The explanations and illustrations of ethical behavior has been explained and discussed. As indicated earlier, there are many organizations in the insurance industry and they each have a Code of Ethics (or “Canons”) that pertains to the business of their members. It would take many pages to go through even the majority of such Codes, therefore the professional codes that discussed those who hold designations awarded by the American College, a representative Code for CLU designates, and a summary of the Code of Ethics for the Chartered Property and Casualty Underwriters. Since this text will be used primarily by agents for Continuing Education purposes, these Codes should provide a good base for ethical behavior.
The American College of Life Underwriters maintains Standards of Ethics for those who hold the Huebner School Designations (CLU, ChFC, RHU, REBC, or CLF) consisting of the Professional Pledge and eight Canons.
“In all my professional relationships, I pledge myself to the following rule of ethical conduct and I shall, in light of all conditions surrounding those I serve, which I shall make every conscious effort to ascertain and understand, render that service which, in the same circumstances, I would apply to myself.”
This pledge should be made as a standard for all lines of insurance. While this may sound at first blush as just a repetition of the “Golden Rule,” it is noteworthy that it instructs that every effort shall be made to “ascertain and understand” all condition surrounding “those I serve.” To reiterate for the zillionth time, to satisfy ethical standards, one must not only know all of the conditions of the situation, but they must also understand these conditions. The only other addition to this pledge that comes to mind might be that this information must be transmitted accurately, fully and timely to the insurer or their proper representatives. Technically though, that would be a legal requirement and covered under an agent’s contract anyway. Doesn’t hurt to discuss it at this time, though.
The Canons are “standards for judgement” which are as they should be as that is the definition of “Canon.” Some may take a look at these Canons and ask, “Yeah, OK, but how do it do that?” In other words, specificity is not part of the Canons.
Those that are engaged in various aspects of the life and health insurance industry will have such ethical “Canons” or Code of Ethics that relate to their profession/occupation specifically. For the purpose of this educational institution, the Canons are more of a continuation of the Professional Pledge. After all, the purpose of the American College and its designations is to create professionals in the insurance industry.
(The Center for the Study of Ethics in the Professions, Illinois Institute of Technology, has presented this Code of Ethics online at
http://www.iit.edu/departments/csep/PublicWWW/codes/coe/ascllu-a.html )
This Code is preceded by the statement:
F To competently advise and serve the client . . .
It has been suggested that perhaps all Codes of Ethics for those in the insurance industry should precede their Code with this statement. Couldn’t hurt.
1. A MEMBER SHALL PROVIDE ADVICE AND SERVICE WHICH ARE IN THE CLIENT’S BEST INTEREST.
What this is saying is that a person who posses a specific body of information and knowledge which is not possessed by the general public, has an obligation to use that knowledge for the benefit of the client and to avoid taking advantage of that knowledge to the detriment of the client.
If an agent has knowledge that a particular insurance company is considering moving out of state because of adverse experience, then it is the duty of the agent to report this to the client. Of course, care must be taken as the agent cannot be guilty of slander – which could cause him to lose his license – so the information must be published or this information must be corroborated by independent sources. This can be tough sometime, as in case it hasn’t been noticed; the insurance industry is always full of rumors.
If a company has notified its agents of a rate increase effective at a later date, it is the agent’s responsibility to pass this to a new client or to a client changing benefits when this would be important. Too often agents may “forget” about a newly announced rate increase, as they are confident that once they have sold the policy, they can save the policy when new rates are enacted. (Anyway, they will receive production credit during sales contests so they can worry about lapses later.)
Sometimes an agent may represent more than one company, and discover that he could place a policy with a company that pays high commissions but the premium is a little higher; or he could place it with another company at lower premiums that pays lower commissions. Obviously, in a conflict of interest situation, the interest of the CLIENT is paramount. What if the premiums were the same but the company paying lower commissions was a AAA+ rated company, compared to the other company which was new and was unrated. Just because a company is unrated does not necessarily mean that it will become insolvent, but should you, as the agent, take the chance? In any event, it would seem ethical (at least) to make the client aware of the situation – although it is difficult with the facts as stated, why there would even be a choice!
The agent must, in all instances, make a conscientious effort to ascertain and to understand all relevant circumstances surrounding the client. Too often new agents, and sometimes-experienced agents, will hesitate to ask necessary questions as they feel that they are somehow “prying” into the personal affairs of the client. An agent should always remember that “The six best friends of you and I, are who, how, what, where, when and why. Elementary, you may say, but it is guaranteed if you ask these questions, you will have fewer rejected applications, will have more placed business, your clients will be more satisfied, your income will increase, and it is soooo much easier to determine ethical conduct when all of these questions are answered.
