NOTE: This text is written "gender-free," and any reference to the male gender – he, him, salesman, etc. – should be considered as also being compatible with the female gender. It is much easier to read and understand (and write) by using a single-gender, as opposed to his/her, him/her, etc.
It should also be noted that most of the discussions of ethical situations contain questions as to what ethical action should be taken, or whether an action was ethical. Some of these questions are not answered in the text and some are purely rhetorical. They are intended to make the reader think about the proper ethical action. Sometimes, there can be more than one ethical action, at other times there may simply not be a ready answer as more detailed information would be needed.
The final chapter of this text discusses the Code of Ethics for the Chartered Life Underwriters and for the Chartered Property and Casualty Underwriters. These are the two principal professions within the insurance industry so their Codes are representative of other Codes of Ethics. Other professions, such as Society of Actuaries, Life Office Management Association designates, and many others within the insurance industry, all have their own specific Codes. Those in the various fields will be well served to obtain a copy of the Code of Ethics that pertains to their particular field or discipline. A Code of Ethics offered by CEIS is also included.
(Webster says) Ethic(s) is the "discipline dealing with what is good and bad and with moral duty and obligation." "A set of moral principles or values, the principles of conduct governing an individual or a group." "Ethical" is defined as "of or relating to ethics, and conforming to accepted professional standards of conduct."
Morality has often been described as a "social system of rules created to allow people to adjudicate disputes rationally without resorting to physical force so that the relationship is affected by the dispute can endure and, perhaps, even flourish. Because most disputes are generated over the question of who is entitled to certain goods, the pursuit of goods and the question of who is entitled to certain goods, the pursuit of goods and the avoidance of harm are at the core of any moral system. Hence, we can claim that the creation of some benefit or the avoidance of harm is the goal of any activity." (McGill's Life Insurance, Chapter 18)
Ethicists have taken a variety of ways to arrive at ethical approaches for a multitude of problems, but basically ethics primarily relates to enhancing the qualify of life on one hand, and at the same time, maintaining the issues of fairness and justice. The principal message here is for one to pursue his interests fairly and unselfishly, with particular attention to treating every person the same. Logically, this would mean that differences in treatment can be justified if, and only if, there are relevant differences. Selfish behavior, on the other hand, is where one pursues self interest without regard to the interests of, or at the expense of, others.
It can be difficult at time to treat two (or more) situations/persons/objects exactly the same. If a married couple has twin boys, what one is entitled to, so should the other be entitled to the same. Children recognize this early in their life, as something that a sibling receives, if different from what they receive, is "not fair"—whether it is a bigger piece of cake, staying up later, etc. Therefore, as soon as children began to notice differences and to use reason, they are aware of the basis of fairness, that "the same should be treated the same." Therefore, if we truly believe that most people are alike in most morally relevant respects, then they should be treated the same in most respects. This can be hard to understand at time, particularly when terrorists blow up helpless people and commit atrocities (as Paul Harvey, radio commentator, often says, "It really isn't one world…")
Still, most of us have been installed with respect for the Golden Rule: "Do unto others as you would have others do unto you." This principle reinforces the notion that others are the same as you in most relevant respects and is repeated in this text.
Some may see "selfishness" as unethical when related to the principle of fairness, but by "selfishness," that does not mean only the pursuit of self-interest, which is natural and acceptable. The pursuit of self-interest is a perfectly natural and acceptable activity. Selfishness, on the other hand, is when a person pursues self-interest at the expense of another—when the person is not entitled to the good or material pursued—in effect putting their own interest ahead of the interest of another when doing so will hurt the other party. As an example, taking so much food at a party that there is not enough left for all of the others. If other people need or want the same thing but only one person can have it, who (and how) decides who gets it? Since situations like this occur often, society has created rule of fair distributions—and such are the ethical rules of society.
Ethical rules emerge as societies grow as justice and the betterment of the quality of life must have some sort of ethical rules for appropriate behavior governing the society. They usually start through the process of trial and error plus the assignment of responsibilities which not only perpetuates society, but allows it to grow. In the western world, those societies in the Greco-Roman-Judeo-Christian tradition developed these general principles into more specific rules based upon the Ten Commandments, which include prohibitions against murder, stealing, lying, adultery, etc., as a template for judging proper behavior. It should be obvious that these Commandments reinforce the general prohibitions against selfishness and unfairness.
Back as far as recorded history, there has been distribution of goods that have allowed civilization to advance. Those who derived food from the land would trade with the hunters, thereby creating the first acknowledgements of civility. If, for instance, a grower of food was not able to obtain what would be considered "equal" compensation in barter for meat from the hunters, either some sort of agreed-upon arrangement was made or war could result. The free exchange of goods in a market requires the informed consent of both parties, but neither party would consent if they would not benefit on an equal basis.
Applying this to insurance with the sale as a market transaction, it is easy to see that misrepresenting the product or withholding significant information would not allow informed consent—therefore that constitutes misappropriation of the buyer's goods. Any way one looks at that, this type of sale would involve an unfair and unjust transaction, and basically is a form of stealing.
The necessity to be fair and just requires procedures to be set forth for the distribution of benefits and other obligations, such as the entitlement to benefits which are rights. What is a right due to one party is usually determined by the relationship to the person with the obligation. As an example, if I have a right to an education, then there are those who have an obligation to provide such educations. If you become a parent, your obligation is meet certain obligations to care for and educate your child. (No, there is no obligation to provide the child with his own car on his 16th birthday…) Then there are relationships that exist because of a commitment to them. Societies establish divisions of labor—set up jobs for persons—and there are those who accept the responsibilities of one or more of these jobs. A commitment to jobs and relationships automatically carries responsibilities.
Under the assumption that the majority of the social rules or jobs that we assume, are legal, necessary and beneficial to society, then we must take a look at the various relationships as a result of the division of labor. Looking at the relationships helps to determine what our responsibilities are in respect to applying ethics of relationships to the insurance industry and thereby determining the rights and responsibilities of those in the industry. In this text, particular practices that are ethically suspect are discussed for the purpose of showing why they are inappropriate or appropriate as the case may be. If the practice is problematic, then reasons both for and against them will be discussed.
Insurance is first of all a cooperative enterprise which has been defined to be a social system created to minimize the risk of financial loss from specific unforeseen future events for the insured and beneficiary(s) (if applicable). When a person acquires insurance they enter into a private contract to become a member of a group, and by doing so, they collectively assist each other to minimize the specific risk. Immediately, an ethical question arises in respect to the fairness of discriminating for some and against others who wish to join the group. A good example would be where a group of healthy people join together to (for instance) insure their lives. Their cost of this protection would be much cheaper if they could exclude those with unhealthy conditions, histories and/or lifestyles. Is it ethical for such a group to be exclusionary? If an unhealthy person, with worse health than those in the group, wishes to apply to join the group, what would be a fair price for their joining? Based on these facts, there is already an ethical and moral difficulty, starting whether such person should even be allowed to join the group as; obviously, joining the group would be at the expense of those in the group. What justification could be provided to counter the negative influence of the person and his effect on the entire group? These reasons address the fundamental ethical concepts.
Life insurance is rather unique when compared to property and casualty insurance, as life insurance is designed principally to provide support for dependents, whereas property and casualty insurance minimizes the risk to the insured, rather than survivors. Life insurance in its basic concept benefits others than the insured. Or as McGill's, Life insurance, puts it, it is "other regarding."
Life insurance has evolved into a financial instrument that has taken on the atmosphere of investment, a viatical tool, or source of long-term care, but originally it required the ignoring of self-interest for the sake of others—the very essence of unselfish behavior. The antithesis of selfishness is ethical behavior; therefore an insurance agent becomes a promoter of that type of altruistic behavior.
