ethics for the insurance professional. a moment of silence
TRANSCRIPT
Ethics for the Insurance Professional
A Moment of Silence
Morals Defined
According to Dictionary.com Morals are:
• pertaining to, or concerned with the principles or rules of right conduct or the distinction between right and wrong; ethical.
Morals Defined (cont…)
• founded on the fundamental principles of right conduct rather than on legalities, enactment, or custom.
• capable of conforming to the rules of right conduct
Morals
• Concepts of right and wrong that form a system of principles upon which decisions can be based.
• One’s moral code tends to shape their idea of Ethics as well.
Morals
• Morals can vary based on culture, religion, and society.
• Best known moral code is the Ten Commandments.
Morality
“Right vs. Wrong” Decisions
“From the Heart and the Brain”
“Feels” like the “Right” thing according to the way I was taught.
Ethics Defined
According to Dictionary.com Ethics is:• a system of moral principles, • the rules of conduct recognized in
respect to a particular class of human actions or a particular group, culture, etc.
Ethics Defined (cont…)
• moral principles, as of an individual.• that branch of philosophy dealing
with values relating to human conduct, with respect to the rightness and wrongness of certain actions and to the goodness and badness of the motives and ends of such actions.
What do you sell in the Insurance industry?
• Promise to pay claims when an unforeseen event occurs.
Ethics: Core Beliefs
•Honesty-no relationship, personal or professional, can be successful if one or both parties are dishonest.
•Dishonesty can be fatal in business.
Ethics: Core Beliefs
• Respect for other persons-respecting individuals physical and emotional well-being; if a customer feels disrespected they will take their business elsewhere.
Ethics: Core Beliefs
• Respect for a person’s property- “Disrespect for a person’s property is the antithesis of the noble mission of an insurance professional”
• Examples of disrespect of property: neglect, carelessness, vandalism, theft and destruction.
Ethics: Accountability
• “Know where your ethical foundation lies and to whom you have made yourself accountable. “
• Build your ethics based on accountability, define to yourself whom you are professionally accountable and base your decisions/behavior on such.
Ethics: Integrity
• Acting consistently with your beliefs and moral code.
• Behaving the same regardless of whether or not someone is watching you.
Ethics: Leadership
• A leader must have integrity and be a step above the rest.
• Leader sets the example, if a leader or superior in your office acts unethically or inconsistently they can be labeled a hypocrite and not taken seriously.
• Leader can set the “moral direction”, like a compass guiding you on the right path.
Insurance Professional -Defined
• A professional is one who works to pursue a vocation.
• Not to be confused with one who works solely to gain money, a mercenary.
• An insurance professional has a passion for helping people when they are experiencing some of the worst moments in their life.
Insurance Professional -Defined
• Mercenaries consider those that buy policies from them as customers, and professionals think of those that buy policies as clients.
• “Client” is derived from a Latin word meaning lean, which portrays a client as someone who leans upon another for support.
• A customer is someone who simply purchases goods or services.
Ethics
– “Right vs. right” decisions– Come from the “head” (intellect)
• Codes of expected behavior• Approved guidelines• Derived from morals
A True Moral Crisis Is Not Solvable By an Ethical Process...Why?
Because...
The First Step in Solving a “Moral” Crisis Is to Determine “Right” from “Wrong” -- NOT “Right” from “Right”
Are we as Ethical as we think??
• Sometimes we convince ourselves we are acting ethically, even if we may not be.
• You may enter negotiations with a client with nothing but ethical intentions however you may make misleading statements in order to get them to sign on the dotted line.
Insurance Fraud
• External Fraud-schemes directed against a company by individuals or entities.
• Examples:– Staged auto accidents– Claiming false disability– Inflating value of items stolen in theft or
burglary
Insurance Fraud
• Internal Fraud- perpetrated against a company or its policyholders by agents, managers, executives, or other employees.
• Examples:– Agent or insurer pocketing premiums– Agent or insurer issuing fake policies– Agent making a false statement on a filing.
