ethics in insurance sector
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Ethics in Insurance Sector
1: Overview on Business Ethics
Business ethics is a form of applied ethics that examines ethical
principles and moral or ethical problems that arise in a business
environment. It applies to all aspects of business conduct and is relevant to
the conduct of individuals and business organizations as a whole. Applied
ethics is a field of ethics that deals with ethical questions in many fields such
as medical, technical, legal and business ethics.
In the increasingly conscience-focused marketplaces of the 21st
century, the demand for more ethical business processes and actions (known
as ethicism) is increasing. Simultaneously, pressure is applied on industry to
improve business ethics through new public initiatives and laws (e.g. higher
UK road tax for higher-emission vehicles). Businesses can often attain short-
term gains by acting in an unethical fashion; however, such behaviours tend
to undermine the economy over time.
Business ethics can be both a normative and a descriptive discipline.
As a corporate practice and a career specialization, the field is primarily
normative. In academia descriptive approaches are also taken. The range and
quantity of business ethical issues reflects the degree to which business is
perceived to be at odds with non-economic social values. Historically,
interest in business ethics accelerated dramatically during the 1980s and
1990s, both within major corporations and within academia. For example,
today most major corporate websites lay emphasis on commitment to
promoting non-economic social values under a variety of headings (e.g.
ethics codes, social responsibility charters). In some cases, corporations have
redefined their core values in the light of business ethical considerations
(e.g. BP's "beyond petroleum" environmental tilt).
Meaning of Ethics:-
Ethics in Latin Language is called “Ethicus” and in Greek, it is called
“Ethicos”. In fact, this word has originated from “ethos’ meaning character
or manners.
Ethics is thus said to be the source of morals; a treatise on this; moral
principles; recognized rules of conduct.
The character of a man is expressed in terms of his conduct
(ref: Diagram 1)
Ethics thus can be considered as the source of character of a person
expressed as right or wrong conduct or action.
Introduction to Business Ethics:-
Ethics is a social science that deals with what is good and right, and
with moral duties and obligations. Ethics is a science of morality that guides
and helps to achieve objectives through legal and moral means. Business
ethics regulates the activities of business firms towards society and other on
social, legal and moral values.
Code of Conduct for Business Practices :-
Charter ofa Man
Conduct of a
Person
Series of Actions
Good or Bad, Right or
Wrong, Moral or Immoral
Moral Standards
Decided by
Leads toTaken
together
Considered as
Known as Moral
Judgment
RequirementsBy which we
can judge again
Meaning of Ethics
In order to adopt fair business practices, trade associations, chambers
of commerce, Council for Fair Business Practices, and others have framed
code of conduct for businessmen. The code of conduct is to be followed by
the members of the association. The code of conduct states what is to be
done and what should not be done by businessmen.
A code of conduct is framed by Council for Fair Business Practices (CFBP)
for its members. The following are the highlights of code of conduct of
CFBP:
1. To charge fair and reasonable prices.
2. To ensure accuracy in weights and measures.
3. To ensure that intermediaries do not manipulate the prices.
4. To fulfill social responsibility towards various sections of the public
such as employees, customers, shareholders, government, suppliers,
competitors, dealings, and the general public.
5. To pay attention to consumer rights.
6. To provide product warranty in clear terms
7. Not to engage in hoarding and profiteering.
8. Not to adulterate the goods.
9. Not to trade in sub- standard products, and also smuggled products.
10.Not to undertake misleading and deceptive advertisements.
The members of the CFBP are expected to follow the code of conduct.
The code is framed in the interest of business community and in the
interest of the society. Adoption of the code of conduct would enhance
the image of the business firms in the society. An award has been
instituted by CFBP to encourage members to adopt fair business
practices. The award is given to the organization, which adopts high level
of ethical practices.
Why Study Business Ethics?
1) Business executives and budding managers study the various ethical
theory, ethical principles and ethics judgements. Students understand the
nature of ethical problems critically analyse it. Use conceptual tools and
also leads the students to respecting opposite views and reflecting upon
them.
2) It will help build and groom a value based organization. Ethical
behaviour is important for business leaders as they influence the ethical
climate for everyone else. In a value based organization there is a high
degree of trust and integrity and it empowers all the stakeholders.
3) It creates awareness about their social responsibility. A business has to
share pat of its prosperity with the community, by offering amenities and
services not otherwise available to the needy of the community.
4) Making them better individuals study of ethics, practice of virtuous acts,
resolving dilemmas at the work place will go a long way in their spiritual
development. Such managers will not be slaves of material possessions,
they would not amass wealth out of selfish motive but as a trustee of the
community to which they belong. Such managers, who practice business
ethics would be led by divine thought within and through their relentless
ethical conduct, lead a life of dharma and realize godliness.
Thus, as mentioned earlier, ethical conduct would be a self- realised
conduct which would give a new vision “drishti” of “aham bramhasmi” –
“I am bramham”
2: Measures to Improve Ethical standards in Business
Majority of the businessmen follow ethical values and principles in
conducting business and dealing with various social groups. However,
efforts made to popularize and spread the message of doing business
ethically because it benefits everyone. Considering the importance, actions
Should be taken at the organizational, government and society’s level to
spread the message and improve the working of business ethically. A brief
explanation about such measures is given below:
1) Measures at the Business/ Organizational Level :-
a) Adoption of code of conduct for dealing with employees,
consumers, shareholders and other social groups
b) To hire the services of expert in business ethics and arrange for his
lectures.
c) To make social audit compulsory to identify the ethical and
unethical conduct of business.
d) To arrange training programmes on ethical standards for executives
and employees.
e) To introduce open and free communication system and bring total
transparency is business working.
f) To penalize those employees who willfully violate rules of ethical
standards.