Simply put, the original purposes of insurance is simple—the joining together of a group of people for the purpose of pooling their resources to protect themselves and/or their property from risk—the products and the distribution of such products have become quite complex over time.
There have been examples of unethical behavior in respect to marketing these products with resulting adverse publicity for the entire insurance industry—the general public has a difficult time in separating types of insurance and has a tendency to place all insurance companies in the "same basket." These situations seem to focus on the misrepresentation of the values of certain products, or on the unnecessary replacement of policies to further for the benefit of the agent (as opposed to the benefit for the policyowner) with the overall purpose of meeting quotas so as to increase the profits of the insurance company.
This is only one type of unethical behavior in life insurance, as other problems involve the ethics of underwriting in respect to the demands of the insurer and the demands of the client; and some issues stem from the greed of the agent, and yet other situations place an agent in a no-win situation.
Business ethics has become a much discussed topic in the press over the past few years, primarily because of Enron, Tyco, WorldCom, and other companies because of unethical behavior of corporate officers, accountants, attorneys, and others. Well-heeled corporate officers in these firms have been indicted, fined heavily and others are awaiting indictment.
True, there are other reasons other than "cooking the books" that caused chaos in these and other similar companies, but in nearly every situation, the proper application of "ethics" would have avoided—or, at least, diminished—the suffering of stockholders. Sometimes we forget that a public corporation may have thousands of stockholders, with a large number of retirees who depend upon the performance of the stock for their income and therefore, are hurt the most. It is fair to say:
F When ethics are discarded, those affected are generally those who will suffer the most and who can ill afford the consequences.
The best way to start this discussion is to use examples of unethical behavior. Some of these situations may now be illegal. The differences between "ethical" and "legality" will be discussed later. However, a salient point in this respect is:
F Repeated unethical activity will usually be made illegal—eventually.
The health insurance industry has experienced many publicized unethical actions in recent years, with the result that they have also had many new laws and regulations imposed with the result that the health insurance has been under the microscope and there has been a considerable amount of "housecleaning." Abuse has been rampant in some areas, and many health insurance agents can attest to being aware of situations where a policyholder had multiple coverages on the same risk because a "slick" agent convinced them that they needed the coverage—which would probably never be used. Unfortunately, many of the "victims" were elderly persons.
The elderly has always been a ready market for unethical agents; hence the very strict laws regarding Medicare and Medicare Supplements. The government stepping into the insurance business and dictating the standardization of Supplement policies is a direct result of sales abuse. Particularly in California, there have been many draconian—but entirely necessary and welcome to policyholders—laws and regulations in respect to marketing to the "senior" population in the area of life insurance, annuities and long-term care insurance in particular, which have been enacted and strenuously enforced.
As life insurance, in particular, became more of a financial product instead of a protective device, many agents have evolved into "financial planners." Laws are more stringent now as to who may hold themselves out as financial planners, but at one time all an agent had to do was represent himself as a financial planner and he was ostensibly one and there was a plethora of financial planning designates appearing in the Yellow Pages. It should be no surprise that many of these "planners" were involved in questionable (to say the least) ethics. For instance, a problem in ethics arises where a "financial planner" (who is also an insurance agent) is made privy to the financial records of a client, and who then passes this information on to a stockbroker or mutual funds salesman, sometimes for a "fee" and sometimes for "goodwill." This raises many ethical questions (discussed in more detail later) such as should the agent disclose his connection to the broker and/or to his client and would that make it OK? Or is it just the right thing to do if it is apparent (to the agent) that the client would benefit more by investing in a mutual fund (for example)?
There is an interesting situation familiar to many health insurance agents, wherein a client comes to them with the problem of unaffordable premiums with their present carrier because of age, and they are nearing the magical age of 65 when they will be eligible for Medicare. Many agents will suggest a "Temporary" policy with higher deductibles and which are usually issued for only one year and have limited health questions, but have a much lower premium. One of the primary reasons for the low premium is that they do not cover any preexisting conditions under any circumstances. For relatively healthy older persons, this is acceptable and in some cases, commendable from the viewpoint of the client.
An ethical problem can arise in some situations; if for instance, the client has 3 years (or so) before qualifying for Medicare. Some agents simply find another application (a good Health agent will usually have 2 or 3 applications in their briefcase) and rewrite the policy with another company. The problem is that an agent may "forget" to tell the client to tell the client that any illness that occurs while covered by a Temporary policy will not be covered under a new subsequent Temporary policy. This could mean that the client may not have coverage if the illness is related in any fashion to a preexisting condition. While performing a service to the client by providing temporary coverage, an agent must, ethically, make certain that the client fully understands the hazard involved with multiple sequential Temporary policies.
While this situation seldom arises now, for several years health insurance on small groups was placed with an unlicensed company under the pretext that the company did not have to file rates or receive approval from the Insurance Department, because of ERISA (Employee Retirement Income Security Act) regulations that stated under certain situations, employee benefits for an employer are not required to be licensed by or under the jurisdiction of the State Insurance Department.
This was often used by an out-of-state "Trust" that would actively market small businesses offering good coverage at affordable prices (and often good commissions). Problems arose at time of claim and eventually many policyholders not only found themselves without health coverage, but legitimate claims were never paid, so when the companies left the state or went into receivership, they left many uninsured (and in many cases, uninsurable) employees. The fallacy was that under an ERISA, in order to qualify; only employees of a SINGLE EMPLOYER can be so insured. Further, there were agents who, after discovering that a "Trust" covering their insured groups had "flown the coop," had simply replaced the coverage with another similar "Trust." This example of the lack of ethics generally does not exist today as the majority of these agents have lost their license, and in some cases, they have become personally liable for any losses suffered by their clients.
This brings up the point of whether there are bad agents who sometimes do good things and/or good agents who sometimes do bad things. The point is that
F for some agents, what is right and what is wrong is not as apparent to them as it is to others.
This is an actual story of company ethics gone haywire and executives completely ignoring ethical behavior. This happened to a life insurance company, but it could have happened to other types of companies as well—the health insurance industry is full of stories of unethical companies and executives, as well as agents. One of the interesting sidelights of Equity Funding Life Insurance Company was that the agency force apparently had no actual knowledge of misdeeds, but there is little doubt that some of their large general agents had an inkling of something going on as they had a hard time believing that the company was writing as much business as it was claiming. When they asked about it at the home office, they were never completely satisfied with the answers.
Example: This story broke in the newspapers in April 1973. On April 2, the Wall Street Journal headlined "A Scandal Unfolds—Some Assets Missing, Insurance Called Bogus at Equity Funding Life. Allegedly Phony Policies Sold to Reinsurers for Cash—Firm Declines to Comment."
(Quoting from Wall Street Journal) "From Beverly Hills, California, comes the story of the one of the biggest scandals in the history of the insurance industry, breaking around Equity Funding Life Insurance Corp. of America, a financial services concern with a "go-go" growth record in insurance sales. This scandal centered on the life subsidiary, Equity Funding Life Insurance Co. This company had four subsidiaries, and they reported total life insurance in force of $6.5 billion at the end of 1972" (a substantial company in those days) "and Equity Funding Life accounted for about half of that."
"An unknown ‘but sizeable’ hunk of this insurance did not exist, apparently bogus business put on the books and then ‘sold’ to reinsurers for cash. Known in the company as the ‘y’ business, it was conceived and operated by several managers and executives of the subsidiary and parent company and treated as a big joke."
This story contains many ethical questions—particularly accounting ethics—but it involved more than just "accountants." It also involved company underwriters, policy issue personnel, actuaries, and policyholder service personnel that were aware of what was going on to some extent or other. Agents, for the most part, were kept in the dark.
