insight on ethics and the insurance industry

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Insight onEthics and The Insurance Industry

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What this class will cover

1. The Ethical Requirement for Insurance2. Background on “ethics” and “morality” from an

historical and current day perspective3. Meaning of Ethics4. Ethics vs Morality5. Ethics in the Insurance Industry

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Ethics Requirement

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Ethics Requirement for Insurance What does the ethics regulation require? The regulations stated in Section 2188.6(H)(I)&(J)

of the California Code of Regulations requires Fire and Casualty broker-agents and Life agents to complete four hours of ethics training during their two-year license term. Personal Lines broker-agents will be required to complete two hours of ethics training during their two-year license term

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The Foundation of Ethics

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PlatoSocrates Aristotle


Foundation of Ethics Impairment

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Jeff Skilling Bernie Ebbers Dennis Kozlowski

Enron Worldcom Tyco


2005 Spitzer as attorney general of NY filed suit against AIG and Hank Greenburg

Spitzer was inaugurated on 1/1/07 as governor of NY promising to focus on ethical government and the economy.

2008 Involved in a prostitution Scandal

Resigned 3/1208 resigned from Governor of NY

11/6/08 federal prosecutors declined to press charges

He’s Back!!!

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Why Should We Study Ethics? High profile cases have raised the

question of ethical behavior Businesses can no longer hide Transparency is the new watchword The public demands more from the

business relationships In general there are higher standards

being placed on behavior

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Foundation of Ethics

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The Foundation of Ethics The philosophical background of ethics can be

traced to Plato as espoused most notably in the ten books of The Republic (Republico).

The Republic was patterned after much of the works of Socrates—a teacher of Plato and carried forward by Aristotle who was a student of Plato at the age of 17 in Athens (367BC).

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The Foundation of Ethics

Aristotle and his peers were among the first “ancient” philosophers who made a serious and systematic study of moral principles that he called ethics

“Aristotle believed, our early training and current material circumstances will determine to a great extent our capacity to follow the right path.” Philosophy The Classics

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A Fable Worth Repeating

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Socrates and Glaucon

In The Republic, Plato recounts a dialogue between Socrates and Glaucon, Plato’s older brother.

In it, Glaucon argues that only the fear of detection and punishment prevents a human being from breaking the law and doing evil for the sake of his own self-interest.

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Socrates and Glaucon

Glaucon thinks that this natural fact is demonstrated by the fable of the shepherd Gyges, who found a gold ring which made him invisible whenever he twisted it on his finger.

On realizing the ring’s power, Gyges used it to seduce the queen, murder the king, and take the throne.

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Socrates and Glaucon Glaucon’s claim then, is that every one of us,

however law-abiding and good we might seem, would do as Gyges did, or something else in our self-interest, if we could avoid detection and punishment.

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Philosophy Branches

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Philosophy Branches

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What Does Ethics Mean?

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What is Ethics? Various Definitions coming from various

disciplines Webster Dictionary: “The discipline dealing

with what is good and bad and with moral duty and obligation”

Golden Rule: “Do unto others what you would want them to do unto you”

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What is Ethics? Ayn Rand, Russian-American novelist and

philosopher (1905-1982): Ethics is a code of values which guide our choices and actions and determine the purpose and course of our lives.”

Cambridge Dictionary of Philosophy, 1995: The word itself is sometimes used to refer to the set of rules, principles, or ways of thinking that guide, or claim authority to guide, the actions of a particular group; and sometimes it stands for the systematic study of reasoning about how we ought to act.

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Ethics vs. Morality

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It is not always that simple a decision


Ethics vs Morality

Often these words are used interchangeably Morals define personal character Ethics stress a social system to which morals

are applied. Ethics point to standards of code of behaviour expected by the group to which individuals belong

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Ethics vs Morality

Case in point: a criminal defense attorney. The lawyers personal moral code my find

murder immoral and reprehensive Ethics demand the accused client be

defended In a court of law past actions of the

accused may be kept out of evidence so as not to prejudice the jury

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Ethics vs. Morality

“I think it would be more along the lines of: A Moral man does not steal because it goes against his own beliefs, whereas an ethical man simply wouldn't steal because it's against the law.” (Wisegeek.com)

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Ethics vs. Morality

Often times the conflict with Ethics and Morality deal with very sensitive topics of which there are very divergent “personal” decisions. Abortion Bearing Arms