2) Measures at the Government Level:-
a) Government policies, procedure and working should be simplified.
b) Excessive or unwanted controls over business working be lifted or
reduced.
c) Strict enforcement of laws relating to protection of interest of
shareholders, consumers, employees and other social groups.
d) There should be political discipline and corrupt politicians must be
punished seriously.
e) The working of Lok- Adalat should be popularized.
f) Quick dispersal of legal cases relating to unethical business
practices.
3) At the Social Level:-
a) Social boycott on the products made by companies involved in
unethical business.
b) Trade Associations and chambers of commerce to prescribe code of
conduct to its members and they must be made to observe it strictly.
c) Social organisations like Consumers Guidance Society of India, and
Council for Fair Business Practices should play active role in spreading
the message of ethical values in business.
Advantages:-
1) It builds a value based organization: Ethical behaviour is important
for business leaders as they imbibe high degree of trust, integrate and
motivate and empower all the stakeholders thereby building a strong
organization which can compete in a globalised economy. For e.g.:
Tata Group of company has a very good reputation of business ethics.
2) It creates awareness about the corporates social responsibility of
business: A business is a part of the society and it shares its
prosperity by offering various facilities and services to its immediate
community. It also funds important projects which are for welfare of
the community. For eg: - building garden, hospitals, schools.
3) Business ethics is a practice: Managers has to study the theory of
business ethics and practice it in their professional life as they
understand the nature of ethical dilemma and analyzing it they are
better equipped to practice business ethics.
4) Practising ethics at work place: It makes the individual associated
with the organisation aware about their divine nature and brings peace
and harmony to all of them.
3: Role and Importance of Business Ethics and Corporate Governance
Role:-
Governments around the world are now well aware of the need for
trust in capital markets. The United States learned the hard way how fragile
trust can be and responded with the Sarbanes-Oxley Act which, among other
things, requires serious financial management of US listed companies to
have ethical codes and for management and auditors to report on the
effectiveness of internal controls over financial reporting. This has resulted
in wholesale review and documentation of policies and procedures.
Little research has been carried out on ethical practice in companies
and the role accountants play. Partly this is because interest in the subject is
relatively new and partly because ethics is one of those soft areas where it is
hard to make objective judgment. One important piece of research was
published by the Institute of Business Ethics in the UK. This found that there
was a strong correlation between companies which have established ethical
codes and a number of measures of corporate financial performance,
suggesting strongly that good ethics is the right thing to do not just because
it is the right thing to do: it also makes for successful business.
Good ethics are vital to good corporate governance. Company boards
too are now becoming much more aware of the need to have the right ethical
culture. The culture of an organization is probably the most important aspect
of system of internal control, and it is the foundation for other internal
controls. Management may set out the policies and procedures which it
wants followed, but it is the corporate culture which determines when they
are followed, amended or ignored.
The accounting profession globally has taken steps enhance the
importance of ethical behavior and decision making. The International
Federation of Accountants (IFAC) has launched a revised code of ethics
based on a set I fundamental principles to be adopted by individual
accountancy bodies. ACCA has already revised its own code of ethics for its
members, to be consistent with the IFAC standard. These codes are about
accountants' professional ethics.
Business ethics is a different, but related, matter Accountants in
business, particularly at board or at top management level, are often
regarded as the keepers of the ethical conscience of their organizations. As
well as following their own professional codes of ethics, accountants set an
ethical example to others.
Theoretically, the US SEC rules which give effect to Sarbanes-Oxley
require companies and their auditors to assess the ethical environment. There
is however no generally-accepted approach to doing this and it is not just
about documentation. Not surprisingly, this important subject tends to be
given less attention than it deserves by companies and their auditors.
Interestingly, over half the respondents to this survey say they have
processes in place for assessing adherence to their company's code of ethics.
This is a higher percentage than we would have expected and it would be
interesting to research further and learn more about what companies are
doing.
The challenge of living up to one's ethical values is evident from the
survey findings. For nearly 40%, company culture is a cause for concern.
Boards set the values and standards for their organizations and we believe
that in future boards will insist on knowing how well their companies are
living up to these. This goes beyond simply complying with rules: the
reputation and the future of the company and individual board members are
at stake.
Importance:-
1) Standard of behavior: When we talk about business ethics,
usually we're ·speaking about standards of behavior in the workplace
as well as with customers and partners. Companies known for ethical
standards usually have an ethical code stating that they treat everyone
with dignity, don't present misleading information, and scrupulously
follow rules and regulations.
2) True North Principles to lead a Business: Having a moral
compass leads to more effective business practices - whether in
building sales, retaining employees, or reducing litigation and
regulation costs. For example, people are usually willing to pay
premium prices to feel good about the products they buy. Also,
companies that follow certain moral codes attract better people - and
these people often are willing to work harder with less compensation.
It goes without saying that ethical companies are less likely to
undergo the costly scrutiny of courts and regulators.
3) Short Term Gain and Long Term Pain V /s Short Term
Pain and Long Term Gain : People normally like to take a
short cut to success not realizing that short term gains lead to long
term pain. Also it's important to understand that people don't engage
in unethical behavior when the incentives are small. They tend to
engage in unethical behavior when the incentives are large. Keep in
mind also that unethical behavior usually breeds more unethical
behavior - because hiding that first misdeed usually requires more
misdeeds - and for some businesses, like Enron, this can lead down a
path ill destruction.