For those who participated in this gigantic fraud, they HAD to know that they were not only operating in total violation of any ethical code—and they had to know that it was stealing so it was also illegal. What is interesting is that in interviews with some of the persons involved, to most it was just a "big game." It was certainly more than that because those involved in falsifying thousands of policies were paid extremely well. One miscreant later stated that he had been able to put his children into expensive private schools, so he did this "just for his kids."
"Ignorance" of ethics has universally been understood to start at early childhood. This is obvious in those situations where the parents have been involved in unethical and/or illegal activities as the child soon learns to accept such action as the "norm." If they are exposed to such activities, not only from family but also by others with whom they associate, they will soon develop the attitude that "it must be right because everyone does it." Obviously a child that grows up in such an environment will not know what’s right or what’s wrong.
F Bad ethics are often taught by example.
So how does that apply to an insurance agent? Consider the following situation which is fictitious only in the use of names:
John joins the Acme Insurance Agency after selling siding for several years. He is trained by an experienced agent designated as a "trainer" because he has the highest production, a rather typical situation. John is a good student, and one of the things that he learns is that there always are several forms to be signed by the client. If he turns in a form that is not signed, he does not get paid for it until he goes back and gets the required signature.
One of his early sales was for a substantial policy and he was looking forward to his commission check until he discovered that the applicant had not signed one form. Remembering that the applicant was not a particularly pleasant individual and had been a rather hard sell, plus the fact that the applicant had stated he was going on vacation for 3 weeks, brought John close to tears. In admitting this to his "trainer" who lent a sympathetic ear, the more experienced agent offered to "get the signature." John could not believe it, but when the agent came back to his desk in a couple of minutes with a signature that matched the other signatures on the application, John was introduced to the practice of "windowpane signatures"—holding a signed form to the window, and then tracing the signature onto another form at the proper place.
Assume that John knew that forging a signature was wrong (and illegal, to boot). What has he learned? He has learned that it is OK to "windowpane" a signature when necessary, because that is not really "forging." Besides, if his trainer does it with all of his experience, then it must be OK.
Unfortunately, this is how many agents learn their "ethics." Taking this one step further, assume that John moves to another agency where he is put in charge of training of new agents. Assume further that John teaches "windowpane signatures" to a new agent, and John is proud when the new agent brags on how his trainer had saved a case for him. Further assume that the owner of the new agency was highly ethical and besides, the agency owner knows he will lose his license if one of his agents is caught forging an application with his knowledge. The result would be obvious – John would go back to selling siding and not fully understanding why he lost his good job as a trainer.
F Sales ethics are the hallmark of the marketing entity.
There are similar examples in the property and casualty field where this situation arises. With an automobile policy where uninsured motorists is sold, with some companies the agent must obtain a signature on a form that shows that the applicant (1) declines the uninsured motorist's coverage; (2) agrees to purchase the uninsured motorist's coverage on a non-stack basis; or (3) accepts the uninsured motorist's coverage. Since this requires a signature outside of the usual application signatures, sometimes the signature "slips through the crack." Does the "ethical" agent then forge the signature so that the necessary coverage is not delayed? If the applicant accepts the uninsured motorist's coverage, the premium may be higher than if it is declined, and if the agent did not point this out, the normal response would be that the applicant does not want the coverage. Unfortunately, there have been situations where a claimant has stated that they did not decline the coverage, as they wanted that coverage in particular (especially now that they are involved where the other driver has no insurance), and they further state that it is not their signature on the form declining the coverage. Of course, to forge a signature is illegal but in some cases, the agent may think that they are highly ethical by "helping" the client obtain immediate coverage.
There are agents located in coastal areas principally, who market homeowners policies with hurricane coverage. Books have been written about unethical agents and insurers who deny coverage to those whose homes and possessions have been demolished by hurricanes—such as the situations where flood insurance does not cover water damage to water driven by wind and the homeowner policy does not cover storm surge damage. This has happened too often, leaving a policyholder who has paid thousands of dollars in premiums for homeowners and flood insurance, but with no coverage for hurricane wind and water damage to their homes, many of whom have gained publicity on television and other news media, asking basically one question: "Why didn't my agent tell me I didn't have the coverage?" Why, indeed?
In a similar setting, when the National Weather Service Forecast Office or the National Hurricane Center issues a hurricane watch or hurricane warning, insurers will not accept homeowner's or flood insurance applications. There have been, and are, agents who are known to backdate applications so that their client can have hurricane or flood insurance—much like selling fire insurance to someone whose house is on fire. Many of the agents earnestly believe that they are not only ethical by doing this, but they are providing a needed service to those people who cannot afford to carry homeowner's or fire insurance for a long period of time before a hurricane hits. The real problem is that agents who have been caught or accused multiple time for such shenanigans, are very often working out of the same agency and very possibly have been taught to so "protect the client."
F If a person’s early training taught that one could get away with wrongful acts and
make money; then the individual needs re-training and re-education as to what is right and what is wrong, and WHY it is right or wrong.
While some people act only out of ignorance when making ethical decisions, the ugly green monster, greed prompts others. Psychologists have discovered that people respond positively to rewards but negatively to punishment. Businesses, including insurance, knows this well as they often reward the high producers with bonuses, gifts, commission increases, trips to exotic places, company cars, and many other rewards. Productivity is rewarded, often regardless of how it was achieved. It should not be a shock to discover that persistency of insurance is worse on business sold during a company promotion, "President’s Club" qualification period, or some other such contest period.
F If only productivity is rewarded, any sales with any business suffer in quality when increasing in quantity.
Take heart, though, there are companies that reward their employees handsomely if they exhibit ethical behavior in their business pursuits. Companies are becoming more aware that commission structures and contests that reward productivity may not be the best way to go; so many companies are restructuring their commission schedules and promotions to reflect more acceptable agent behavior by including such things as persistency standards.
F Since realistically we probably all have our "price," the smart person will simply not put themselves in situations where they are tempted.
While discussing the agent's responsibility to the client, it must be kept in mind that this is actually a three-part relationship including the insurer, in which the agent is a mediator between the company and the client, (the relationship which includes the insurer will be discussed later). As is often pointed out, the responsibilities of the agent toward the client changes during the course of the relationship. In the beginning of the relationship, the client is only a prospect prior to the policy becoming effective, so the ethics of marketing would apply at that stage and the agent is obliged to adhere to the requirements of honest marketing, such as necessary disclosure and the avoidance of undue pressure which could limit the client's freedom to buy or not to buy, and "suitability." Then when the insurance goes into effect the customer is then an "insured" and a client, and new responsibilities arise, such as servicing, helping with claims, and updating policies.
Actually, one general principle can cover all phases of the relationship, basically that of the Golden Rule—treat the client as the agent would like to be treated. The professional pledge to which all CLU and ChFC designees commit specifically applies that Golden Rule when it states: "I shall, in light of all conditions surrounding those I serve, which I shall make every conscientious effort to ascertain and understand, render that service which, in the same circumstances, I would apply to myself " The CPCU Canon #1 states: "CPCUs should endeavor at all times to place the public interest above their own" which is a little different but with the same intent.
These rules exist and require compliance because insurance agents are subject to the normal conflict between self-interest and the interests of others. Agents should make recommendations based on their client's needs, but obviously they need to sell policies to make a living and their company needs to sell policies to stay in business. Consequently, from time to time, there can be pressure based on the agent's personal financial situation or from the agent's company and manager to sell the client what he or she does not need. According to The Market Conduct Handbook for Agents, "The insurer may say it wants the field force to provide a careful needs analysis but, in fact, the reward system for the agent is based on sales-not service. If an agent discovers that less service and needs analysis can result in quicker sales, then the agent faces the ethical conflict of whether to make more sales and more money at the expense of the clients' needs." Of course, for the agent to act in his own self-interest at the expense of another is the very core of selfishness and is universally condemned.
