What Is Coercion In Insurance?


  • Insurance companies and agents can commit illegal acts such as coercion, rebating, twisting, and churning
  • Coercion can happen in many different ways, with or without the customer’s knowledge
  • Insurance brokers could secretly switch a policyholder’s coverage for that of a similar policy with worse benefits
  • Coercion is the act of forcing or intimidating a person into doing something against their will. A person may persuade another to do something they wouldn’t normally do through threatening displays of the power of either physical or psychological means. Any act that is intended to remove a person’s free will is considered coercion and, if proven, is considered a duress crime. It can even involve the actual infliction of physical pain or psychological harm to support the credibility of a threat.

What is coercion in relation to insurance?

You might be aware that coercion can happen in the workplace or in other aspects of your life, but it can also occur in the realm of insurance. In regard to insurance, coercion transpires when someone in the insurance business applies either physical or mental force — or the threat of force — to persuade an individual to purchase insurance coverage. Any action that the agent inflicts through coercion is considered illegal.

Types of Coercion

Coercion occurs in many ways. These are the most common ways that coercion happens in insurance.

Psychological coercion

The first way that an insurance agent can use coercion to convince an individual to transact insurance is through psychological pressure. And this would directly affect the mental and emotional state of the person due to the duress. It is easier to persuade a person to unwillingly purchase insurance if their mental state is compromised.


Another way to coerce a person into buying insurance is through blackmail. Blackmail is demanding something from another individual in return for not revealing embarrassing or compromising information about them. An insurance agent could possibly use the information they learn about a potential customer to “convince” them to buy a policy or to spend more money than they intend to expend.

Unknowingly upgrade

Instead of blackmail, an insurance broker could include upgrades and more expensive benefits without the new policyholder’s knowledge. Then, once the policyholder finds out, they may be too intimidated to say anything about it.


Some insurance agents may use threats and force to make a person take out an insurance policy. This usually happens after they attempt a normal sale of the policy and the agent resorts to using power to get them to agree to go through with it.

What are some examples of insurance coercion?

In order to really know what insurance coercion is, let’s consider some coercion scenarios:

  • Blackmail. An insurance agent is selling company insurance packages for its employees. The CEO doesn’t want to comply with it, but the agent reveals that they have pictures of him with a woman who isn’t his wife. If the CEO buys the insurance, the agents won’t release the photos. This is an example of coercion through blackmail.
  • Psychological coercion. Someone with little to no knowledge of insurance is trying to purchase a policy. If an insurance agent takes advantage of that unenlightenment to manipulate them into purchasing a plan that the person doesn’t need, that’s psychological coercion. The agent might even attempt to gaslight them into thinking that it’s the best option for them.
  • Threatening behavior. Maybe a policyholder wants to cancel their policy and get insurance elsewhere. If the insurance company or agent says that there will be consequences — aside from a cancellation fee — this is coercion through threatening behavior.
  • Unintentional upgrade. Let’s say that an older couple wants a life insurance policy. They are slightly confused about the process, and the agent intentionally adds more expensive benefits that the couple isn’t aware of. Then, they find out after the first payment and don’t know what to do, so they don’t do anything at all and continue paying the higher premium.

Is coercion illegal in the insurance business?

Coercion can be a misdemeanor or a criminal offense depending on the situation. If someone uses coercion to get another person to commit a felony, then that is a serious criminal offense and can result in jail time. In the insurance business, it is considered an illegal trade act practice.

What is rebating in insurance?

In the insurance industry, coercion isn’t the only unethical or illegal practice that can occur. Another deceptive practice that companies and agents use to convince people to buy insurance is called rebate. Rebating is the act of offering something of value to the prospective insurance buyer that isn’t included in the policy. In every state except Florida and California, which have strict guidelines, rebating in insurance is illegal and prohibited.

The following is a list of rebating scenarios:

  • A prospective insurance buyer receives a refund of some or all of the commission for the insurance sale
  • An insurance broker offers a cash gift
  • Offering Gifts
  • Providing services
  • Payment of premiums
  • Employment offers
  • Any other item of value

The National Association of Insurance Commissioners (NAIC) promoted the Model Act. Under the Model Act, the rebating action of dividing the commission and giving money to the consumer to purchase insurance is considered a deceptive practice and an unfair method of competition.

Coercion in requiring insurance

Prohibition against certain requirements. A person engaged in the business of financing the purchase of real or personal property or of lending money on the security of real or personal property may not require, as a condition to the financing or lending, or as a condition to the renewal or extension of any such loan or to the performance of any other act in connection with the financing or lending, that the purchaser or borrower, or the successors of the purchaser or borrower negotiate through a particular insurer or insurers, insurance agent or agents, broker or brokers, type of insurer or types of insurers, any policy of insurance or renewal thereof issued in connection with the extension of credit.

For purposes of this section, the term “policy” includes, but is not limited to, any temporary contract or binder, by whatever name is known, under the terms of which insurance coverage commences at a specified time, and continues until a finished policy is issued or the risk is declined and coverage is terminated.

Approval of insurer; written criteria. This section does not prevent the exercise by any lender or creditor of its right to approve the insurer selected by the borrower on a reasonable nondiscriminatory basis related to the solvency and assessment policies of the insurer and its ability to service the policy.

A lender or creditor who exercises its rights under this subsection shall establish written criteria for approving the insurer selected by the borrower and in the event, the creditor or lender actually denies an insurer under that criteria the lender or creditor must provide verbal notice to the customer within 3 business days and written notice within 10 business days. Upon request by a licensed insurer, agent, broker or consultant, a customer, a lender or creditor must within 10 business days of receiving the request provide a copy of its written criteria for approving an insurer.

Change of insurance carrier. A purchaser or borrower may change insurance carriers in connection with the extension of credit by a lender or creditor if the change does not violate a condition of the extension of credit regarding the adequacy of coverage or another proper basis under subsection 2 or is otherwise prohibited by law.

Violation. A person who violates this section commits a civil violation and is subject to civil penalties and other remedies as provided in section 12‑A. The Superior Court, on the complaint by any person that this section is being violated, may issue an injunction against the violation and may hold in contempt and punish therefor in case of disregard of the injunction.


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