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Ethics and Morality

This conflict is often at issue in the workplace

Example

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Have you ever….Tell the truth

Lied to your parents Lied to your spouse/children Cheated on an exam Lied

(about your weight on your drivers license) Cheated on your taxes

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Ethics of America

Josephson Institute

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Josephson Institute 10-2009 Survey On-Line 6,930 respondents Age groups

17 and under 18-24 25-40 41-50 Over 50

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Age Matters

Young generations more likely to engage in dishonest conduct 17 or under: 51% believe lying and

cheating or necessary to succeed Over 50: 10% 17 or under: 31% deceive boss Over 50: 8% 18-24: 7% inflated an insurance claim Over 40: 2%

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Attitude Matters If the person holds a belief that lying and cheating are

necessary (cynics) – that person more likely to lie and cheat

Cynics are: Three times more likely to lie to a customer (22%

vs. 7%) Inflate an expense claim (13% v. 4%), or inflate an

insurance claim (6% vs. 2%) More than twice as likely to conceal or distort

information when communicating with their boss (24% vs. 10%).

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Inflating Insurance Claim Age

18-24 (7%) 25-40 (3%) 41-50 (2%) Over 50 (2%)

Attitude Those who believe one has to lie or cheat at least

occasionally in order to succeed are three times more likely to cheat an insurance company (6% v. 2%)

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Lying to a Customer

About something significant in the past year Age:

18-24 (18%) 25-40 (12%) 41-50 (8%) Over 50 (6%)

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Ethics and Self Image

Percentage who said they're satisfied with their own ethics and character

Age 17 or under (90%) 18-24 (94%) 25-40 (90%) 41-50 (91%) Over 50 (90%)

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Percentage who said they are more ethical than most people they know: Age: 17 or under (64%) 18-24 (73%) 25-40 (71%) 41-50 (69%) Over 50 (67%)

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Josephson Six Pillars of Character

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Influences on Behavior

• Family, church, and school provide the foundations for behavior early in life

• Greed and power can both influence one’s perception of acceptable behavior

• Competition can drive behavior• The actions of business associates can affect

patterns of corporate behavior• Fear of discovery can adversely affect

individual behavior

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Common Rationalizations for Not Doing What’s Right• Everyone else does it• Nobody will care• The boss does it• No one will know• I don’t have time to do it right• That’s close enough• Some rules were meant to be broken• It’s not my job

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It is Often About Perceptions

Stereotyping

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Rank the Following

Attorney, Car Salesman, Insurance Agent/Broker, Clergy

Rank them according to your perception of their ethical standards.

Rank them according to what you believe is the public’s perception

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Gallup Results Clergy Lawyer Insurance Agent Car Sales Person

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.www.InsuranceCommunityUniversity.com 44


Ethics in the Workplace

• Ethical behavior starts at the top. If leadership and management is not ethical, neither will the organization be as a whole• How many times have you been asked to

do something that you know is not right• What did you do?

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Have you ever???????????

Put something on an application that was not entirely true (500 feet)

Not put something on an application because you thought it would result in a rejection (vacant building)

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Misrepresented Mileage on a PAP Existence of youthful drivers Prior accidents/losses Claims Class Codes Payroll Age/Sq Footage of the building

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True Statement

“I am not a really successful agent because I am just too honest”

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Been asked to do something that you thought was not right by your boss, manager

What did you do?

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Ethics in the WorkplaceFactors influencing the reporting of unethical

conduct (whistle blowing)• Fear of reprisal (by management)• Fear of reprisal (by co-workers)• Fear of personal reputation• Fear of job loss

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Ethics in the Workplace

Ethical behavior starts at the top. If leadership and management is not ethical, neither will the organization be as a whole

Every business should have a Code of Ethical Conduct

Education of employees in ethical conduct is essential in preventing unethical conduct

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Ethics and Insurance

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Ethics and Insurance

The importance of ethics to the insurance professional Insurance is a business of trust Trust anticipates standards of behavior Some standards of behavior are governed

by statute Statutory obligations should not be the

reason for ethical behavior

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Ethics and Standard of Care

Insurance agent/brokers must meet a standard of care acting in the capacity providing insurance products/solutions

The standard of care is three pronged

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Standard of Care and Ethics

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Basics of Standard of Care Based on Regulations