Besides avoiding selfishness and not selling what does not need to be sold, the agent certainly has an obligation to ascertain a client's needs for insurance. Simply put,
F It is unethical to sell a client an unnecessary insurance policy as the mere attempt to sell an unnecessary policy would usually involve lying and/or deception, practices universally considered unethical.
OK, there could be times when deception may not be a factor because of the ignorance of the agent in respect to the product they are marketing. The agent might not have known what the client needed and subsequently recommended an unsuitable product but it is the duty of the agent to recommend the proper product and if there are areas that are unknown to the agent, it is the responsibility of the agent to either become adequately educated or to divulge his ignorance and withdraw until he is properly educated. As with the IRS—ignorance of the law is no excuse. If the agent takes a professional approach and does a needs analysis, then that puts the further requirement of product knowledge on the shoulders of the agent.
Besides the Golden Rule, there are other obligations in the agent/client relationship.
Confidentiality. While discussing the product with a prospect, with the necessary obtaining of information for the application, an agent is able to learn a lot of private information—often very private—in respect to the personal and financial status of the applicant. This information should be treated as if it were classified "Need To Know" and this information should be shared with only those who have a legitimate right to the information and after the client has authorized a release of this information.
Policy Delivery. This is an area where there are disagreements as to whether the agent is responsible for delivering the insurance policy to the insured and (many times) also collects any premium which may be due at the time of policy delivery. Since some coverages do not take effect until the policy is delivered, timely delivery is crucial. Some agents are afraid that by approaching the client again and answering questions about the policy, the client may have "buyer's remorse" and not take the policy. Therefore, they contend that it is better to either mail the policy to the client or have another agent deliver the policy (who could claim ignorance if need be). This, of course, leads to problems. Obviously, the agent should not only deliver the policy, but he must take the time to explain all the policy provisions, including riders and exclusions, to see one more time if the policy meets the needs of the client, and to explain how the agency handles ongoing service. If there have been any changes that have been made in the policy that were not in the original application, then it is mandatory for the agent to deliver the policy and fully explain such changes.
One of the principal consumer complaints about many types of insurance is that the agent seems to feel it is a "one-shot" deal and the client never sees the agent again. Some agents do not "want to be bothered" by their customers calling about every "little thing" involving their policy. Not only is this unethical, but it borders on pure stupidity. Those who service their policyholders have the best persistency and are usually awarded for this, but they also are a ready source of other insurance products as they become the "customer's own agent."
Claims Handling . When the situation arises for the owner or beneficiary to make a claim, the agent has a responsibility to assist the beneficiary (in life insurance situations) or the insured by explaining what must be done in order to collect on a claim, helping the insured or beneficiary expedite the claim settlement, mediating between the insured or beneficiary and the insurer, and explaining the final settlement if the settlement is not what the owner or beneficiary expected. With some insurance products, particularly in the commercial lines, the agent may become quite involved, or in some cases, by custom or by insurer fiat, the agent is never involved in claims—in which case this should be explained to the client as often the agent is the "face" of the insurer, i.e., the only one they really know, and his absence would raise questions that need not concern the client.
Servicing. The professional and successful agent always reviews the client's policies periodically and, in particular, if there have been any changes due to company requirements or recent legislation that might affect the policyowner. Situations change through the passage of time, so it is very important to review the policies to see if they provide the coverage currently needed. Also, another good opportunity to provide more coverage if needed.
Unfair Trade Practices . In insurance, the most attention in respect to ethics pertains to market misconduct and unethical behavior of the agents in this regard.
As an example, the misrepresentation of the benefits or terms of a policy; misrepresenting dividends as guaranteed when they are not; misrepresenting the financial condition of the insurer; misrepresenting a policy as other than what it is; or an agent misrepresenting himself by claiming to be a financial planner when he is not.
This text goes into considerable detail in respect to twisting, churning and replacing of policies, which can be unethical and in many cases, may also be illegal.
There is also the practice of rebating, which is usually considered unethical, although there is some argument. "Rebating is defined as any inducement in the sale of insurance that is not specified in the insurance contract." An offer to share a commission with an applicant is the prime example of such an inducement, and is illegal in most states except California and Florida— where there are very strict rules as to acceptable rebating which usually has the effect of discouraging such rebating practice. Rebating is generally considered wrong because it gives one agent an unfair advantage over other agents, or is seen as unfair to those clients who are not given a rebate. Defenders of rebating argue that it is not unfair, but rather should be viewed simply as a competitive market ploy.
The agent owes the client the truth, therefore it is unethical to "company bash," i.e., misrepresent the strengths and weaknesses of the competition—either company or agent—particularly if it is known to be untrue. This seems simple, but it can be difficult at times, particularly if there is a company that is known to be weak financially by those in the insurance industry, but not publicly known. When a client asks an agent about a company or agent that is less than reputable, what is the agent to do? There are several answers, including "tap-dance" around it, pleading total ignorance (even though the agent is supposed to "know his business"), ignore the question and hope it goes away, change the subject, or take a more ethical approach: tell the client to call the state Department of Insurance Consumer Affairs and ask that question.
Certainly if a product is not meeting a client's needs, or if clients are being misguided by another agent, the first agent has an obligation to disclose that fact, but it should be based on facts, not the needs and desires of the agent to replace the company business of another agent.
Discrimination against clients for reasons other than sound actuarial principles is unethical. The word "discrimination" is pejorative because of unethical and illegal discrimination affecting a large portion of our population, but it actually only means excluding people (or including people) based on some relevant characteristic. Unethical discrimination is exclusion committed on the basis of some unjustified bias or hatred toward a person or group, such as race, sex, religion, nationality, or ethnic group when those considerations are irrelevant and when they are done from motivations such as sexism, racism, or antireligious bias. On the other hand, there are insurance companies that are affiliated or associated with a particular religious or national group, such as Fraternal Insurance organizations (which generally are no longer discriminatory). Their exclusion of nonmembers is not unethical—but if a company is not an exclusive company from its inception, then such exclusionary policies are unethical. There are, however, legitimate reasons in underwriting for exclusion.
In a famous court case where the question was whether the discrimination was permissible concerned granting of premiums to young women drivers that were lower than the premiums applied to men. Actuarially, as a group, young women had safer driving records than their male counterparts. Was this sexist? Because it was not based on denigrating women, and in fact favored them, it was not deemed discriminatory in the unethical sense.
It is unethical for the agent to discriminate against a client based on considerations such as race, it is not discriminatory to ask if the person is worth the risk and/or does the person have the ability to pay?
These, in brief, are the ethical responsibilities an agent has toward his or her client. We now need to consider the responsibilities the client has toward his agent or the company.
The agent-client relationship is not the only relationship where ethical consideration can arise, as the client has ethical responsibilities to the agent as well. As with the agent-client relationship, the client should do nothing that is deceitful, unfair, or harmful to the agent or the company.
F The insured owes the company the truth.
The chief examples of a client's unethical behavior include fraudulent claims, lying to the agent and withholding information on an application.
There is a widespread practice involving fraudulent claims, particularly in the disability income area where back injuries are faked in order to collect compensation. There are jokes about the practice even though they are certainly unethical. They are fraudulent and unfair because their cost is borne by those who pay premiums and/or by those who receive less return on their investments.
Another common type of unethical practice is lying or withholding information on an application. There are a number of stories told in which a client, while smoking a cigarette, has told the agent he is a nonsmoker. There are those clients who actually believe that if they smoke a cigar after dinner they are not considered smokers—would a person who has a glass of wine with dinner be considered an alcoholic? Unfortunately, there are agents who will write the policy as requested by the client—sometimes the theory is that if a person is a smoker, then that will turn up at claims time and the claim won't be paid, but that is the price of lying for the client.