An agent must give due courtesy and consideration to those who are engaged in related professions who are also serving the client. For life and health agents, the first thing that comes to mind is a doctor! Policies cannot be written, agents cannot be paid, and applicants are more open to sales pitches from competitors if it takes too long to issue a policy because the attending physician’s office is slow in making and submitting copies of medical records. In estate and financial planning, the thorn in the side of an agent can be an accountant or attorney, but in either event, their approval and their providing of information MUST be obtained. In some cases, they may not be a “friend” of the agent, but there is nothing that can be done except a lot of tongue biting and crow-eating. But if a good job is done for the client, then it is worth it, and who knows, you may have made a new accountant or attorney friend that can (ethically) refer business to you.
This particular Code states that “an (agent) is to give due regard to any agent principal relationship, which may exist between the (agent), and such companies as he may represent.” What this emphasizes is that an agent must be loyal to those companies that he represents. If, for instance, he has agreed to an exclusive agreement with a company to sell a particular product, then he must live up to that agreement, even if it means that he can get more commission from placing the business with another company as a broker. Ethical behavior is not exclusively between an agent and a client, but also between an agent and the agency and company he represents. Another situation could be where an agent places a policy directly with a company, bypassing the agency. This rarely happens, of course, but occasionally there can be, for instance, large groups that an agent “controls” and can logically bypass the agency.
2. A MEMBER SHALL RESPECT THE CONFIDENTIAL RELATIONSHIP EXISTING BETWEEN CLIENT AND MEMBER.
Apropos to the entire insurance industry, in order to give competent advice and service, it is often necessary to obtain confidential and personal information from the client; such information is to be held (highly) confidential unless this obligation is released by the client (and no one else).
3. A MEMBER SHALL CONTINUE HIS PROFESSIONAL EDUCATION THROUGHOUT HIS PROFESSIONAL LIFE.
A fact well known by the Insurance Departments, it is necessary to continue studying in order to not only improve his professional abilities, but also just to keep up with changes. This, of course, is one of the reasons for Continuing Education.
Continuing Education does not just educate and add to the knowledge of the practice of the profession, but also it must keep the member abreast of changing economic conditions and legislative conditions, which can affect the financial plans of the insuring public. The recent changes in the tax laws, 401(k), taxation of Long Term Care Insurance, and many other legislative changes emphasize the necessity of keeping abreast of more than what may be found in textbooks. “Professional Education” may be formal, informal, and/or professional experiences.
4. A MEMBER SHALL RENDER CONTINUING ADVICE AND SERVICES
Conditions and circumstances of clients change for a variety of reasons and it is the responsibility for the member to keep abreast of these changes. A client with whom the member has an “active professional relationship” must be informed of any changes (economic or legislative) that could affect that relationship.
F To enhance the public's regard for professional designations and allied professional degrees held by members…
5. A MEMBER SHALL OBEY ALL LAWS GOVERNING HIS BUSINESS OR PROFESSIONAL ACTIVITIES.
“Activities” are considered as business activities outside of the life insurance industry, and professional activities would then be non-personal activities within the life insurance industry.
One might think that “Duh!” – one must always obey the laws, or else. The purpose of this statement in the Code of Ethics is that since it is part of such a Code, it is now raised to the level of an ethical obligation. Remember that law sets the standard, ethics raises it to higher standards…
6. A MEMBER SHALL AVOID ACTIVITIES WHICH DETRACT FROM THE INTEGRITY AND PROFESSIONALISM OF THE CHARTERED LIFE UNDERWRITER DESIGNATION, THE CHARTERED FINANCIAL CONSULTANT DESIGNATION, OR ANY OTHER ALLIED PROFESSIONAL DEGREE OR DESIGNATION HELD BY MEMBERS.
This includes all personal, business and professional activity within the scope of this statement. There are activities which could present a violation of this statement, such as:
7. A MEMBER SHALL ENCOURAGE OTHERS TO ATTAIN THE CHARTERED LIFE UNDERWRITER AND/OR THE CHARTERED FINANCIAL CONSULTANT DESIGNATIONS.
Since this Code is that of those who have achieved these designations, it follows that they should also encourage others to do the same. Some persons maintain that it is extremely difficult to become a doctor as the profession wants to keep the number down so that they can each then make more money – doubtful if that is true, particularly today. Be that as it may, the CLUs and ChFCs want more people in the industry with those designations, as that will then enhance the public regard for these professionals. Attend your local CLU chapter function and see how much effort is made to recruit new members and the great support given to those who are presently involved in the program. This is one of the requirements for a “professional.”