Compliance with such issues as GLBA, Privacy Acts, authority as an agent/broker

To the Insurance Company That the submission qualifies for the insurance

carrier That you are honest and accurate

To the Insurance Customer Ordinary care to obtain the coverages they have

requested

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Code of Ethics

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Implementing the Code of Conduct Make sure senior management endorses Circulate Code to all employees Regularly review Code with employees

e.g. performance reviews)

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Implementing the Code of Conduct Publicize code externally (clients,

insurers) Enforce the Code Incorporate as part of new

employee orientation

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Your Code of Ethics

Conflicts of Interest Examines ways to spot and handle complex

situations where the employee's personal interests, or the interests of a family member, may compete with the organization's or shareholders' interests

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Your Code of Ethics

Environment An employees' responsibilities to perform

their work and maintain their workplace in a safe and lawful manner along with the responsibility to immediately report any injuries or potential hazards.

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Your Code of Ethics Equal Employment Opportunity (EEO) Provides employees with practical questions

to ask themselves to guide them in refraining from comments or actions that could be reasonably considered as harassing or discriminatory. It also teaches that employees should not be retaliated against for engaging in protected EEO activity.

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Your Code of Ethics Fair Dealings - teaches the rules for fair

treatment of customers, vendors, and competitors

Financial Integrity - discusses processes to properly account for expenses, hours worked, and other items and how discrepancies in their accounting can impact the validity of the organization's books and records

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Your Code of Ethics

Gifts and Favors - examines the rules for giving to and receiving gifts and favors from vendors, customers, and other employees

Confidential Information - discusses safeguarding private information relating to business operations, clients, vendors, and employees

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Approaches to Ethical Behavior

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Ethical Decision Making

Situation Based: What is the best possible outcome given these circumstances?

Rule Based: Follow the rules, and let the chips fall where they may.

People Based: Follow the Golden Rule: what would you have others do if faced by the same situation?

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Case StudiesWhat Would You Do??

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Simplified Moral Approaches

Situationism Subjectivism Absolutism Exceptionism


Ethical Decisions occur in every phase of the insurance transaction Prospecting

What do you say about yourself What does your website say about you

Presentations Overstating your abilities or what the policy

may cover

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Ethical Decisions occur in every phase of the insurance transaction

Transactional issues Applications Marketing Binders Certs Renewals

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The case of the Best Set of Drivers--ever

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About the Application


The case of the Best Set of Drivers--ever The insurance agent had several large

accounts all of which had fleets of vehicles One of the accounts had a fleet of drivers with

excellent driving records and accordingly, the BAP was easy to place and very well priced

One of the other accounts the broker wrote had the opposite—terrible drivers

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The case of the Best Set of Drivers--ever The agent had a great idea—use the listing of

good drivers on the second account How could he get caught—it was with a

different carrier and he had the MVRs to submit

This way he could get his insured a good rate and save his account

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Outcome

Situation Based: The agent knew the company would never really check. He had slipped some by before

Rule Based: He knew this was not right but as long as he wasn’t caught he would be ok

People Based: His role is to do the best for his client and that what he was doing

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Outcome

The office manager found the mis-statements on the file and forced the agent to re-submit

The client was forced to get rid of some drivers

At renewal the client found a new agent that would lie for him

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The Case of the Deep Fat Fryer

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Renewal Application


The Case of the Deep Fat Fryer The insured was a chain of sandwich shops

located in office buildings The sandwich shops did no cooking other than

to warm up food in a microwave Their insurance was placed with an insurance

company that offered a modified restaurant package specifically for businesses that did not do cooking

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The Case of the Deep Fat Fryer At the second renewal, the insured told their

agent that they were doing deep fat frying at their location at Universal Studios. They were limiting it to frying French fries they could serve with their sandwiches.

The agent at renewal chose not to include this information on the application because the frying would disqualify them from the program for their entire risk

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The Case of the Deep Fat Fryer The insured suffered a major fire at the

Universal Studio location doing damage to their leased premises; equipment and subsequent fire damage to the building

The insurance company denied coverage based on the “increased hazard” section of the policy

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The Case of the Deep Fat Fryer

Company further alleged that they would never had written the account with the frying

Additionally the insured had not adequately protected the premises with an approved Ansell system.

