In the past the insurance industry as a whole has enjoyed unparalleled trust in our society. Many consumers had come to rely on their life insurance and health coverages as a basic foundation for their economic security. Many business owners would praise their whole life policies as "sinking fund" policies that came in handy during times of business slowdowns. Individuals would not feel fully protected without health insurance with low deductibles also. Protection from numerous perils with property damage insurance has given individuals a sense of peach about their property insurance. Finally, casualty insurance has provided needed protection against possible lawsuits, Yes, insurance and its huge industry enjoyed a stellar reputation.
Then, things began to change during the mid 1970's. Low paying interest whole life was attacked and gaps in the health insurance programs became scrutinized. Health maintenance organizations and universal life products appeared on the horizon. For the first time, the insurance industry was been questioned on their business acumen. It did not become too difficult to predict that the industry's agents would next become the focal point of evaluation.
The person who provides the valuable protection of both life & health and property & casualty insurance becomes a trusted advisor. The insurance professional becomes the individual who is suppose to evaluate the clients needs and thus, match those needs with the various products available in the marketplace. Of course, the ultimate goal is to be sure the clients objectives are met.
Millions of clients rely on the professionalism of such agents. Successful execution by the insurance professional also aides society. Society benefits as families receive funds to cover the basic needs of survival. Also, society as a whole benefits as funds are received to cover more than basic needs. Needs such as educational funds or the preservation of a business are also imperative in today’s world.
Obviously, the recognition of such benefits has permitted the insurance industry to prosper. However, because of such growth, increased demands for professionalism by those who engage in the sale of insurance has risen tremendously.
Throughout this course we will examine five major areas:
1. Understanding the meaning of ethics.
2. Ethical responsibility agents have to the insurance industry.
3. The responsibility an agent has to himself/herself and to the insurance profession.
4. Ethical responsibility that agents have to policy-owners.
5. Ethical responsibility that agents have to the public.
Probably one of the first rules most of us are taught is "do unto others as you would have them do unto you. This golden rule, whether taught by a parent, teacher or religious leader, is a cornerstone for many as it serves as a practical guide to everyday life.
As insurance professionals deal with the public, the golden rule takes on more than a philosophical meaning. The practical level of such a statement applies to the basic code of ethics that agents must use not only in their personal lives, but also, in their daily responsibilities in their business dealings.
Many believe that social behavior that favors the group over the individual should be emphasized. But there are four basic obstacles that must be dealt within order to act ethically.
One. The primary obstacle has to do with concern for self versus others. This obstacle could prevent the individual from looking out for the "common good" of society, as opposed to making a decision purely on the individual's own happiness and welfare. From an insurance standpoint, this means that agents should put the interests of their clients ahead of their own good.
Two. The second obstacle relates to the intuition versus rationalism obstacle. While some philosophers believe that humans intuitively know what is right, others tell us we must use pure reason to uncover what is right. The problem in the insurance industry is "does one have a ready excuse for improper behavior because he/she did not know the rules. In order to apply reason in the insurance profession, we must know the rules! One realizes the importance of proper training when this precept is used. However, realistically speaking, even without proper training, if something doesn't "feel right, it probably is not right, and the action should be avoided.
Three. The third obstacle pits absolutism against relativism. One school of thought believes that certain actions, in and of themselves, are always right. This is called absolutism. Another school believes that whether an action is good or right depends upon the particular circumstances of a situation. This is relativism. As insurance professionals market their services, they are obligated to follow the rules that have been instituted to spell out what is considered to be right or wrong. This would be an example of absolutism. However, when dealing with the multitude of clients needs, the insurance professional must offer different solutions for different clients, thus relativism is being practiced.
Four. The fourth obstacle deals with the possible conflict between religious teaching and individual authority. Most religions delineate right from wrong according to a strict code of authority. Some philosophers reject such a notion and stress that each individual creates their own set of values. Religions vary widely as to practices and beliefs as do individual values. However, most of the religions and individual value systems agree on one basic rule: The golden rule, overall, ethics can be narrowed down to one general definition, which Albert Schweitzer left for the ages. "Ethics is the name we give to our concern for good behavior. We feel an obligation to consider not only our own personal well being but also that of others and of human society as a whole." To summarize such a definition, only three words are needed: Regard for others.
Moral codes controlling human behavior have existed for thousands of years. These standards have evolved, not only in moral codes, but also in conjunction with religious beliefs.
In ancient Egypt, precepts were established by secular leaders. Their precepts were combined with a strict religion that affected the behavior of all Egyptians.