4) Value Based Leadership creates Ethical Practices: Most
of the time people in positions of power tend to become more
egocentric and self-focused. This limits their capacity to understand
the viewpoints of other people, which may provide needed insight.
However, an ethical company that values the contributions of its
employees is more likely to be innovative in the marketplace.
5) Moral values of employees: Milton Friedman once stated that
the employees of a firm have the moral obligation to maximize
shareholder value. Deviating from this directive, he believed, is like a
form of taxation without representation, because shareholder money
gets spent in ways that does not maximize returns. This, I think,
needs to be tempered with a stakeholder theory of the firm, which
deals with how employees interact with suppliers, partners,
customers, and their co-workers - and these are all interactions that
should be encapsulated in a company's code of ethics.
6) Strong and Independent Board: Business ethics are critical
for members of company boards, as these people should provide a
great deal of moral leadership. But in some cases, board members
turn a blind eye to developing problems, and this can make bad
situations worse. Still, board members often find it difficult to fulfill
their ethical duties; Board members who are zealous about fulfilling
their duties often get punished by not being selected for boards at
other companies.
7) Role of Regulation in Business Ethics: Legislating some
ethical behavior can help keep the marketplace free of monopolistic
behavior and safeguard stakeholders such as partners, customers, and
investors. What's more, a transaction between two organizations can
affect other parties - and these externalities, as economists call them,
are sometimes best addressed by regulation.
8) Role of Information Technology & Business Ethics: Some
of the biggest issues with ethics and technology can be found in
security and privacy concerns. Ethical companies do their best to
protect company assets without making people feel stifled - and this
balance is increasingly important for innovation and creativity.
5: Unfair or Unethical Business practices
(I) With Respect to Customer:
1) Pricing: Differential pricing for different class of customers
similarly low price identified as low quality. Special pricing
factoring discount are all forms of unfair business practices.
2) Advertisement: Marking false claims using advertisement
to confuse or confuse the customer with exaggerated claims
and colorful copy.
3) Product Promotion: Using sales promotional techniques
like demo pack, free trial buy two get one free offers, etc. are
used to lure the customer in purchasing the products
Similarly in industrial goods giving bribe to get the order.
4) Customer Service: Appointing female executives to get
new business and then sending recovery agents for
outstanding dues is unfair business practice.
5) Price Fixing: Collaborating with other companies and fixing
prices which are on higher side so that customers does not
have any choice.
(II) Unethical business practice of employees:
(a) Job Switching: When an employee changes job, he
must protect the information of his previous
employer. Similarly a huge amount of money is
invested· in training of employee and he leaves the
organization which has trained him and takes his
expertise with him.
(b) Giving Information which is Confidential
(Insider Information): An employee has
confidential information about financial status,
future projects etc. which he should not disclose to
anyone. Investors buy or sell shares of the company
based on this sensitive information.
(c) Industrial Espionage: This is spying for either
personal or companies benefit.
(d) Occupational Crimes: They are wrong actions of
employees like:
a) Using office telephone or PC for personal use.
b) False claims made by sales executive.
c) Theft or pilferage.
d) Damaging the property of the company.
e) Manufacturing, transporting & selling products
that are prohibited by law e.g. liquors and drugs.
6: Ethical Issues
How Ethics Can Make Corporate Governance More Meaningful?
1) Corporate governance is meant to run companies ethically in a
manner such that all stakeholders, creditors, distributors,
customers, employees, the society at large and governments
are dealt in a fair manner.
2) Good corporate governance should look at all stakeholders and
not just shareholders alone. Otherwise, a chemical company,
for example, can maximize the profit of shareholders, but
completely violate all environment laws and make it
impossible for the people around the area to lead a normal life.
Shipbreaking in Valinokkam, near Arantangi in Tamil Nadu,
leather tanneries in South, Arco and hosiery units in Tirupur,
have brought about too much of environmental degradation
that has unleashed untold miseries to people in and around their
locations.
3) Corporate governance is not something which regulators have
impose on a management, it should come from within. There is
no point in making statutory provisions for enforcing ethical
conduct.
4) There is a lot of provisions in the Companies Act, for example,
(a) disclosing the interest of directors in contracts in which they
are interested; (b) abstaining from exercising voting rights in
matters they are interested; and (c) statutory protection to
auditors who are supposed to go into the details of the financial
management of the company and report the same to the
shareholders of the company. But most of these may be
observed in letter, but not in spirit. Members of the board and
top management should ensure that these are followed both in
letter and spirit.
5) There are a number of grey areas where the law is silent or
where regulatory framework is weak, which are manipulated
by unscrupulous persons like Ketan Parikh and Harshad Mehta.
In the US, for instance, the courts recognise that new forms of
fraud may arise, which may not be covered technically under
any existing law and cannot be interpreted as violating any of
the existing laws. For example, a clever conman can try to sell
a piece of the blue sky. In order to check such crooks, there is
the concept of the "blue sky" law. However, such wide-ranging
processes are not available to courts in developing countries.
6) The Securities and Exchange Board of India (SEBI) has
jurisdiction only in cases of limited and listed companies and
are concerned only with their protection. What about the
shareholders and others of other unlisted Limited companies?
7) The Serious Fraud Investigation Office (SIFO) in the
Department of Company Affairs (DCA). has been
investigating several "Vanishing Companies". By 2003, SEBI
has identified 229 as "vanishing companies" which tapped the
capital market, collected more than Rs. 800 crores from the
public and subsequently became untraceable. However,
thousands of investors have lost their hard-earned' money and
no agency has come to their rescue so far.
What is Ethics?