The client told the company they had advised the agent

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Outcome

Insurance Agent was held responsible for misrepresentation

Claim was $950,000

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The Young Driver

You Should Not Have Told Me

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The Young Driver

Sally and Beth had been friends since childhood and shared raising their kids together

Sally also wrote all the personal lines insurance for Beth

One day Beth called up Sally to share the news that their son, Ryan, had just gotten his driver’s license

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The Young Driver

Sally was glad to hear the news but now faced the ethical decision as to whether she should tell her excited friend she needed to add him to their policy

And we all know what that was going to cost!

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The Young Driver

Situation-based: You were just told this by a friend. You know that the son is covered automatically on the policy Beth has and she can save some money until renewal when the company requires the updated information

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The Young Driver

Rule Based: The rule is that all licensed drivers should be reported to the insurance company. That is an obligation you have to the carrier and that is, after all, how they charge adequate premium. Many companies are obligating the insured by application to notify.

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The Young Driver

People Based: Why lose a friend over this. It was just told to you as a friend. Beth did not call to add Ryan on the policy to begin with.

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The 5PM Friday Certificate of Insurance

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The 5PM Friday Certificate of Insurance You are the last one left in the office Your client walks in the front door He needs a certificate “now” or he will lose

the deal You tell him to wait and you’ll issue the cert You pull his file and realize it with an E & S

Broker

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The 5PM Friday Certificate of Insurance Trying a long shot, you call the carrier and

actually get someone this late on a Friday! But they tell you only the E&S broker listed on the account has the carrier’s authorization to issue the certificate.

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The 5PM Friday Certificate of Insurance Hanging up, you stare at your desk. You are

certain the broker will issue the certificate on Monday without any problem, but what are you to do about your anxious client who is waiting in the outer office?

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The 5PM Friday Certificate of Insurance Situation-based: Past experience indicates

broker, if there, would issue the certificate; you have no doubt that if the broker were in your position, he would elect to help the client, and since possible pain of delay is far in excess of possible downside of not helping client, go ahead and issue certificate.

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The 5PM Friday Certificate of Insurance Rule-based: You have no authority to issue

the certificate, so regardless of the consequences (including potential loss of a valuable client), you must refuse to do so

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The 5PM Friday Certificate of Insurance

People-based: Let’s make an exception—after all look at that distraught client. Procedures are valid for normal situations. The client’s position, you have no doubt you would deeply appreciate the professional service of your agent stepping in to help you out, so you should do the same.

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The Competition Has Pulled One On You

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Your client has told you he is shopping with other brokers

You arrive for your appointment to present your renewal quotation and your client tells you he has received a better price

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The Competition Has Pulled One On You You ask if you might see it and he agrees to

show you You realize you represent that same carrier

and know it is a great program You are certain your client does not qualify for

this program and that the agent trying to steal the account has not told the insurance company the whole truth

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Situation-based: Even though the carrier may never find out, the prospect is really getting an unfair advantage; if the carrier does find out, the other agent’s reputation and future ability to place business with that carrier is likely to be impaired. Maybe an informal visit to the agent’s supervisor, can settle the entire issue quietly, leading the other agent to withdraw his erroneous proposal without any damage beyond a possible unhappy prospect.

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Rule-based: The underwriting rules has a valid purpose and this insurance should never have been offered. Since you represent this company too, you have an obligation to the carrier to let them know of the misrepresentation before it is too late.

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People-based: Don’t you owe some responsibility to your “old” client. After all he is saving money and it is not his fault. When you were new you did the same thing and you are certainly glad no one took away one of your few accounts over such an error.

What goes around comes around!

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I Forgot to Market to That Insurance Company

Should that cost me this account?

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I Forgot to Market to That Insurance Company Your insured is very cost conscience and has

asked you to search the market for the “best deal”.

You went to several insurance companies and thought you had found the best deal.

The day before your meeting with the client, your insured calls to tell you he heard that Cheap and Easy Insurance has really good rates according to his friend.

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I Forgot to Market to That Insurance Company You did not get a quote from company Cheap

and Easy and it is too late for you to ask them as the appointment is tomorrow and the policy renews in a week.

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I Forgot to Market to That Insurance CompanyWhat do you tell your client at the meeting?• Yeah, I checked with them and they didn’t like

your loss potential• Sorry, but they were not on my contact list

and I did not contact them• I know the market and they would not be a

good fit for you• I’ll do a better job next year, but it is too late

this year• Is Honesty the Best Policy in this case

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When All Is Said And Done

It is about doing the right thing each and every time

Being Honest and Having Integrity

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