Common Types of Insurance Fraud
• Insurance Related Corporate Fraud- In the down economy some insurance companies have held premiums and used premium fund to cover business expenses.
• Premium Diversion/Unauthorized Entities- when insurance agents and brokers divert policyholder premiums for their own benefit.
Today’s Headlines
• May 24, 2011- Hudson County Insurance producer pleads guilty to theft charge for failing to remit insurance premiums. – Sentenced to 180 days in County Jail.– Ordered to pay $76,819.03 in restitution.– Revoked Insurance license.– Owes his company $92,500 in fines.
Today's Headlines
• October 18,2011-In Camden County, NJ an insurance producer was indicted for allegedly stealing $172,000 from insurance purchasers and allegedly failing to remit insurance premiums. – If Found guilty: Second-degree crimes carry a
maximum sentence of 10 years in state prison and a criminal fine of $150,000, while third-degree crimes carry a maximum sentence of five years in state prison and a criminal fine of $15,000
Today’s Headlines
• November 30. 2011- In Providence, R.I. a former adjuster was sentenced to 6 months in halfway house followed by 6 months home confinement for his role in Insurance fraud. He advised a local Radio Host not to call in a flood damage claim because the individual did not have a flood policy. Instead the radio host hired the man as a public adjuster, and he then deliberately damaged the home
Today’s Headlines (cont…)
To make it look as if a storm that never occurred caused the damage. A fraudulent claim of $40,000 was paid to the radio host. The adjuster received $4,000.
Was $4000.00 worth losing a career over???
Hot Topic
• Social media profiles and accounts being used in Insurance fraud cases.– Ethical or not?– Why?
Code of Ethics
• Code of ethics is a specific and organized set of guidelines governing behavior within a profession or organization. – Does your office have a Code of Ethics?– Where is the manual located?– Do you have any type of ethics training
internally?
Code of Ethics
Primary Stakeholders ThatShape Business Ethics
– Employees– Customers– Suppliers– Community– Government– Shareholders
Professional Responsibility
Insurance as a viable business
~making the right
decision while
doing the right thing
EthicalProfitable
Unethical Behavior Hurts Everyone
In addition to hurting consumers and tarnishing the industry's image, unethical behavior costs insurance professionals in terms of higher premiums charged for errors and omissions (E & O) insurance for protection against professional liability claims.
• Insurance fraud is the second largest economic crime in America, exceeded only by tax evasion.
• Insurance fraud costs each American family nearly $1,000 a year. These are direct costs that raise the price of health insurance premiums, auto and homeowners' premiums, and increases the price you pay for goods and services.
Unethical Behavior Hurts Everyone
Unethical Behavior Hurts Everyone
• "Nearly one in four U. S. adults say that overstating the value of claims to insurance companies is acceptable."
Insurance Industry helps:
• http://www.insurancejournal.tv/videos/2572/
It’s a matter of trust
1. Ethics is based on trust.2. People do not like their trust violated.3. Successful businesses provide value and build trust
by taking care of their customers.4. Social Responsibility – the obligation a business
assumes towards society. It maximizes the positive and minimizes the negative.
Johnson & Johnson Co. – Tylenol Scandal
• In October of 1982, Tylenol, the leading pain-killer medicine in the United States at the time, faced a tremendous crisis when seven people in Chicago were reported dead after taking extra-strength Tylenol capsules. It was reported that an unknown suspect/s put 65 milligrams of deadly cyanide into Tylenol capsules, 10,000 times more than what is necessary to kill a human.
What Did They Do?• Following the guidelines in their own code of
ethics they put protecting people first and property second, McNeil Consumer Products, a subsidiary of Johnson & Johnson, conducted an immediate product recall from the entire country which amounted to about 31 million bottles and a loss of more than $100 million dollars. (Lazare, Chicago Sun-Times 2002) Additionally, they halted all advertisement for the product.