Here the discussion is focusing on the ethics of the client. The client has no ethical reason to put an agent in that spot, to lie to the agent, or to ask him to violate his obligation to the company. There are agents who are so ethical that in such a situation, they walk away and refuse to take an application under the theory that the person would probably not tell the truth to the company in case of a claim and therefore, the person is not acceptable to the insurer.
McGill's Life Insurance illustrates the subtle kind of unethical behavior engaged in by the client when he puts the agent into a conflict of interest situation, by the following example:
The agent's brother-in-law, Sam, is an attorney and is has an inoperable malignant brain tumor. Because of the aggressive nature of the treatment, he may live for up to 3 years, or he may die within 3 months. Sam feels he is woefully underinsured. He is concerned for his family's financial welfare after his death. So is the agent.
Sam has always been a bit of a spendthrift. He has lived the good life, spending everything he has earned over the course of the years—and then some. The agent knows that he will probably have to help support his family if he dies without adequate life insurance.
Sam approaches the agent, an experienced, professional life insurance agent and asks for his help and understanding. Sam wants to apply for life insurance—not a big policy, but $100,000 of annual renewable term, which he feels is just enough to guarantee his children's college education. He plans to deny his medical history when he is examined for the policy—if a physical is needed as often a paramedical exam in the home is sufficient for such a term policy if the applicant denies any health problems. He will claim that he has no attending physician.
Sam is prepared to take his chances that he will live beyond the policy's contestable period. As an attorney, he believes that he fully understands the implications of what he is about to do, at least as far as those implications may affect his beneficiaries. He does not however seem to have given much thought to how they may affect the agent and his career. What are the agent's ethical obligations to Sam, to Sam's family, to the insurance company (if the business is submitted), and to the agent, himself?
The example is interesting because selfishness on the agent's part is not involved; rather there is a conflict of loyalty. Sam, as a member of the agent's family, puts a claim on the agent in the name of family loyalty and, in this situation, the family's interest conflicts with the company's interest.
What these examples show is that clients have at least three obligations: 1) to tell the truth on an application, 2) to file honest claims, and 3) to not put the agent into an unnecessary conflict-of-interest situation. Acquiescence by the agent is essentially collusion against the insurer and the other policyowners.
We have all heard the word "character" in referring to certain individuals. Some seem to have it, and some don’t. Actually, those who have overcome temptation tend to have developed a stronger character as a result. So, what is character? The dictionary has about 50 lines (in small print) of definition, but the most applicable would be: "one of the attributes or features that make up and distinguish the individual." Therefore,
F the goal of an ethical individual is to develop a strong character.
Many scholars, authors, and others, consider virtue as the telling factor in a strong character. Simply put, virtue is like a habit to do good things, such as "honesty is a virtue." Virtue is not something that anyone is born with, but it must be developed. Children go through a phase when they come up with some "whoppers" and while this upsets many parents, it is a natural part of growing up and it is the responsibility of the parents to teach honesty (a virtue) to the child.
On the flip side, people can develop habits of doing "bad" things – this would then be called a "vice." People usually don’t start doing "bad" things all at once—like virtue, it must be developed. Normally it is not taught by parents, but by others in the environment, associates, friends and those to whom a child respects. This usually starts with something small, like a "little white lie" that gradually develops into falsehoods so rampant that people simply no longer believe them. Unfortunately, it is easier to develop "vice" than it is "virtue," as virtue demands continual attention and it must be exercised frequently. Since it is harder to be virtuous, virtue is praised more by others.
People, nearly all people, at some time in their life face situations where they can easily succumb to temptation to do something that they know is wrong, even though they know that another action would be right. Unfortunately, many people take the low road. The importance of ethics training comes into play here, so that the person will do what is right and will be therefore, working towards building a strong character.
At this point, it seems proper to discuss individual agent ethical problems in more detail.
When a "What to do, what to do?" situation arises, it is called "a quandary, dilemma, or just "a gray area." A quandary has been described as a puzzle wrapped in a dilemma wrapped in a quandary… This situation comes into play when it is just not clear as to what is right and what is wrong.
F A quandary or dilemma occurs when in a certain situation, the person is not sure as to what to do, as there is good reasons for the action and good reasons against it.
It is quite easy to find oneself in a quandary in the insurance business. Assume for instance, that a client, an elderly widower, decides to disinherit his children because they are objecting to his desire to leave most of his money to a nursing home that had taken care of his late wife and is now taking good care of him. You are a financial planner so you are familiar with his situation and he respects your advice. But when asking for up-to-date financial information, you discover that the person who has been making his investments is the son of the owner of the nursing home, and he has informed your client that his investments have tripled in worth since he took over—which is dubious, to say the least.
What should you do? Follow the professional code of ethics and investigate by asking for more specific financial information, or should you simply do as he asks and change the beneficiaries of his estate (and policies) to reflect his desire to name the nursing home?
Or, should you perhaps contact his doctor to make sure that his mental condition is good enough to make such an important decision? And even "stickier," understanding the need for confidentiality, do you contact his children (assuming that you know them well as decent human beings)? You should not make this contact unless the client gives his permission to do so—or there are other circumstances that would indicate that such notification is necessary.
These decisions are not easy, and as the world of business become more complex, so do the ethics decisions. But before a dilemma can be solved, there are certain steps to be taken before one can start applying ethical theories or ethical principles.
Every effort must be made to collect all of the information possible that pertains to the "dilemma." In the situation previously discussed, it would be easier to make the proper and ethical decision if it were known that the client is not incompetent. It may be surprising to learn that
Fmany quandaries are solved when all of the information is collected.
FBefore it can be determined as to what is fair, those that are involved in the
dilemma must be discovered.
Sometimes this is not easy and will require a lot of "digging," but as they say, "You can’t determine the program until you know the players." Sometimes there are hidden agendas discovered when all participants are known. Also, sometimes there are those with "shady" reputations on one side of the question, which would raise red flags and which alone could determine the proper ethical decision.
Some ethicists maintain that since a dilemma (or quandary) must have at least two options, in order to determine the proper option, a third option is necessary. The reasoning seems to be that if one has not spent enough time and thought to the problem without coming up with at least a third option, then they simply haven’t thought enough about the problem.
Practically speaking,
F in order to solve a dilemma, there MUST be another choice, other than just two.
There would not even be a dilemma if there were not two choices—a right choice and a wrong choice—and the dilemma is trying to figure out which is correct, or at least the better choice. Sometimes the third choice is an acceptable combination of the other two, sometimes it is completely different, but in any case, it usually is not easy to discover.
If the action under consideration is fair to all parties, benefits the client, and is consistent with such actions in other situations, then there really is no reason not to choose that action. Conversely, if taking such action requires that a commitment is broken, or it is harmful and unfair, then that action would not be proper.
Of course, it is really not that easy in "real life," primarily because of the conflict that occurs when an action is beneficial but it still not fair—hence the quandary/dilemma.
One of the primary ethical actions of an insurance agent is to make sure that both the client and the agent understand the risk. An example of this from the files of an experienced agent:
The life insurance agent is selling a life insurance policy to meet accumulation goals that the prospect is attempting to obtain. The agent gave the prospect a choice of a 12% interest variable life, a 9% universal life, and a whole life policy showing a 6% - 7% illustration. If the agent had stopped here and had discussed only one product, obviously the 12% variable product would have been an "easy" sale.
This agent was not satisfied with a quick sale as he felt something was missing. He told the prospect that he understood that 12% was more than 7%, so there was no need to belabor that point. The question was, "Do you think you can make the right investment choices for the next 30 years to achieve a consistent 12% return?" The agent had presented this several times in the past with the usual reply that they were confident that they could do so, etc. However, in this one instance the agent was surprised when the prospect told him that he would make 25% "like clock-work." The agent asked the prospect if he had a line of credit, and the reply was that of course he did, and the interest rate was low.