8. A MEMBER SHALL AVOID USING THE CLU OR CHFC DESIGNATION IN A FALSE OR MISLEADING MANNER.
This would be a direct violation of the American College professional requirements. As an example, an agency could be owned or managed by a CLU, who would then encourage his agents who do not have this designation, to represent themselves as also having this designation. Further, the designation shall not be used in a name that would reasonably lead others to believe that someone other than the member held the designation. There are two examples offered:
John C. Jones, CLU and Associates – this is OK.
John C. Jones and Associates, Chartered Financial Consultants is not allowed (unless, of course, all of the associates are ChFCs).
(CONTINUED F )
This is a brief summary of information appearing in greater detail in the Code of Professional Ethics, which is among the CPCU -1 study materials.
All CPCU candidates and CPCUs are bound by the Code of Professional Ethics of the American Institute for CPCU. The Code describes both high goals and minimum standards of conduct.
1. The high goals described in the Canons challenge all CPCUs and CPCU candidates to aspire to the highest level of ethical performance in all of their professional activities.
2. The minimum standards of conduct, described in the Rules, maintain the integrity of the CPCU designation. CPCUs and CPCU candidates are obligated to at least meet the minimum standards in the Rules, and failure to do so may subject a CPCU - or a CPCU candidate - to disciplinary measures.
CPCU candidates study the Code and are tested in CPCU 1 to ensure that all CPCUs understand their ethical obligations. The ultimate goal of the Code is to foster highly ethical conduct on the part of all CPCUs.
Canon 1-CPCUs should endeavor at all times to place the public interest above their own.
Rule R1. 1-A CPCU has a duty to understand and abide by all Rules of conduct, which are prescribed in the Code of Professional Ethics of the American Institute.
Rule R1.2-A CPCU shall not advocate, sanction, participate in, cause to be accomplished, otherwise carry out through another, or condone any act which the CPCU is prohibited from performing by the Rules of this Code.
Canon 2-CPCUs should seek continually to maintain and improve their professional knowledge, skills, and competence.
Rule R2. 1-A CPCU shall keep informed on those technical matters that are essential to the maintenance of the CPCU's professional competence in insurance, risk management, or related fields.
Canon 3-CPCUs should obey all laws and regulations, and should avoid any conduct or activity, which would cause unjust harm to others.
Rule R3.1-In the conduct of business or professional activities, a CPCU shall not engage in any act or omission of a dishonest, deceitful, or fraudulent nature.
Rule R3.2-A CPCU shall not allow the pursuit of financial gain or other personal benefit to interfere with the exercise of sound professional judgment and skills.
Rule R3.3-A CPCU shall not violate any law or regulation relating to professional activities or commit any felony.
Canon 4-CPCUs should be diligent in the performance of their occupational duties and should continually strive to improve the functioning of the insurance mechanism.
Rule R4. 1-A CPCU shall competently and consistently discharge his or her occupational duties.
Rule R4.2-A CPCU shall support efforts to effect such improvements in claims settlement, contract design, investment, marketing, pricing, reinsurance, safety engineering, underwriting, and other insurance operations as will both inure to the benefit of the public and improve the overall efficiency with which the insurance mechanism functions.
Canon 5-CPCUs should assist in maintaining and raising professional standards in the insurance business.
Rule R5. 1-A CPCU shall support personnel policies and practices which will attract qualified individuals to the insurance business, provide them with ample and equal opportunities for advancement, and encourage them to aspire to the highest levels of professional competence and achievement.
Rule R5.2-A CPCU shall encourage and assist qualified individuals who wish to pursue CPCU or other studies, which will enhance their professional competence.
Rule R5.3-A CPCU shall support the development, improvement, and enforcement of such laws, regulations, and codes as will foster competence and ethical conduct on the part of all insurance practitioners and inure to the benefit of the public.
Rule R5.4-A CPCU shall not withhold information or assistance officially requested by appropriate regulatory authorities who are investigating or prosecuting any alleged violation of the laws or regulations governing the qualifications or conduct of insurance practitioners.
Canon 6-CPCUs should strive to establish and maintain dignified and honorable relationships with those whom they serve, with fellow insurance practitioners, and with members of other professions.
Rule R6. 1-A CPCU shall keep informed on the legal limitations imposed upon the scope of his or her professional activities.
Rule R6.2-A CPCU shall not disclose to another person any confidential information entrusted to, or obtained by, the CPCU in the course of the CPCU's business or professional activities, unless a disclosure of such information is required by law or is made to a person who necessarily must have the information in order to discharge legitimate occupational or professional duties.
