive sales practices discussed in this paper are part of a larger issue that is often not well understood or taken seriously by the public, and it deserves further study. They are rooted in an enduring structure and culture of life insurance sales that places consumers at risk through the use of deceptive sales practices, and they should be examined carefully by those interested in the welfare of the insurance business.