The agent asked why the prospect did not take his credit line to the very maximum at that low rate, and then invest it at the 25% return program? His answer was that the line of credit was on his home, and he did not want to "gamble" on his home—the risk of losing his home was unacceptable.
After a little more discussion, the prospect ended up buying a "nice" (as the agent called it) whole life insurance policy. The ethical lesson here is that discussing risk will educate a client or prospect and help him make the proper choice for their his circumstance.
"Bill" is an agent that sells primarily Long Term Care Insurance, representing 3 different companies and he has the right to broker individual cases with other carriers if he wishes.
Of his primary companies, Company A is an "old-line" life insurer with a AAA+ rating with Best’s, that offers a comprehensive policy but comparable benefits are a little more expensive than with other insurers. Also, commissions are a little lower but once a year they have a sales contest that can be quite rewarding. Underwriting is considered as "typical," i.e., not conservative or ultra-liberal. It only offers tax-qualified plans.
Company B is an A+ rated company; well known but is not as large as the Company A, and is licensed in 25 states. Its underwriting is more liberal, premiums for comparable benefits are lower than Company A and the standard commission is a little higher.
Company C is a smaller company that has a B- rating from Best’s. It specializes in LTC Insurance and is licensed in 10 states. It is known to be innovative and offers several different plans, including one that does not protect benefits from taxation (non-qualified), but in all other respects, has excellent benefits. Commissions are higher than most companies', and underwriting is more liberal in medical (contrasted to mental or cognitive) history. This company is owned primarily by the CEO and his family and other company officers, and industry "scuttlebutt" has it that they are trying to write as much business as possible in anticipation of a sale or merger with another company as the CEO is 72 and wants to retire.
Bill was introduced to Emily, a 60-year old widow, by one of his regular clients. Emily has an income of $100,000 to $150,000 a year (depending upon the stock market). While she can afford to pay for nursing home care, should it be needed, she has 2 children who are concerned about losing their inheritance if she would have to spend much time in a nursing home. She is in relatively good health and should be insurable for LTCI, and she drives, shops and generally takes good care of herself. She has no mental problems and prides herself on remembering detail. She is a little overweight but not significantly.
Agent Bill's agency contracts with 3 LTCI insurers. Therefore Bill must consider all 3.
This "example" is patterned after a situation faced by an experienced LTCI (but nameless) agent two years ago. At this point, the question should be: Have the necessary steps been taken to resolve this dilemma? Remember, this is an exercise in ethics, not in financial management.
In this illustration/example, there are undoubtedly other areas that could be explored. However, based on this information, what would be the most ETHICAL action, i.e., what should Bill recommend to Emily? This illustrates the fact that sometimes these situations are not easy, and it gives a background into further exploration into the intricacies of Ethics.
In case you are wondering, what did the agent—who is known for being ethical and who has an excellent reputation—do in this (actual) case? When asked how he solved this dilemma, he stated, "After finding out how much money she actually had, I was able to convince her to invest heavily in annuities, thereby giving her a guaranteed income for life. Then, since I was not married and was about to retire, I married Emily and we are enjoying our winters aboard our yacht!" (He was just kidding, of course.) Actually, he volunteered the fact that since the situation was rather complex, there were many disciplines were involved, including actuarial, financial and legal, the decision was to place the policy with Company A, basically because of the company's strong financial standing. He bought a used van.
These principles of fairness, consistency and beneficial to the proper parties, as discussed above, plus such things as "morality," and other such items to consider, may be called "ethical theories" that form the basis for ethical rules. But as one would suspect, very rarely is there a clear-cut situation where such rules can be applied with no hesitation and with knowledge that the ethical solution has been reached—no ifs, ands or buts.
What if you promised your family to take them to Disney World this summer? However, just a few days before the planned trip you are informed that your daughter, who has a learning disability, must be tutored during the summer months in order for her to be admitted to the next grade with all of her friends. It is highly important for a parent to address this family dilemma as the solution must not only be honest, but it must be ethical, if for no other reason that to teach the children that problems arise in normal life and there are ways to tackle these problems—ways that are ethical and that they "can live with" even though it may be difficult.
In this specific case, there are certain points to be considered.
Tutoring is expensive, which means that you probably cannot buy a new bicycle for your son that was promised him, so that he can go to and from Little League practice and games in the Fall.
If you took a week to visit Disney World, your daughter would lose that much tutoring and the information that she did not learn could be crucial to her final grade and for her moving to the new class.
Another, emotional, type of ethical dilemma is that if you did not take them, they may think that you had lied to them from the beginning and was just looking for excuses not to take them to Disney World.
This is called a "real" dilemma as more than pure reasoning is involved—obviously there are emotions involved also.
Without going into a technical discussion as to the "types" of moral dilemmas, it should be mentioned that
F there are those who appeal to fairness and rights over the consequences, and then there are those who appeal to consequences over fairness and rights.
No discussion of dilemmas would be complete without bringing up the decision that was made by President Truman to use atomic bombs in Japan, and by doing so, ending World War II. Those who agreed with his decision say that it was worth taking the estimated 80 or 90 thousand Japanese lives in order to bring this bloody war to an end, and otherwise, in all probability, it would have cost millions of lives if the country of Japan had been invaded. On the flip side, there are those who (still) maintain that dropping the bombs was immoral and not just because of the loss of innocent lives.
Dilemmas usually cry for solutions, and multitudes of such dilemmas arise every business day. Solving these dilemmas is what gives us "ethical theory" and which requires more study.
F Simply put, an ethical theory lays the foundation for a principle, which in turn constitutes the most important justification for pursuing or following a course of action.
In determining whether an action is ethical—or not—may depend upon "who is asking?" There are those who prescribe an action for ethical reasons based upon whether it benefits more people than it harms. Those who automatically look at every situation as whether or not it is "fair" regardless of the consequences might look at a situation differently than one who always looks at every situation in the light of what benefit it would be to him.
Those that look for the benefit to themselves find that problems arise when what is good for them can only be accomplished at the expense of another. This is the key for whether such consideration is selfish, or just self-concern. Selfishness would indicate that the extreme of ignoring how an action would affect others is the most common example of unethical behavior. In many professions, the code of ethics requires one to act in a way that will best serve the public interest.
Another type of person will always determine an action in light of the consequences of the act and they will then always compute the benefits and the harm of every action. Therefore,
F an action may be justified if it brings more happiness than unhappiness for more people.
This seems rather straightforward, but the problem is determining whether an action brings out the maximum amount of good, or whether it is good to a maximum number of people. If it brings out the" good" to a maximum number of people, then the problem becomes as to how these "goods" are to be distributed. Next problem is how one decides as to what counts as "good?"
Sometime "good" is defined as to what satisfies the desires of the individual the best—actually defining "good" as pleasure and happiness. Happiness is considered by many as the ultimate "good." This discussion can (and does) fill page after page in text books, but it is presented here just as an example of how professional ethical theorists can determine whether a specific action is ethical or not.
Another consideration to determine if the action is ethical —if a person acts strictly from desire, then he is acting more like an animal inasmuch as there is no moral reason to take the course of action. The question should be not what action will fulfill the inclinations, but what fulfills the sense of duty or obligation.
There is one more class of person, or perspectives used by a person, in determining whether an action is ethical, and that is usually referred to as the ethics of virtue, or as some prefer, ethics of character. The first word that comes to mind to most is "honesty." While the classical sense of virtue is not necessarily confined to honesty, it is most descriptive for this discussion. Accountants, for instance, have the responsibility to always respond truthfully and there is little doubt that this is a virtue that is mandatory for a professional accountant.