The Outcome
• Tylenol products were re-introduced containing a triple-seal tamper resistant packaging. It became the first company to comply with the Food and Drug Administration mandate of tamper-resistant packaging. (Mitchell 1989) Furthermore, they promoted caplets, which are more resistant to tampering.
Insurance Is A Business Built On Trust
• Trust in the product--that it meets the client's needs
• Trust in the company--that its promises will be kept
• Trust in the agent--that he or she is working in the client's best interest
The Agent’s Legal Obligations
To sell the policy of the insurance companies licensed in the state where applications are taken.
Insurance Industry Regulation – All states regulate the insurance industry within their individual states and all ethical conduct is handled through the insurance commissioners or directors’ powers to oversee the marketing practices of both the agent and the insurance companies in that state.
The Agent’s Ethical Responsibilities
An agent’s four primary responsibilities are to:1. The agent’s insurer;2. The agent’s policyholder;3. The general public;4. The state.
• Responsibilities to the Insurer:1. Inspect the risk;2. Immediately bind an insurer by oral or written
agreement;3. Issue various types of contracts;4. Collect premiums due.
Responsibilities to the Policyholders
• Responsibilities to the Policyholders– Selling the needed services;– Providing a quality service.
Responsibilities to the Policyholders
• Responsibilities to the general public:– Inform the public about insurance with the
highest level of professional integrity;– Strive for an equally high level of
professionalism in all public contracts in order to foster and maintain a strong positive image of the industry.
Responsibilities to the Policyholders
• Educate the client• Sell to the need• Explain the importance of the application
and to obtain correct information• Explain the underwriting process
Responsibilities to the Policyholders
• Provide Service• Keep Information Confidential• Full Disclosure • Delivering the policy
Fiduciary duty to the public regarding the handling of premiums.
• Contract of adhesion: The terms of the contract are drawn up by one of the parties (in this case, the insurer). Because insured's have little or no input, courts will usually interpret any unclear wording in an insurance policy in their favor.
Fiduciary duty to the public regarding the handling of premiums.
• Contract of utmost good faith: The insurance company relies on the truthfulness and integrity of the applicant when issuing a policy. In return, the insured relies on the insurance company's promise and ability to provide coverage and pay future claims.
Good Faith
• “ Never try to fool the men you represent. Tell them what is possible and what is impossible to do. And look upon a single contract as something sacred - - a pact to be observed; an agreement which is your bond of good faith” - Philip Murray
Fiduciary duty to the public regarding the handling of premiums.
• Contract of indemnity: An insurance policy is a contract of indemnity. The principle of indemnity states that when a loss occurs, an individual should be restored to the approximate financial condition he or she was in before the loss, no more and no less.
The Insurance Agency
1) Insurance Defined – Insurance is a contractual agreement by which one party (the insurer) assumes all or part of the risk that would otherwise fall upon another party (the insured).
2) Agency Defined – An insurance company appoints licensed insurance agents as representatives to act on its behalf to sell insurance to the consumer.
The Insurance Agency
Implications of the Agency/Agent Relationship• The agent is an agent of the principal,
not the 3rd party with which he or she deals;
• An agent has the power to bind a principal to a legal contract and its obligations.
The Insurance Agency
An agency appointment can exist between an agent and a principal by:
– Appointment – The agency contract appoints the agent to act for the insurance company.
– Ratification – When a person holds himself or herself out as having authority to act for the principal when, in fact, they have no authority.
The Insurance Agency
An agency appointment can exist between an agent and a principal by:
Estoppels – • The principal must act in some way to create the
appearance that an agency relationship exists. • An innocent third party must be misled by the
principal’s actions and be made to believe that an agency relationship exists.
• Acting on belief that an agency relationship exists must not injure the third party.
Agent Power vs. Authority
Before individuals can act as agents they must first be given the authority via the contract with the principal. The contract then gives the agent the power and authority to act on its behalf, and therefore, power and authority are related.
Agent Power vs. Authority
Types of authority the agent has:– Express Authority – Through an agency
contract, a property agent may receive the authority to solicit applications for homeowners insurance and collect premiums.