Ethics involves learning what is right or wrong, and then doing the right
thing -- but "the right thing" is not nearly as straightforward as conveyed in a
great deal of business ethics literature.
Many ethicists assert there's always a right thing to do based on moral
principle, and others believe the right thing to do depend on the situation --
ultimately it's up to the individual. Many philosophers consider ethics to be
the "science of conduct."
Seniors explain that ethics includes the fundamental ground rules by which
we live our lives. Philosophers have been discussing ethics for at least 2500
years. Many ethicists consider emerging ethical beliefs to be "state of the
art" legal matters, i.e., what becomes an ethical guideline today is often
translated to a law, regulation or rule tomorrow. Values which guide how we
ought to behave are considered moral values, e.g., values such as respect,
honesty, fairness, responsibility, etc. Discussions around how these values
are applied are sometimes called moral or ethical principles.
Business Ethics is now a Management Discipline:
Business ethics has come to be considered a management discipline,
especially since the birth of the social responsibility movement in the 1960s.
In that decade, social awareness movements raised expectations of
businesses to use their massive financial and social influence to address
social problems such as poverty, crime, environmental protection, equal
rights, public health and improving education. An increasing number of
people asserted that because businesses were making a profit from using our
country's resources, these businesses owed it to our country to work to
improve society. Many researchers, business schools and managers have
recognized this broader constituency, and in their planning and operations
have replaced the word "stockholder" with "stakeholder," meaning to
include employees, customers, suppliers and the wider community.
The emergence of business ethics is similar to other management
disciplines. For example, organizations realized that they needed to manage
a more positive image to the public and so the recent discipline of public
relations was born. Organizations realized they needed to better manage
their human resources and so the recent discipline of human resources was
born. As commerce became more complicated and dynamic, organizations
realized they needed more guidance to ensure their dealings supported the
common good and did not harm others -- and so business ethics was born.
Note that 90% of business schools now provide some form of training in
business ethics. Today, ethics in the workplace can be managed through use
of codes of ethics, codes of conduct, roles of ethicists and ethics committees,
policies and procedures, procedures to resolve ethical dilemmas, ethics
training, etc.
INSURANCE - The indication of reforms
IRDA - central to the insurance reform process - is an autonomous,
regulatory authority endeavoring to protect the interests of policy holders;
and regulate, promote & ensure orderly growth of the insurance industry.
The IRDA has been empowered to carry out several functions, including:
* Promoting and regulating professional organizations connected with
insurance & reinsurance
* Improving the efficiency while conducting the insurance business
* Establishing a code of conduct for players in insurance
* Determining the specification of accounts, and the manner in which
funds are invested
* Laying down prudential norms for investment for both life and general
insurance companies
THE SIX STEP INSURANCE PLANNING PROCESS
Insurance Planning is the process of providing advice and assistance to
clients to determine whether and how clients can meet their financial needs
and life’s goal through proper management of financial resources.
♦ Establishing and defining the client – planner relationship: The
Financial advisor should clearly explain or document the services to be
provided and define the responsibilities. The advisor should explain fully
how he will be paid and by whom. The advisor should also disclose any
restrictions on his ability to give unbiased advice and disclose any conflicts
of interests. The advisor should agree on how long the professional
Relationship should last and how decisions will be made.
♦ Gathering client data, including goals: The Financial advisor should ask
for information about the financial situation. The planner should mutually
define the personal and financial goals, understand the time frame for results
and discuss, if relevant, how one feel’s about risk. The Financial Planner
should gather all the necessary documents before giving the advice.
♦ Analyzing and evaluating the financial status: The Financial advisor
should analyze the information to assess the current situation and determine
what one must do to meet the goals, depending on what services have been
asked. For this one could include analyzing the assets, liabilities and cash
flow, current insurance coverage, investments or tax strategies.
♦ Developing and presenting Financial Planning recommendations
and/or alternatives: The Financial Planner should offer Financial Planning
recommendations that address the goals, based on the information provided.
The planner should go over the recommendations with the client to help and
understand them so that one makes informed decisions. The planner should
also listen to the client’s concerns and revise the recommendations as
appropriate.
♦ Implementing the Financial Planning recommendations: The planner
and the client should agree on how the recommendations will be carried out.
The planner may carry out the recommendations or serve as your ‘coach’,
coordinating the whole process along with professionals such as solicitors or
stockbrokers.
♦ Monitoring the Financial Planning recommendations: The planner
should agree on who will monitor the progress towards the client’s goals. If
the planner is in charge of the process, he/she should report personally to
review the situation and adjust the recommendations, if needed.
Ethics in insurance today (present scenario):
According to insurance stakeholders, the issue of compliance with ethics and
best practices should govern market strategies and operations.
Stakeholders have warned that the sector's efforts at achieving a more robust
financial capacity would be rubbished if steps are not taken to address
unethical practices and the prevalence of fake institutions in the industry.
Insurance operators need to devote more of their energies and resources to
ensuring the emergence of a new order in terms of players' attitude to the
issue of ethics.
Insurance, being a business that is based on trust, could only win the
admiration and patronage of the buying public when there is a widely
acknowledged effort by operators to operate by the rules laid down by trade
bodies and the regulatory authorities.
One would agree that the level of capital companies have had to raise within
the last few years is quite challenging. That is why there must be a collective
resolve by underwriters, brokers, loss adjusters, and agents to ensure that the
additional funds injected into the sector are safeguarded and used optimally
through strict adherence to ethics of the profession. Operators are usually
expected to display more commitment to ethical standards in all the
operations. There should not be any room for unprofessional and unethical
practices in the dispensation.