Another virtue can be loyalty. As an example, as an auditor, does he practice good, solid (some say "hard-nosed") auditing practices? This points out that some "virtues" can conflict in all industries and professions. How much loyalty to a client should an auditor have? Should an auditor warn a client of an audit problem before the audit report is filed? In any event the question may be—loyal to whom? And, "to thine ownself be true" in which case, is their loyalty to clients and audit firm (or for an insurance agent, loyalty to client or insurer)? If the loyalties conflict, then comes the dilemma.
While it certainly would not hurt any professional to spend the time to become better educated in philosophical studies of ethics with its many ramifications, as a practical matter, most people do not think about the principles to be used in determining whether an action is ethical. Most people simply go by their "gut-feelings," their intuition or their own personal feelings. Some simply go entirely by what their training has provided them to consider.
Since people in the same vocation or endeavor have various reasons and motives for acting as they do, there must be a published code of ethics for any profession if for no other reason than uniformity.
Once these steps have been taken, then the options available must be evaluated to determine which would be correct. There are several ways to determine the right action but there are four basic steps:
The proper evaluation of these options is the heart-and-soul of "Ethics" and is discussed below in more detail.
Obviously, "Ethics" can be said to deal with right or wrong. Believe it or not,
Fnearly everyone has a(n) (ethical) set of beliefs as to what is right or wrong and these beliefs do not necessarily remain the same among all persons.
For instance, abortion, capital punishment, and adultery can be good or bad, right or wrong, or acceptable or unacceptable, to a person or a group of like-minded persons.
Cheating, stealing, and not keeping promises, or abusing children, elderly persons or animals are usually considered as "wrong" or "bad." These all constitute moral beliefs, and if one were to write down all their similar beliefs, they would, in essence, create a personal code of ethics.
The primary subject of "ethics" is human actions, referring specifically to any action that is deliberately taken. If a person thinks about a particular action and then chooses to take this action, then it is a deliberate action and if the person has any control over this (these) action(s)—then they can be held responsible for their actions.
In today’s society, many feel that "personal responsibility" is becoming an "ancient" belief that is not "relative" to today’s situations. A mother drowns her children, but it is "not really all her fault…" A sniper kills innocent people at rest stops, but it was only because of the (fill in your own reason)… A corporation goes bankrupt, leaving many vendors, employees and investors with empty pockets, because an accountant employed by the company "went along" with the desires of the company President to over-inflate the value of high-end inventory items in order to show the profit to the Board of Directors that the President had promised—but the accountant is not at fault because he was just doing what his boss wanted him to do… etc., ad infinitum.
True, the actions of individual humans are not the only subject matter regarding ethics that must be considered. The activities of a group of individuals can be called "social practices" (if one delves deeply into the study of Ethics), which may or may not be ethical. A practical example would be an individual using insider information to buy certain stock; or in the case of a stockbroker, to notify his clients of a probable decrease or increase in the value of their stock because of "insider information."
Remember the earlier discussion of Equity Funding. The stock analyst who was first made aware of this situation also faced an ethical problem. The analyst had been informed of the situation over lunch with an executive of Equity Funding, and after lunch the analyst did some quick checking and as a result, was convinced that the executive was telling the truth. He contacted many of his clients and recommended that they get rid of their Equity Funding holdings. As a result of this action, the New York Stock Exchange charged the analyst with violating exchange rules with information about Equity before regulatory authorities made it public.
Ethical questions arose as insider trading is a "general practice" and his using this information was an individual action. One question that was asked: "What was the analyst to do?" When he became aware of this information he was not able to completely verify the information, but he felt that it was his duty to his clients to pass on the information that he possessed, just in case. Ethically, was it not his duty to protect his clients? If he had not notified his clients and it later was disclosed that he had known of the situation, would he not be susceptible to criticism for ethical reasons, but perhaps also legal action? Another related ethical question in respect to the informant was "Why did the executive wait for three years before exposing this situation."
"Sensitive" judgment is often used in Code of Ethics of some professions, but should be used for all professions, including insurance. It simply refers to the total of all factors involved in ethical judgments, i.e., the professional should be aware of all matters pertaining to the morals and judgments of all actions that may arise during any personal or general actions.
Every person has some sort of moral beliefs, and usually they include the simple belief that "everyone should do their own job." Therefore, a person must determine whether they should do their job under every situation and circumstance.
Many Codes of Ethics state that the members of the organization should accept the obligation to "act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism." This sounds good, but is very difficult to achieve at times. Is an agent, for instance, to place his (or his family’s) interest above that of the public? What if the needs of the company conflict with the needs of the client, or as importantly, the public?
There are always situations where there are conflicts between one’s profession and their job or between either and their personal life. What to do—what to do? How does one know what is acceptable and what is not, what action is acceptable, etc? Thus, the Code of Ethics (or Principles, etc.) has been created by nearly all "professions" and by most businesses of any size.
The Code of Ethics for any profession will state in some fashion or other, that the member should perform with the highest sense of "integrity," or words to that effect.
F The acknowledged definition of integrity is "firm adherence to a code of especially moral or altruistic values."
One could look at the way this principle is stated and then ask, "Am I showing integrity in the way that I am performing?"
It is important for the student of Ethics to realize that accepting just anyone’s beliefs does not make it correct—as everyone alive today knows of the vast differences in the beliefs of the Western world as contrasted with many in the Middle East, for instance, with their suicide bombers, slavery, annihilation of a race of people, etc. Therefore, beliefs must be regarded in the sense of morality, and moral beliefs involve emotions, desires, preferences, and entrenched values. One thing for sure, they are intangibles—one cannot touch, see, feel, etc., morality.
Many simply ask, "Are there any good reasons" for doing a certain thing, or are their good reasons why one does NOT want to do a certain thing?
Many "old-timers" would ask, "Is it proper?" when deciding what to do in many situations. When asked how a person could know if it was "proper," the answer usually was, "You just know."
Suppose you were 16 with a driver’s license, and you had been looking forward for months to taking Susie (or Ralph) to the movies in the family car, all by yourself. Your father had agreed to let you use the car to go to the movies when you got your license. When the day came and Susie (Ralph) had agreed, you asked your father for the car keys, but he says that you cannot have the car. You are understandably upset, and you cannot understand how he can go back on his word. You father can then say that he is not obligated to give you the car, therefore his belief is not justified or he should justify it to you. Maybe he just doesn’t feel like it right now.
This justification probably wouldn’t satisfy you because he did "promise." And, people should always honor their promises (a basic of Ethics). This could mean that any promise is not worth much—business deals will fail, marriage will come apart, and the world will go to wherever in a handbasket.
However, what if he said that the XX@&$!)**&% thing blew the carburetor today when he was driving home and he can’t get the parts until Monday. Now, there’s a reason for not honoring the promise. In other words, there is justification. This proves that
F moral beliefs are right or wrong, correct or incorrect, and they can be justified if there are good reasons.
This is an important precept in understanding ethics and ethical behavior.
A good exercise in order to better understand moral beliefs is to list those beliefs that you learned as a child. For many, this could start with the Ten Commandments and the Golden Rule, and everyone will agree that you should not lie, steal, cheat, harm or kill.
On the other hand, the overwhelming reason for taking an action for many (too many) today is that is best to do anything that is good for you, it is in your interest to do a certain thing, or perhaps more importantly, will it benefit you? Better reasons, more understandable perhaps, are that by doing something you should ask if it is just or fair (or "proper"), or you promised to do it and it will not do harm to others—and, one does not break promises.
Take this one more step where you can look at whatever action you are considering.
Like it or not, this is typically the first thing that goes through the average person’s mind when it becomes necessary to make an ethical decision. This is not always true—Mother Theresa rarely, if ever, thought of herself first. For the rest of us who are not approaching Sainthood, if you can actually perform an action that benefits yourself, can you think of a better reason for doing it?
Of course, this is applicable only if it is "meaningful" work—usually defined as work that can be beneficial to the person. Most people have a need to be productive and to work towards that end (some don’t, but they wouldn’t be professionals), so therefore, work is good for us all.
