ethics in insurance

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Ethics in insurance sector

Ethics in Insurance Sector

1-OVERVEIW 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 behaviors 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

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redefined their core values in the light of business ethical considerations

(e.g. BP's "beyond petroleum" environmental tilt).

2-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)

2

Charter of

a Man

Conduct

of aPerson

Series of

Actions

Good or Bad,Right or

Wrong, Moralor Immoral

MoralStandards

Decidedby

Leads toTaken

together

Consideredas

Known asMoral

Judgment

Requirements

By which wecan judge again

Meaning of Ethics


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Ethics thus can be considered as the source of character of a person

expressed as right or wrong conduct or action.

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.

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3-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.

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4-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

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5-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 lifes 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 feels 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

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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 clients 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 clients 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.

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6-ETHICS IN INSUSRANCE 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.

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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.

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7-INSURANCE AND ETHICS.

Insurance, by definition raises ethical questions. Insurance might be viewed

as mans attempt to control and influence an environment that we all know

is in Gods hands. Mans 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 dont 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, Ive paid thousands of rupees of premiums, and this small

claim isnt covered or Because I forgot two payments, my coverage was

cancelled. Now my claim wont be paid after paying premiums for many

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years, or I didnt understand what I bought, I thought everything was

covered. Not meeting a customers 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.

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.

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8-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.

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9-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.

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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.

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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.

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10-ETHICS IN INSURANCE: Building relationships

through trust

The momentum of the private insurance sector leaves no doubt in ones

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

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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.

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11-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.

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BIBLIOGRAPHY.

insurance.about.com/od/inseth/Ethics.htm

www.docstoc.com Education Graduate

www.insurancenetworking.com/.../insurance_ethics_ethisphere_

www.businessinsurance.com

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