Generally, the fear of losing business, rate cutting and offer of illegal
inducements has compromised insurance operators' compliance to the
industry's ethics.
Industry watchers say experience of non compliance with ethics in the
insurance industry is a reflection of the situation in the larger society, adding
that professionalism, honour, service and social responsibility, should be the
key attributes of the sector.
Insurance and Ethics
Insurance, by definition raises ethical questions. Insurance might be viewed
as man’s attempt to control and influence an environment that we all know is
in God’s hands. Man’s attempt to insure anything is, at best, limited.
Insurance is nothing more than a pooling of money to provide limited
reassurance for a limited set of assets or circumstances.
Many people look to insurance to provide them with a complete sense of
security and assurance. When they buy insurance some people think, “Oh,
now I don’t have to worry, everything will be taken care of.” Unfortunately,
over the years, the insurance industry has often nurtured this paternalistic
and incorrect notion.
Because they do not control the world, insurance is only a
partial or stopgap measure to deal with the uncertainties that the world
presents. Insurance does not provide the kind of universal coverage and
assurance that many people look for. Many ethical concerns with insurance
exist because of this gap between consumer expectations and genuine
insurable risk.
For example, people are often disappointed, angry or
disillusioned to find that the insurance they have been paying for does not
cover a particular situation. This can leave consumers feeling that insurance
is a poor economic value or a “rip-off”. In this business managers frequently
hear statements like, “I’ve paid thousands of rupees of premiums, and this
small claim isn’t covered” or “Because I forgot two payments, my coverage
was cancelled. Now my claim won’t be paid after paying premiums for
many years”, or “I didn’t understand what I bought, I thought everything
was covered.” Not meeting a customer’s expectations can feel frustrating
and dissatisfying to them. Because of this difference between what people
expect and what insurance provides, insurance is one of the most highly
regulated industries in our country. Although it is national in scope, it is one
of the few industries of its kind that is primarily regulated at the state level
with 50 different sets of laws and regulations governing insurance.
Historically, insurance has played an important role in the
development of world economies. Unfortunately, there are times when the
industry has not been a good corporate citizen. In some cases, the insurance
industry has a history of discrimination, usurious prices, and dishonest
business practices.
Is insurance a good business after all? Does it raise so many ethical
questions that we should just avoid or eliminate it?
Once looked at carefully, insurance is a wonderful and much
needed product. Insurance, at its core, is a pooling of community risks. It is a
formalized way for people to come together and help each other. For
example, when we pay life insurance premiums, we are putting our money
together, not just to help ourselves but to help other families. When someone
else dies, his family benefits because a payment can be made from this pool
of premiums and the investment income that arises from it. When we die,
our claim is paid to our family, from the same pool. People, in more
informal ways, have done this for centuries. When someone dies, those
remaining help the family. This may appear very basic, but insurance is
much more powerful than just survivor benefits. Insurance allows us to take
risks and therefore fully live our lives. Insurance is required in most
industries and professions. This gives us some assurance of the quality of
goods and services that we use. Commercial insurance for industries and
professions has underwriting standards that require certain practices,
safeguards, licensing, and so on. In this way, insurance provides a form of
safety net for consumers both in terms of the product or service delivered
and remuneration if there is malfeasance.
Very few of us would have surgery, ride in an airplane, get on
an elevator, eat in a Restaurant, and drive cars, if there was no insurance in
place. Even more compelling, in many cases, without insurance we would
not enter into these businesses. Without insurance one mistake could
bankrupt the business and shatter customer confidence. Insurance not only
provides protection to the consumer, but also frees us to conduct business.
Insurance, just like money, is not an evil unto itself. It is a
channel that can be used in very good and helpful ways. Once we accept the
proposition that insurance actually is a good business, the ethical concerns
do not end. In fact, in many ways, they just begin. Every day in running an
insurance business, ethical considerations arise.
A few of the questions insurance corporatists confront daily are:
1. What is a fair price to charge? Should we charge as much as we can, as
little as we can, or something in-between?
2. What is the proper level of customer service? Just enough to get by, more
than the customer has bargained for, or something in-between?
3. What kinds of policies and procedures should govern the running of the
company? Should we follow the letter of the law, the spirit of the law, or
both?
4. Which laws are we talking about, man’s laws, God’s laws, or both? When
can and should we make exceptions to our policies and procedures?
5. How should we contract with other companies? Should we get as much as
possible, give as much as possible, or something in-between?
6. What should our benefits and compensation be for the people working
within the company? Should we pay them as little as possible, as much as
possible, or Something in-between?
7. What should be done when someone is not doing the job? Should we help
them, get rid of them, or keep them no matter what? How can we best
address these ethical dilemmas?
There are no hard and fast answers to any of these questions. Based upon the
situation, any of the answers may be right. It is possible to face the changing
questions, and the changing answers, every day depending upon the
individualistic views and ethical followings.
Institute for Insurance Ethics
Mission and Purpose
The mission of the Institute for Insurance Ethics is to develop programs that
will educate members of the insurance and financial services industry, as
well as the consuming public about the nature of ethics, social responsibility,
and the application of high ethical standards. A primary purpose of the
Institute will be to consider the role of ethics as an alternative to additional
regulation of the insurance and financial services industry. Unlike many
other businesses, insurance is based on mutual trust between insurance
producers and insurance clients. Trust, in turn, is based on the highest ethical
standards.