Conversely, if an action causes harm to oneself (not necessarily physically) then that is a primary reason for not doing it. This can be overemphasized frequently, as some people seem to think that any actions that are beneficial to themselves must therefore, not be the right thing to do. Of course, this is silly, as if a person doesn’t consider or concern himself or herself with an action that benefits them, then who will? You cannot go through life without looking out for yourself.
A good rule to follow in determining if an action is good for you is that in most cases,
F there can be justification that an act can be good simply by showing that it is good for you.
The next step is actually to take a step back and look at the "big picture." Is this action not only going to be good for me, but is it going to be good for everyone else (society) as a whole?
One outstanding example of determining what is good for society, as often quoted in such discussions, involves Tylenol and Johnson & Johnson. When Johnson & Johnson were made aware that some of their Tylenol bottles had been tampered with and it was nearly impossible to determine just how many bottles were involved, they immediately made the judgment call to recall ALL Tylenol from the shelves of the many stores and warehouses, causing the corporation untold millions of dollars in profit. This was a decision based upon whether the action would affect society properly, and fortunately for Tylenol users, this was the right decision.
An interesting point is that the business press solemnly but loudly (in some instances), prophesized that Tylenol would never regain its market prominence. It did.
Children (in particular) voice objections to some situations that they believe is just "not fair." This usually brings the response that "life isn't fair." Yet "fair" is used in many adult situations, including laws and regulations—fair trade in particular, but in insurance, there are "fair" claims practices, fair underwriting practices, fair sales practices, etc. In law, there is fair & impartial, fair and proper assessment, fair and valuable consideration, fair market value, fair consideration, Fair Credit Reporting Act, fair dealing, fair market value, fair plan, fair rate of return, etc.
"Fair" means impartial, just, equitable disinterested (everyone thought that the umpire was fair), free of bias or prejudice (used particularly in trying for a fair and impartial jury). Black's Law Dictionary
"Fairness" is part of the foundation of ethical behavior (as covered initially on the first and subsequent pages of this text). Fairness relates to equality, which raises the question as to whether all persons are equal in all respects. The Declaration of Independence states "We hold these truths to be self-evident, that all Men are created equal…" However, people do not always remain equal—what a dull world this would be if that were true. Of course, all people should be treated equally unless there is some relevant difference. Nearly everyone has a "boss," countries have rulers or Presidents, etc., and without someone "being in charge," our civilizations would never have grown and prospered. That does not mean that there should be slavery or indentured servants.
If an insurance agent sells insurance to a newly arrived immigrant who has difficulty with the language, the agent may be able to "sell" a policy that does not fit the need of the client but brings the largest commission to the agent as the client did not completely understand the "technical" terminology. Perhaps the agent followed the rules closely enough so that the sale was legal, but in no event would such a situation be ethical.
Every American has the right to be treated "equally." And, further the Declaration of Independence says that we all have the right to life, liberty and the pursuit of happiness—and, to be technically correct, to property. Furthermore, the government grants us certain rights and when these rights are infringed upon, then we are protected by laws and regulations. The use of coercive marketing techniques and deceptive advertising is considered as a violation of our rights to liberty. Even the laws that enforce the rights are often considered as a violation of a business entrepreneur to his right to do business.
Certain rights have become known as "entitlements." These entitlements include the right of a child to be educated, for instance, but the means for this education must come from others who are obligated to provide this right. Healthcare and housing for everyone are not "rights" per se, but in certain situations, these rights could be assumed. If they are so assumed, it is the right of the taxpayer to know whom, how and how much these "rights" can affect the rights of the taxpayer to keep and hold property. More pertinent to this discussion is the right of a purchaser of stock in a corporation to be provided with accurate financial information regarding the corporation.
So, if a proposed action treats all persons involved equally and fairly and there is no violation of their rights, then this is a reason to continue with the action. Conversely, if the rights of another would be violated, even to a small degree, then this is a big reason not to take the action.
A promise is a commitment, and if one has made such a promise/commitment, then one should do all in their power to honor the promise/commitment. This is an inescapable reason to pursue the course of action contemplated.
Is there any promise/commitment beyond those that were agreed upon by the parties involved? Implied promises are generally a distinct and very important part of most transactions. For instance, if one purchases a set of golf clubs, there is an implication that the club shaft will not break or bend if the club is used properly and for the task for which it is designed. Those who purchase insurance products do not expect that when the insurance is needed, the "small print" will void their agreement with the insurer.
F It is an inherent trait of civilization that promises between persons are kept even though most of the promises are implied.
What would happen to commerce if there were no implied agreements between an employee and an employer that the employee would show up for work every working day?
But what if you borrow some anti-freeze for your car from your neighbor with the promise to return what you do not use. He later asks for what was not used as he had had learned that a cat would readily drink anti-freeze with the result that they assume room temperature. And further, the cat belonging to the person across the street has been intimidating his poodle, and he is going to solve that problem, "once and for all." Do you break your promise in this situation, knowing what the result of keeping your promise will be, that harm that will come of returning the anti-freeze would outweigh the promise? (This may be arguable with some that really, really, hates cats – but you get the point.) Or is it proper to lie and say that you used all the anti-freeze? Or, perhaps, pour what is left into the ground and then tell the neighbor what you did and why?
STUDY QUESTIONS
1. Ethics is
A. a social system of rules created to allow people to adjudicate disputes rationally.
B. a system of distribution of goods.
C. a religious concept that only deals with business matters.
D. the discipline dealing with what is good and bad and with moral duty and obligation.
2. When ethics are discarded those affected generally are
A. who will suffer the least.
B. those who can afford the consequences.
C. those who will suffer the most and who can ill afford the consequences.
D. those who are disinterested.
3. Repeated unethical activity
A. will eventual become ignored.
B. will become the norm to where it no longer is unethical.
C. will usually be made illegal—eventually.
D. is a synonym of illegality.
4. Bad ethics
A. are usually taught by example.
B. are birth defects.
C. are automatically changed as soon as they are recognized for what they are.
D. is synonymous with good business.
5. If a person is taught that he can get away with wrongful acts and make money
A. then there is no way that his thinking will change.
B. he will usually become a respected millionaire.
C. he needs retraining and re-education as to what is right and wrong and why it is so.
D. he will only do things that are unethical, not illegal, as it is not in his nature.
6. If only productivity is rewarded,
A. then quality and quantity will both suffer.
B. then quality and quantity will both increase incrementally.
C. any sales with any business suffer in quality when increasing in quantity.
D. the only attorneys would be rich.
7. It is unethical to sell a client an unnecessary insurance policy because
A. the sale would usually involve lying and or deception, unethical practices.
B. it is not ethical for one agent to make more commission than another.
C. the insurance company may end up having to make double claims payments.
D. it is also immoral and always illegal.
8. A quandary or dilemma occurs when in a certain situation
A. there is an obvious profitable situation and a not-obvious unprofitable situation.
B. both the agent and the client are unethical.
C. a person is not sure what to do, as there are good reasons for and against it.
D. an agent is required to market a product that the agent knows is not the best on
the market.
9. In order to solve a dilemma
A. the solver must have a degree is ethics psychology.
B. there must be another choice, other than just two.
C. one must be able to run a random computer program.
D. one must only look at the legal solution.
10. Nearly everyone has an ethical set of beliefs as to what is right or wrong, and
A. only the Catholics look for divine guidance in ethical problems.
B. these beliefs do not always remain the same among all persons.
C. the beliefs that are the most profitable are the most ethical.
D. every civilized nation adhere to the same ethical rules of right and wrong.
ANSWERS TO STUDY QUESTIONS
1D 2C 3C 4A 5C 6C 7A 8C 9B 10B