– Implied Authority – Implied authority is the authority the principal intends the agent to have but is not expressly given.
– Apparent Authority – Apparent authority arises when a principal permits an agent to perform acts that the contract neither expressly nor implicitly authorizes.
Agent Power vs. Authority
• Limitation on Authority– In most cases an agent’s activity is restricted
to some extent by the written agreement with the principal.
Unfair Marketing Practices
Misrepresenting and/or false advertising - Agents have an ethical duty to present their policies in a truthful and open manner.
• An insurer or its associate may not make statements of any kind nor create or circulate sales materials that are false, misleading or deceptive.
• Misstatements of terms, advantages or benefits of a policy; misrepresentation of an insurer's financial condition or deliberately making any false financial statements concerning its solvency in an effort to deceive;
Unfair Marketing Practices
• Misrepresenting a policy by using a misleading name or title to falsely indicate that it represents shares of stock;
• Using false or misleading advertising to make a misrepresentative statement about an insurer or its associate
Unfair Claims Settlement Practices
– Knowingly misrepresent policy provisions at the time of a claim
– Failing to acknowledge promptly pertinent communications concerning claims
– Failing to adopt and implement reasonable standards for settling claims
Unfair Claims Settlement Practices
– Attempt to settle claims late once the insurer’s liability becomes clear
– Failing to affirm or deny coverage of claim within a reasonable time after receiving proof of loss
– Attempting to settle claims for less than could be reasonably expected
Unfair Discrimination
– It is illegal for a company to permit “unfair” discrimination in the policy rates charged to individuals of the same risk classification.
The Golden Rule
• The golden rule is best defined as saying:” Treat others only in ways that you’re willing to be treated in the same exact situation.”
Licensing Issues
In most states an agent’s license can be suspended or revoked for any of the following reasons:
– Making materially untrue statements in the application process for an insurance license
– Violating or failing to comply with insurance laws of the licensing state or other state
– Using fraud to obtain a license
Licensing Issues (cont…)
– Misappropriating funds– Misrepresenting the terms of the
contract– Being convicted of a felony – Being convicted of unfair trade
practices– Falling asleep in a CE seminar
Ethical Issues
• Unisex Rating – The idea that men and woman should pay different rates because of their potential exposure.
• Rebating – When the buyer of the insurance receives any part agents commission or anything of significant value as an inducement to purchase a policy.
• Redlining – Refusing to write coverage to certain individuals based on their location or places of business.
Challenges
• Production• Profit• Rapid Change • Information
Scenario
When does sales puffery become deliberate misrepresentation?
When is it simply over-enthusiastic exaggeration?
Your client asks what a fellow client’s insurance costs – they live in the same subdivision.
How do you handle the situation?
He then asks for the neighbor’s insurance amount, and if you “totaled” his roof.
Scenario
Francine has two losses pending…
You haven’t turned the second one in yet … you want to phrase the facts of loss #2 so that it will be paid without a hassle.
Francine wants to avoid paying two deductibles.
When does action go from “letting it happen” to deliberate impropriety?
Why not act Ethically?
• Fear of:– Losing accounts– Seeming inadequate– Confrontation
• Lack of:– Courage– Knowledge
• Down Economy
Why not act Ethically?
• Conflict of interest. – Can be caused:
• by unique circumstance• Relationships• Business arrangements
Transparency can eliminate the appearance of conflicts of interests
What is “bad faith”
• intentional dishonest act by not fulfilling legal or contractual obligations, misleading another, entering into an agreement without the intention or means to fulfill it, or violating basic standards of honesty in dealing with others. Most states recognize what is called "implied covenant of good faith and fair dealing" which is breached by acts of bad faith, for which a lawsuit may be brought (filed) for the breach (just as one might sue for breach of contract). The question of bad faith may be raised as a defense to a suit on a contract
Bad Faith
• In the wake of natural disasters, such as hurricanes, instances of “bad faith” with business insurers seem to increase.