In Israel, moral behavior was guided by the Judaic religion.
Greek thinkers were the first to speculate about the question of right or wrong. Names such as Socrates, Aristotle and Plato appear as the great philosophers in this period of history.
Early Christian belief focused upon the role of God in achieving good. The early Christians believed that with God's help it was possible to achieve good. Will and intelligence alone were insufficient.
Probably the biggest influence in the business community came from a modern philosopher Charles Darwin. Darwin believed that only the fittest would survive. Thus, many business believed that only the fittest will survive in a free enterprise system. Each person in business must look after his/her own interests, period! Although this philosophy might have appeared as a logical business belief, it has provoked much distrust in the public sector. When this occurs, usually what follows is a clamor for strict regulation in order to be sure that the public's best interests are being served.
Adam Smith in The Wealth of Nations offered the business community a set of guidelines to follow. Mr. Smith believed in ethics. He believed that business is based on mutual agreements of what constitutes fair exchange. In other words, business could not operate efficiently without its participants paying their debts and living up to there agreed upon contracts. This philosophy, which had been embraced by the business community, stimulated capitalism and its popularity in the United States. Basically, business became a cooperative enterprise and was to be enjoyed by all individuals. In reality, business became a set of ethics.
Unfortunately, our society is not always critical of wrongdoing. Society values wealth accumulation and ignores the means by which wealth has been gained.
One can see this emphasis on personal financial gain in the insurance industry as financial gain is often held out as the primary measure of success. We are not saying that achieving financial success is evil, it is not. The manner in which one gains financial success is much more important than the financial gains themselves.
Unfortunately, the insurance industry, with its heavy emphasis on production has a tendency to spotlight financial achievement while ignoring the professionalism and integrity of its sales force. Financial incentives such as "APP a Day
Clubs" and "Top Producer of The Month" contests may often lead to bogus business and questionable sales practices.
Certainly, agents should expect to be fairly compensated for success, and production figures are vital to the well being of any agency or insurance company. However, just as important is meeting the needs of clients and the public in an ethical and professional manner.
Ethics does not need to be incompatible with capitalism. Profit is not a dirty word!
If one perceives the insurance professional as a good person then doing business will be that much easier. In the long run, good ethics is good business. Fair competition cannot help but benefit the public. Selling insurance is an aggressive profession, which leads to heightened competition. It is this competition that has led to better products, and services for the general public.
Ethics is personal in nature. Since we have no control over others, we must control our own actions in a professional, ethical manner.
For many years, the study of ethics was left to the philosophers. Business people did not see the need and thus practiced "business as usual. There are three reasons why the insurance professional should study ethics:
Penalties for unethical behavior.
Ethics for an understanding of business.
Price of a tarnished reputation.
First and foremost, any unethical behavior that is discovered will probably cost far more than any potential gain.
Ethical breaches end careers much more than any other reason. In the past few years, newspaper headlines have screamed of business malpractice in the insurance industry. Not many of these individuals, if any at all, still work in the industry. On an agency level, those agents who made it a practice to "fudge" and made material misstatements on applications, in order to make a commission, are probably no longer in the industry. These are severe penalties for such behavior; however such actions are not only unethical, but also illegal.
Successful insurance professionals understand that their personal ethics are transformed into a successful insurance career. They realize that although business and personal responsibilities can be separated physically, they never will be able to separate their code of ethics. There is no door which automatically admits them into reality at the end of a business day. The ethical code of behavior is part of them and transformed into daily activities, whether it is business or personal pursuits. Thus, it becomes obvious, that the study of ethics by the insurance professional is indeed important.
Since we are called upon to make value judgments every day, how we act, both in our business and personal lives, becomes paramount. A study of ethics enables us to become aware of our thought process and helps us to make sound and ethical decisions.
Not every ethical breach is subject to the public spotlight. In many cases, the individual involved keeps his/her job. What does occur is that a reputation is established which is a tarnished one at best! We all have known individuals who established stellar reputations in the business community. Unfortunately, we all know individuals that have questionable reputations and no matter what is ever said to diminish these tarnished reputations, a lingering doubt remains. Interestingly, the individual may not even realize that their behavior has been detected. However, career paths and promotions become blocked and mediocrity sets in.
In summary, unethical behavior is a prescription for business disaster.
As we conclude this chapter, the insurance professional must be aware that he/she has five areas in which to act ethically. They are:
Act ethically for himself/herself.
Act ethically toward the insurer.
Act ethically toward the policy-owner.
Act ethically toward the general public.
Act ethically toward the state.
