Ethics in Insurance

Roger A. Sevigny
NH Insurance Department

  • What is Ethics?
  • How do Ethics Define Professions?
  • Ethics for the Insurance Professional
  • Ethics Codes
  • The Role of the Insurance Regulator
  • Promoting Ethical Behavior
  • Fiduciary Duty/Conflict of Interest

What is Ethics
  • Ethics defined:
    “Set of principles of right conduct.”
    “Standards governing the conduct of a person or members of a profession.”
  • Ethos = Character
  • A profession is often defined by its perceived character.

Characteristics of Professions with High Ethical Standards
  • Commitment to ethics/code of ethics
  • Place the needs of clients/customers above self-interests
  • Educated, well trained & willing to participate in continuing education/training programs
  • Membership in associations and societies that help promote ethical behavior
  • Independent and able to exercise sound judgment
  • Public recognition—to a limited extent

Insurance Professionals
  • Competent with high ethical standards
    -They protect us against bad events: medical crisis, fire or natural disaster, accidents, disability, financial calamity
    -They advise us in choosing appropriate insurance products: long term care policies, annuities, life insurance, homeowners insurance
  • Good advice is important– bad choices are difficult or impossible to correct

What Drives Ethical Behavior?
  • Public demands insurance professionalism. In response there is:
    -Self-regulation by the profession.
    -Legislation passed to enact laws to prohibit unethical behavior and promote ethical behavior.
    -Litigation, that influences both legislation and self-regulation.

Example-- Code of Ethics for Insurance Professionals*
  • Place public interest above self interests
  • Seek knowledge, skill and competence
  • Obey all laws; avoid unjust harm to others
  • Be diligent in performing duties
  • Promote professional standards
  • Maintain honorable relationships
  • Improve public understanding of insurance
  • Honor the integrity of CPCU designation
  • Maintain the integrity of Code

* From the American Institute for Chartered Property and Casualty

Ethics Codes
  • Ethics Codes can be established by private organizations to promote professional integrity.
    Encourages achievement Peer review and enforcement
  • Ethics Codes passed by legislation, can also act as minimum standards of conduct.
    Enforced by State and Regulatory Agencies or Through Litigation by Private Citizens

Role of Insurance Regulator
Protect Consumers by Ensuring Safe and Competitive Insurance Marketplace

Many NH Insurance Laws and Regulations Address Ethical Issues for Insurers, Producers and Adjusters

Two main areas of regulation: Financial or Insolvency Regulation & Market Conduct Regulation

We seek to timely enforce and develop laws to ensure that insurers Meet financial obligations, and Promote fair prices, products and trade practice.

Unfair Insurance Trade Practices Act
  • Promotes ethical behavior in the insurance industry by prohibiting:
    -Unfair methods of competition
    -Unfair and deceptive trade practices
  • Penalties can include:
    -Cease and desist orders
    -Revocation or suspension of license

Licensing Promotes Ethical Behavior
  • The state licenses all insurance agents, brokers, adjusters and insurance companies.
  • Cannot conduct insurance business without a license.
  • Licenses can be revoked or denied if the individual/company violates any law or otherwise fails to demonstrate high ethical standards.

Fiduciary Duty Owed to Clients
  • Duty of due care, good faith
  • Duty of obedience and loyalty
  • Duty to disclose any conflict of interest.
  • The clients is entitled to the benefit of the agent’s skill and knowledge
  • There can be no self-dealing
  • There can be no secret profits

Back to Marsh Inc.
  • Marsh brokers steered customers to those policies which would provide the broker with contingent commissions. In many cases, the brokers rigged bids for other insurance policies so that customers would choose the policy with the more lucrative commission for the broker.
  • Do contingent commissions create a conflict of interest?

(Posting date 19 October 2006)

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