In addition to the state and federal securities laws there are both state and federal insurance laws that restrict insurance advertising.

The National Association of Insurance Commissioners (NAIC) has developed a set of model rules governing the advertising of life insurance. In fact, the NAIC has separate model rules that relate to advertising of particular types of insurance. There are model rules for advertising with respect to (1) accident and sickness insurance and (2) medicare supplement insurance. The NAIC has also prepared the Model Unfair Trade Practices Act.

These model rules are distributed to the state insurance commissioners as suggestions for consideration when the states adopt their own rules and regulations. All of the states have enacted laws governing the advertisement of insurance within their borders. A majority of the states have adopted legislation similar to or based on the NAIC model rules. Professional life underwriters should become familiar with the version of this law that is applicable to the states where they do business.

The purpose of the model rules is "to set forth minimum standards and guidelines to assure a full and truthful disclosure to the public of all material and relevant information in the advertising of life insurance policies and annuity contracts." Note that the law is intended to set forth only minimum standards of behavior. Life insurance professionals are encouraged to learn and follow the ethical standards of the several life insurance associations and organizations. The Professional Pledge of The American College, which provides as follows, is primary among these ethical standards:

This high standard of ethical behavior is reinforced by the American Society of CLU & ChFC�s Code of Ethics. The code�s first imperative is that a member must competently advise and serve the client. This is interpreted to mean that a member must provide advice and service that are in the client�s best interest. The practical effect of this imperative is that if there is a conflict of interest between the client and the member, the client�s interests must take precedence. Misleading advertising or deceptive sales practices are clearly not acceptable behavior under the Pledge and the Code of Ethics.

The definition of an advertisement for purposes of the state insurance laws is easily as broad as the definition used in the securities laws for the same term. An advertisement is any written or oral communication that is intended to create a favorable opinion about insurance or to induce the sale of insurance. The model rule defines advertisement as follows:

For the purposes of these rules:

It is the nature of life insurance marketing that the great bulk of all communications between the insurance company and the public is created by the insurance producers. Frequently, the insurance company never sees this material. Nevertheless, the model rules place the responsibility for the accuracy and truthfulness of those communications directly on the insurers, stating, "Every insurer shall establish and at all times maintain a system of control over the content, form and method of dissemination of all advertisements of its policies. All such advertisements, regardless by whom written, created, designed or presented shall be the responsibility of the insurer." This assignment of liability for advertising to the insurer should explain to producers why companies are becoming increasingly restrictive about communications between producers and their clients.

The form and content of advertisements is also regulated by the model rules as follows:

This section of the model rules goes on to prohibit the misleading use of certain terms such as investment, investment plan, deposit, profit sharing, savings, savings plan, and charter plan. Usage is misleading if it will lead a person to believe that he or she will receive (1) something other than an insurance policy or (2) a benefit not available to other similar persons.

The model rules also impose a lengthy list of disclosure requirements on insurance companies and their producers to ensure that advertisements will not be deceptive or misleading. A few of the 25 requirements are as follows:

Although it is not a part of the NAIC�s model, at least one state (Alabama) has a law stipulating that an advertisement cannot imply that the beneficiary will receive the face amount of the policy and the cash value. While this provision makes some sense with respect to traditional whole life insurance, its applicability to universal and variable universal life policies where the policyowner has selected death benefit option "B" is unclear. If the policyowner elects that option, the insurance company must keep the amount at risk at a constant level and at the insured�s death add the cash accumulation account to the at-risk portion so that the beneficiary will receive the face amount of the policy and the cash value. (This is just an example of how the rapidly changing industry has outpaced the regulations that govern it.)

The Model Unfair Trade Practices Act exists "to regulate trade practices in the business of insurance." In part, the model act prohibits any form of insurance advertising that is "untrue, deceptive or misleading." This model has been the basis for laws enacted in almost all of the states. In a way similar to that of the model act that governs insurance advertising, the Unfair Trade Practices Model Act includes false advertising on a list of specific actions�which also includes unfair claims settlement practices, defamation, unfair discrimination, and rebating�deemed to be unfair trade practices. False advertising is defined as any material that is "untrue, deceptive, or misleading."

The model act further defines false advertising to include these five specific types of misrepresentation:

Under the model act the insurance commissioner has broad powers to investigate allegations of unfair trade practices. The commissioner also has subpoena powers to compel insurers to appear and defend against such allegations. If an unfair trade practice has been committed with respect to the advertising prohibitions or any other prohibited practice, the commissioner can impose fines up to $250,000. If he or she finds that the violation was a willful act, the commissioner can suspend or revoke the insurer�s license to do business in that jurisdiction.

Outside of the securities context, federal regulation of life insurance advertising is not a major issue. According to the McCarran-Ferguson Act, the federal government may regulate insurance practices only "to the extent that such business is not regulated by State Law." As the preceding discussion shows, state law is fairly comprehensive. As a result, there is little applicable federal regulation. The Federal Trade Commission (FTC) has power to regulate commerce between the states, and it has attempted to exert regulatory authority over interstate direct response insurance advertising. Nevertheless, any FTC regulation is superseded in any state that has enacted its own insurance advertising rules and regulations.

In addition, both the United States Postal Service and the Federal Communications Commission (FCC) can exert some control over insurance advertising. The Postal Service can take action when the mail is used to transmit fraudulent advertisements or to defraud people. The FCC can exert an indirect influence on radio and television advertising. It is the FCC�s responsibility to assure that the owners of broadcast licenses use the public airways in the public interest. Because the FCC has power to revoke a broadcasting license for a failure to operate in the public�s interest, the owners of those licenses should carefully scrutinize proposed advertisements before they are transmitted. If the broadcaster believes that the FCC might determine that the proposed advertisement is not in the public interest, it should refuse to transmit the ad.