As noted earlier, the agent must act ethically in order to conduct business. As we shall see later, this responsibility will entail proper training and education. Experience alone will not be enough to meet this extremely important responsibility.
The duties of an insurance professional to his/her insurer are established by the concept of "Agency. This concept is represented by the agent contract, which both parties agree to and sign. In carrying out his/her duties, the insurance professional is the direct representative of the insurer. The professional must keep this in mind. His/her day to day activities will be a direct reflection on the insurer within the community.
By filling needs and providing quality service, the insurance professional can meet his/her ethical responsibilities to policy-owners. Service is of utmost importance since proper service will often lead to future sales and referrals.
In addition, to quality service, the agent owes the policy-owner loyalty. The agent must also meet ethical responsibilities to policy owners by timely submission of all applications, prompt policy delivery and confidentiality.
Fortunately, the insurance professional has much more control over shaping the public's attitude toward insurance than do the other army of sales representatives for other consumer products. The nature of the way insurance is sold creates this advantage. The insurance professional initiates contact with a prospect, then determines if and what the insurance needs are. Upon completing these tasks, the agent recommends certain products. During the course of making these recommendations the agents provides a professional sales presentation and attempts to develop a long-term relationship with quality service after the sale.
Since this unique situation requires a great deal of contact between the consumer and the agent, public perception of the industry itself is based on this relationship. Such perceptions of the industry hinge on the behavior of the agent. One can now understand the importance of ethical behavior in a business setting.
The professional agent has two ethical responsibilities to the public:
1. To strive for the highest level of professionalism in any and all public contact in order to maintain the strongest positive image of the industry as possible; and
2. To keep the public informed about the insurance with the highest level of professional integrity.
Although the responsibility to regulate the insurance industry is shared by both the federal and state governments, the states carry the burden of regulating insurance affairs, including the ethical conduct of licensed insurance agents.
In some states, the regulation of ethical conduct falls under marketing practices while other states refer to is as unfair trade practices. Regardless of its moniker, all states have established a code of ethical standards for insurance agents by defining through laws the proper behavior expected from an agent. Though these laws differ from state to state, there are enough similarities to discuss them in general terms. As we study the legal framework, one must remember these laws provide the industry with a set of absolutes. There are situations which are legal but not ethical. On the other hand, there are a few situations , which are illegal, but ethical.
Knowledge of such laws is important because they provide the insurance professional with guidelines, pointing the way to stay out of trouble. Staying out of trouble is very important due to the heavy penalties that can be meted out
for various violations of the law. Penalties can include suspension or revocation of any insurance license. Penalties can also include the payment of monetary damages and could quite possible end a promising career.
Professional insurance agents must pay close attention to their motivations for the actions they take, the advice they provide and the quality of service they perform.
It is unlikely that this course will instill personal ethical standards in anyone who does not already possess them. This course can provide the professional sales agent with a set of personal guidelines or questions to ask when faced with making ethical decisions within the context of an insurance career. For example, when selling a certain type of insurance plan, is the agent looking out for the best interests of the client, or their pocket book instead?
It is important for the student to understand that performing good ethics is absolutely good business. An insurance career can provide an individual with both financial gain and personal growth. A individual who practices an ethical profession will enjoy the fruits of both. Clients recognize those individuals who are acting in their best interest and will reward them with repeated new sales and referrals.
Insurance carriers also respect those professional sales agents who provide ethical services to both clients and themselves. Society also benefits as a whole and the insurance professionals reputation is enhanced. People in their community will simply want to do business with someone they trust and admire. Don't we all?
CHAPTER 1 - PRACTICE QUESTIONS
1. In the past consumers have relied on their life and health coverages as a __________ for their economic security.
A. Supplement.
B. Foundation.
C. Both A and B.
D. Neither A or B.
2. In the past many business owners used their life
Insurance policies as:
A. Primary protection.
B. Sinking funds for emergencies.
C. Supplemental policies.
D. None of the above.
3. What development during the 1970's caused consumers to cash in their whole life policies?
A. Low interest rates.
B. Reduced benefit amounts.
C. No need for life insurance.
D. Insurance companies went out of business.
4. What innovative heath programs were created during the 1970's?
A. CPA’s
B. IPO's
C. Trust funds.
D. HMO's
5. In most instances, the person who provides valuable advice on health insurance is considered a _______________ by most consumers?
A. Commissioned salesperson.
B. Trusted advisor.
C. Estate planner.
D. Consultant.
Unit 1 – Answers
1. B
2. B
3. A
4. D
5. B