Vision of the Future
The Institute for Insurance Ethics will be a highly visible advocate for ethics
and ethical behavior in the life insurance and financial services industry. It
will be a strong, clear voice for ethical conduct and social responsibility
within the insurance industry. The leadership shown by the institute will
create ever-growing awareness of ethical issues among insurance and
financial services professionals. Through its growing leadership and
influence, insurance professionals will gain more and more formal training
in ethics and in dealing with ethical situations that they confront. Through
that training and awareness, consumers will continue to gain trust and
confidence in insurance professionals and in the insurance industry.
CODE OF ETHICS
Selling Life Insurance is like selling intangible product. So, the marketing
staff needs to observe a set of norms in his / her professional conduct, which
make him / her worthy of trust and faith.
The Code of Ethics for the life insurance, marketing staff
1. To perform his / her duties in high esteem.
2. To give utmost priority to the client's interest.
3. Not to disclose client's confidential and personal information
4. To ensure prompt and sincere service to the client and his or her family.
5. To use appropriate methods in convincing clients to protect their
insurable interest.
6. To make truthful and accurate presentations.
7. To improve his / her knowledge of life insurance through constant study.
8. To set a plan and work accordingly.
9. To maintain fair relations with colleagues.
10. To strictly follow the concerned laws and regulations.
11. To obtain proposals only on the lives of persons who fits in the physical,
moral and financial standard defined by the Company.
12. To be loyal to the Organization.
The IRDA has formulated a Code of Conduct for the marketing staff which
comprises two broad group heads viz. "Do's" and "Don'ts". They are listed
herewith:
Do's
1. Identification of marketing staff and the insurance agency - certificate of
License to be shown to the prospect on demand.
2. Match the needs of his / her client with various products available with his
insurer.
3. Work out the premium to be charged so that his / her prospect is able to
weigh the economic or financial implication of the proposal on his / her
resources.
4. Bring to the notice of his / her client the implication of various questions
in the proposal form and other documents and advise the client to disclose
all the material information.
5. Disclose to the insurer all relevant information.
6. Inform the prospect about acceptance or rejection of the proposal by the
insurer.
7. Obtain all documents from the prospect for the completion of the case.
8. Assist the policy holder in matters of:
Claim settlement,
Effecting nomination/assignment,
Revival, change of address,
Exercise of various options.
Don'ts - No Marketer shall
1. Solicit or procure insurance business without holding a proper
authorization
2. Induce the prospect to omit to disclose the material information in the
proposal form
3. Induce the prospect to submit wrong information in the proposal form or
in the documents submitted to the insurer for acceptance of the proposal
4. Behave in discourteous manner.
5. Interfere with any proposal introduced by any other insurance marketers.
6. Offer different terms and conditions other than offered by the insurer.
7. Part with or share his incentive with Prospect or with any other person.
8. Receive a share of the policy proceeds from the beneficiary.
9. Compel any person to terminate an insurance contract with any insurer
in order to effect a new proposal within three years from date of such
termination.
10. Apply for fresh license to act as an insurance marketer if his / her earlier
license / authorization have been terminated with in five years from the date
of termination.
11. Remain or become a director of any insurer carrying on insurance
business in India.
Ethics in insurance: Building relationships through trust
The momentum of the private insurance sector leaves no doubt in one’s
mind that it is amongst the foremost growth sectors of our country. A market
share of 26.18 per cent in five years is testimony to this. But even while one
braces himself to avail of the numbers within his/her sight, they need to
realize that the "long-term" will belong to that company which rigidly
benchmarks ethics for itself and for the industry. In a business, where the
customer entrusts the company with his / her financial savings, ethics has a
direct relation to sales. The greater the trust, the more the sales.
There are many ways to build trust through ethics, the most fundamental
being the way the product is designed. It should offer complete clarity and
transparency and the literature supporting the product should not over-
promise the benefits or understate the risks.
For eg: At Birla Sun Life, the use of the sales illustration, the inclusion of
the policy proposal form, and the free look period they offer have served to
win their customers' trust. By giving customers the option to track
investments online and by publishing the performance of the funds against
benchmark indices, specifically prepared for Birla Sun Life by CRISIL, they
prove that they are an open and reliable organization.
Ethics is an attitude that needs to touch every aspect of the customer
relationship. It entails having great reverence for the customer's needs, being
open to suggestions and insights that might enhance his / her comfort levels,
building in riders and flexibility options that address these needs, providing
assistance and clarity in documentation and upgrades, and settling claims on
time. Ethics means being fully accountable, not just to the company and to
its customers, but to the industry they serve. The inspiration for ethics thus
comes from the highest source — from a need to impact the industry.
On the flip side, a lack of ethics can have serious consequences. Litigation
and costs of settlement, business losses, a reduction in ratings, and increased
scrutiny are not half as damaging as the loss to image and reputation. It's a
fact that good ethics makes good business sense. Of course, the mandate for
good ethics always stems from the top. Which explains, why at Birla Sun
Life, they have introduced a system of checks and balances that guards
against concealment and why they follow norms of compliance and adhere
to IRDA regulations so scrupulously that their books and processes are open
to audit at all times.
While top management can lay down a code of ethics and request adherence,
its implementation depends on the individual. As Albert Einstein said,
"Ethics is an exclusive human concern without any superhuman authority to
back it.”. Ethics is that discipline, that momentum that challenges a company
to rise above themselves and raise the bar each time they interact. It is the
means by which they measure themselves, the strength by which they
progress, and the light by which they shall be remembered. It is the way
ahead - for each individual and for his industry.
CASE STUDY:
CODE OF ETHICS AND PROFESSIONAL CONDUCT
ICICI LOMBARD-CHEATS
Rahul Saxena is a policy holder who is an unsatisfied consumer of ICICI
LOMBARD. He shares his personal experience with us.