Rule R6.3-In rendering or proposing to render professional services for others, a CPCU shall not knowingly misrepresent or conceal any limitations on the CPCU's ability to provide the quantity or quality of professional services required by the circumstances.
Canon 7-CPCUs should assist in improving the public understanding of insurance and risk management.
Rule R7. 1-A CPCU shall support efforts to provide members of the public with objective information concerning their risk management and insurance needs and the products, services, and techniques which are available to meet their needs.
Rule R7.2-A CPCU shall not misrepresent the benefits, costs, or limitations of any risk management technique or any product or service of an insurer.
Canon 8-CPCUs should honor the integrity of the CPCU designation and respect the limitations placed on its use.
Rule R8. 1-A CPCU shall use the CPCU designation and the CPCU key only in accordance with the relevant Guidelines promulgated by the American Institute.
Rule R8.2-A CPCU shall not attribute to the mere possession of the designation, depth or scope of knowledge, skills, and professional capabilities greater than those demonstrated by successful completion of the CPCU program.
Rule R8.3-A CPCU shall not make unfair comparisons between a person whom holds the CPCU designation and one who does not.
Rule R8.4-A CPCU shall not write, speak, or act in such a way as to lead another to reasonably believe the CPCU is officially representing the American Institute, unless the CPCU has been duly authorized to do so by the American Institute.
Canon 9-CPCUs should assist in maintaining the integrity of the Code of Professional Ethics.
Rule R9. 1-A CPCU shall not initiate or support the CPCU candidacy of any individual known by the CPCU to engage in business practices which violate the ethical standards prescribed by this Code.
Rule R9.2-A CPCU possessing unprivileged information concerning an alleged violation of this Code shall, upon request, reveal such information to the tribunal or other authority empowered by the American Institute to investigate or act upon the alleged violation.
Rule R9.3-A CPCU shall report promptly to the American Institute any information concerning the use of the CPCU designation by an unauthorized person.
1. The Professional Pledge of the American College of Life Underwriters states that “every effort shall be made to ascertain and understand
A. the publications of the insurers represented.”
B. all of the examinations of the American College.”
C. all conditions surrounding those I serve.”
D. what I, as an agent, can offer, even without technical knowledge of the coverages.”
2. The Canons of the American College states that you should conduct yourself at all times
A. as if you knew all the details of the insurance product being sold.
B. in manner of dress and appearance, with tie & suit or blouse & skirt.
C. as if you the client’s buddy, and agree with all of his premises.
D. with honor and dignity.
3. The Canons encourage those in the profession to
A. discourage others from joining the profession.
B. discourage others from taking insurance courses from any other educational institution.
C. encourage and to provide assistance to those qualified persons pursuing professional
studies.
D. actively screen those in the industry who are not professionals, and do not do business
with them.
4. The Code of Ethics of the American Society of Chartered Life Underwriters is preceded by a statement
A. “To competently advise and serve the client . . .”
B. “In order to wear the professional jewelry proudly . . .”
C. “To maximize commissions . . .”
D. “The following Code should be used only by those with a CLU or ChFC designation.”
5. The first Canon states that “A Member shall provide advice and service
A. to his clients, including legal advice.”
B. only to those who will totally accept the Member’s suggestions.”
C. which are in the client’s best interest.”
D. to clients only after they have signed the application.”
6. In the Code of Professional Ethics as contained in the CPCU study materials, failure to meet the minimum standards of the rules
A. will make it mandatory that the CPCU give up his insurance license.
B. automatically requires a CPCU to take Examination 5 over again.
C. shall have no particular consequences.
D. may subject the CPCU to disciplinary measures.
7. The Canons of the CPCU state that CPCUs should endeavor at all times to
A. place the public interest above their own.
B. create a working climate conducive to accelerated earnings.
C. protect their designation and professional organization against any outside action.
D. discourage CPCU candidates so that the profession shall remain elite.
8. CPCUs should obey all laws and avoid any conduct or activity
A. encouraging new CPCU candidates.
B. that brings their profession into the public eye.
C. that could benefit a client to the detriment of the CPCU.
D. which would cause unjust harm to others.
9. Relative to the insurance business, CPCUs should
A. strive to require an added commission bonus to those with the designation.
B. encourage the AFL, CIO or other unions, to become stronger in the industry.
C. assist in maintaining and raising professional standards in the industry.
D. never display their CPCU jewelry in public.
10. CPCUs should assist in improving
A. their commissions schedules.
B. their amount of sales.
C. relationships between the races.
D. the public understanding of insurance and risk management.
ANSWERS TO STUDY QUESTIONS
1C 2D 3C 4A 5C 6D 7A 8D 9C 10D