• Each state has their own penalties for proved “bad faith” breaches. Companies can be punished with punitive damages.
The Problem in Perspective
• Be accountable for the quality of your work • Comply with all laws
Isn’t that enough?– What if the law doesn’t address it? – Implied covenant of good faith and
fair dealing
Non-compliance…what’s at risk?
• Regulatory issues – “duties of an insurer to an insured”– Protection of consumer interests– Professional regulation
• Business and your community – peer review in practice– What is a conflict of interest? – What is reputational risk?
Analysis of your options
• As it concerns your agency – Compliance– Errors & Omissions
Analysis of your options
• As it concerns your clients – good faith and fair dealing– Consumer “bill of rights”
• Buying insurance• Discounts• Cancellation & refusal to renew• Claims• Discrimination• Enforcing your rights
Analysis of your options
• As it concerns the Department of Insurance – best practices
What about …• accurate information• product meeting expectations & needs• services and products delivered promptly• confidentiality and notification of material change(s)• not exceeding your authority
Choosing among the alternatives
• Gathering and accepting information• Responding to clients• Financial and insurance transactions
“ Even if you are on the right track, you’ll get run over if
you just sit there”
- Will Rogers
Scenario
You get a phone call – it’s Hannah, again. She’s received notice from the company that her policy has been modified at renewal.
You’re having a particularly busy day.
How much detail do you really think she can handle without wasting another hour of your time, like she did last time she called?
Scenario
A co-worker asks you to take a call for them from one of their clients who’s on the phone. The client is wondering where her policy is because it’s been 5 days since the application was submitted. You know the application is still on your co-workers desk. What do you say to the client? Do you cover for your co-worker?
Insurance Industry Regulation
The role of NAIC (National Association of Insurance Commissioners):
– To encourage uniformity in state insurance laws and regulations.
– To assist insurance officials in administrating these laws and regulations.
– To help protect the interests of policy owners.– To preserve state regulation of the insurance
business.
ETHICS (SUMMARY)
• Good ethics equals good business and requires constant commitment on the part of the insurance professional to build and maintain high standards within the industry.
• A personal code of ethics will help build a better, more prosperous insurance professional along with better and more profitable insurance industry—no one can hope for a better future than that.
So how can you act Ethically?
• Only making promises you can keep
• Fulfilling promises you’ve made and/or explaining why you cannot fulfill promises.
• Honesty in all communication
So how can you act Ethically?
• Stay within your area of expertise:– Don’t oversell your knowledge or abilities– Disclose bad news in a timely manner– Disclose any conflicts of interests– Work through proper channels
So how can you act Ethically?
• Maintain confidences– Admit any mistakes quickly
• Rectify Mistakes
– Associate with others who are known as Ethical and Honest
Ethics and Legality
1. For some people there is a conflict because ethics, which deals with the way things should be (but is not always practical) and the law which states the least society will accept - are two completely separate concepts.
2. Ethics is right for right’s sake. 3. The law represents a set of minimum standards that society
demands. 4. What is legal today, but unethical, may become illegal
tomorrow based on pressure by a community to bring about change. (e.g. Enron, WorldCom, and other big businesses)
It is easy to find successful businessmen, but not so easy to find men who put character above business”
- Orison Swett Marden 1908
References
• Corbin, D., (2006). Establishing Ethics for Insurance Professionals. Insurance Journal West Magazine.
• http://www.fbi.gov/stats-services/publications/financial-crimes-report-2009/financial-crimes-report-2009#insurance
• http://www.nj.gov/oag/newsreleases11/pr20110524a.html
References
• http://www.boston.com/news/local/rhode_island/articles/2011/11/30/ex_ri_insurance_adjuster_to_be_sentenced_in_fraud/
• Ted Pappas’ presentation(National Association of Mutual Insurance Companies) Commercial Lines Seminar on February 28th, 2008 in Chicago.
Thank You For Coming!