Member's Rating of this Product:
Member's Recommendation of this
Product:No
Customer Service:
Claims Settlement:
Rates/Premium:
Range of Plans:
Staff Attitude:
Pros: None
Cons:Business
ethics
The Cheating by ICICI
Now if things could not get any worse, I am currently going through what
can only be termed as the blatant cheating of a customer from one of India’s
largest Companies – ICICI. The following is a timeline as to what happened
and continues to happen.
12-11-05: Accident took place. Police report was made. Insurance company
was notified and claim number received.
16-11-05: After checking the list of cashless garages on their company
website, and verifying the same with your customer service representatives
as well as the garage of choice – Autograph Skoda,
Official Skoda dealers, I towed the car to the workshop. All papers as
desired by ICICI were handed over to the garage to produce to the Insurance
agent at the time of the survey. The only reason I picked an authorized
Skoda garage, even after knowing the ridiculous prices they have, was
because ICICI told me they had a cashless facility for that garage.
19-12-05: At 7:30pm, I get a call from Mr. Abhay stating that ICICI cannot
process my cashless claim as a third party has been injured and a case has
been filed. He instructed me that if I want my car I could pick it up after
paying the full amount. I then spoke to Mr. Suresh Shetty, who stated, “the
ICICI legal department had advised them not to pay the claim”. I asked for a
written copy of the clause in the policy where it is stated that the claim for
vehicle repairs cannot be paid unless the case is solved in court. I also spoke
to my long time insurance agent from New India Assurance who confirmed
that there is no such requirement and that ICICI is known to harass its
customers on large claims.
I was put on the line with Mr. Kapil Madgar who stated that he was the
Regional Manager. I asked him to provide me with the clause as mentioned
above. However he rudely told me that he does not know and even though
he was sitting in the office, he did not take the bother to atleast try and assist
me. Till date, Mr. Abhay and Mr. Shetty were well mannered and helpful to
the extent they could be, but I must say that the manner of speaking of Mr.
Kapil leaves a lot to be desired! As it was obvious that I was not going to get
an accurate answer on the phone, I have asked for a written statement by fax
from the company showing me where this clause is mentioned. I was assured
that it would be with me by 10am the next day. Nothing came.
On 20/12/2005, I receive the biggest shock of my life. I get an unsigned fax
from ICICI stating that they will NOT HONOUR my insurance at all stating
the limitation in the policy of “PACEMAKING”. No explanation was given
as to what they mean by pace making, and my agent at New India told me
that this is a motor sport activity and does not apply to my case at all.
All further attempts to get a proper reply from ICICI has fallen on deaf
years, and a fax sent on the 20th to their MD – Mr. Sandeep Bakshi has not
been replied too till date.
There is no-one at ICICI who is willing to take responsibility, all their
written correspondence is unsigned, and there is no-one you can speak to
who will give you a straight answer. This from a company who’s slogan is
“Haam hai na!” I should take them to court for false advertising alone!
I have now approached the WIAA who are supporting me completely. This
battle will now move to the Insurance Regulatory Board. From there I can
move the Consumer Court if I am not happy with the verdict.
However this will now take time and I have no choice but to fund the entire
repair costs myself. But, from all the legal opinions I have taken, I am in
very good standing legally and I should win my case plus penalties and other
expenses paid to me.
I am putting this topic up here now to WARN all other members that ICICI
are COMPLETE CHEATS AND DO NOT GIVE A DAMN ABOUT
THEIR CUSTOMERS. They will try anything in their power to wriggle out
of paying a large claim, which they are rightfully entitled to pay. This tactic
is probably their company policy, hoping that finally the customer will give
up and forget about it.
Well, this is not happening here with me and rest assured this case will be
followed till its rightful conclusion. And hopefully it will serve as a lesson to
ICICI and other insurance companies that the Customer is no longer just
going to lie down and take the CRAP that is meshed out to them.
My Final notes – DO NOT DEAL WITH ICICI, whether it’s their banking,
insurance or loans. They will gladly take your money with a smile, but when
it comes to actual customer service, they are the WORST I have ever had the
displeasure of dealing with.
Conclusion:
The ethical and spiritual path in insurance, and in life, is an individual one.
At times, it can feel like a solitary path. Ethics is not reached by consensus
but by conviction. The ethical path may not be popular but it does stand the
test of time. Ethics is not a hard and fast set of rules but is based upon
guiding principles. Ethics should guide our communities, yet they are deeply
personal. Above all, ethics and the spiritual compass that underlies our
individual ethical code, is not a destination, it is not even a journey, it is the
journey. What is good, right and true usually stands the test of time and may
not always be immediately apparent. The ethical “stake in the ground” will
always be scrutinized and criticized by someone.
Ethics in insurance: Building relationships through trustnews
Nani Javeri*
11 January 2006
The 'long-term' will belong to the company which rigidly benchmarks
ethics for itself and the industry.
Mumbai: The momentum of the private insurance sector leaves no doubt
in my mind that it is amongst the foremost growth sectors of our country. A
market share of 26.18 per cent in five years is testimony to this. But even
while we brace ourselves to avail of the numbers within our sight, we need
to realise that the 'long-term' will belong to that company which rigidly
benchmarks ethics for itself and for the industry. In a business such as ours,
where the customer entrusts us with his / her financial savings, ethics has a
direct relation to sales. The greater the trust, the more the sales.
There are many ways to build trust through ethics, the most fundamental
being the way the product is designed. It should offer complete clarity and
transparency and the literature supporting the product should not over-
promise the benefits or understate the risks. At Birla Sun Life, the use of
the sales illustration, the inclusion of the policy proposal form, and the free
look period we offer have served to win our customers' trust. By giving
customers the option to track investments online and by publishing the
performance of the funds against benchmark indices,
specifically prepared for us by CRISIL, we prove that we
are an open and reliable organisation.
Ethics is an attitude that needs to touch every aspect of the customer
relationship. It entails having great reverence for the customer's needs,
being open to suggestions and insights that might enhance his / her comfort
levels, building in riders and flexibility options that address these needs,
providing assistance and clarity in documentation and upgrades, and
settling claims on time. Ethics means being fully accountable, not just to
the company and to its customers, but to the industry we serve. The
inspiration for ethics thus comes from the highest source - from a need to
impact the industry.
On the flip side, a lack of ethics can have serious consequences. Litigation
and costs of settlement, business losses, a reduction in ratings, and
increased scrutiny are not half as damaging as the loss to image and
reputation. It's a fact that good ethics makes good business sense. Of
course, the mandate for good ethics always stems from the top. Which
explains, why at Birla Sun Life, we have introduced a system of checks and
balances that guards against concealment and why we follow norms of
compliance and adhere to IRDA regulations so scrupulously that our books
and processes are open to audit at all times.
While top management can lay down a code of ethics and request
adherence, its implementation depends on the individual. As Albert
Einstein said, "Ethics is an exclusive human concern without any
superhuman authority to back it." To this I add: Ethics is that discipline,
that momentum that challenges us to rise above ourselves and raise the bar
each time we interact. It is the means by which we measure ourselves, the
strength by which we progress, and the light by which we shall be
remembered. It is the way ahead - for each of us and for our industry.
*The author is CEO, Birla Sun Life Insurance Company Limited
Insurance contracts are often seen as a form of gambling. That is because
they appear as a type of wager that takes place over the lifetime of the
policy. Basically the insurance company is willing to bet that you and your
property will not suffer the loss insured against. In exchange for making this
bet, and taking on the risk, they receive your premium. If they win the bet,
they keep the premium; if they lose, they make the payout. In this sense,
they are often compared to a type of long term financial casino.
The difference between your premium amount, and the amount the insurance
company will have to pay out if the loss occurs, is simply the odds the
insurance company is getting for taking on the bet. It's just like going to the
horse races and betting on a horse that pays out 10 to 1.
This view of insurance has led to a number of people and religious
communities disapproving of insurance because of its similarities to
gambling. Among those groups that avoid insurance are the Amish and
Muslim communities. What these people do instead is create a system of
what is known as social insurance. What this means is that if there is a
disaster and someone suffers a heavy loss, then the whole community will
step forward and help them to deal with their loss and rebuild. While this
system is very simple, it has the potential to be just as effective a safety net
as insurance. However, it requires that the community actually does step
forward and help those who suffer from disasters. This means that it is more
successful in small closed and closely knit communities than in large
modern societies.
Social insurance systems therefore are not always effective. Often the
community that is supposed to adopt it is not suitable. Also, in very large
disasters the system can break down as a small community will not be able
to rebuild itself completely without outside assistance. This is why larger
modern insurance systems can be more robust. However, in extremely large
disasters, modern insurance systems can also run into difficulties. This is
witnessed by the fact that it is impossible to insure against certain risks such
as floods and earthquakes. This is because the damage would be simply on
too large a scale for the insurance companies to cope with.
There are other ways in which insurance doesn't follow the gambling model.
For instance insurance companies seek to reduce the risk of the loss
occurring constantly, for instance by requiring the installation of fire alarms,
or by reducing the loss if the insured against event does occur, for example
by providing rehabilitation to accident victims. Therefore insurance is like a
gamble in the reward and risk elements, but other elements are different.
Joseph Kenny is the webmaster of the insurance
site http://www.insure121.com/ where you will find information, news and
links to the leading providers of car insurance in the UK.
Article Source: http://EzineArticles.com/?expert=Joseph_Kenny
Insurance Ethics isn't much different than the Ethics requirement for any
other Fiduciary position. Since Agents and Adjusters are tied to state
regulation, the people and the Insurers could lose their license and
Certificate of Authority to transact business in that state.
There is a law called Public Law 15, the McCarran Ferguson Act, that
allows for each state to regulate their states' business, and the Federals will
not intervene as long as the states handle it properly. Inside these laws are
the Unfair Trade Practices. If an Agent or Insurer violates any of the Unfair
Trade Practices, the state can assess fines and/or imprisonment. Some
examples would be Misrepresentation, Concealments, Twisting, Rebating,
Defamation, Giving away Free Insurance, Commingling, Embezzlement,
etc.
Because the Insurance industry is tied to Ethics, the Insurers often keep strict
reins on any person who might mislead the public in any way.
Fraud is the willfull intention to deceive and every family in America spends
around $1,200 more per year just because of Fraud. Every person spends
$250 more per year due to Auto Insurance Fraud.
Our Nation spent $1.7 TRILLION dollars on health care in 2003. It is
estimated that 20-35% of that was fraudulent. It's everyone's fault, the
hospitals, Doctors, Pharmeceuticals, Insurers, Agents, Lawyers, and the
CLIENTS themselves for being frivolous.
Every Insurer has outstanding people, but are also cursed by the shysters and
crooks. No one is immune. If an Agent decides to lie to a client in order to
promote his own commission, then that Agent should have his license
revoked and face justice. But, since 61% of taxpayers say it's okay to cheat
on your taxes, I would say that we will always face that problem. Trying to
police Ethics is a full time job, and every day is a new battle.
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