Business Ethics
Chapter 13
SELECTING INSURANCE COMPANIES TO REPRESENT
It is common for an agent to go to work for an agency and simply accept whatever companies and products are presented to them. While the agent might assume that the agency would have selected sound and reliable insurers and products, this may not always be the case. In addition, it is possible that the agency viewed the companies and products only from a profit point of view.
What responsibilities actually fall on the selling agent? The answer to this question will certainly vary depending upon who is asked and the contracts that have been signed. Twenty years ago due diligence was something done by broker-dealers, people selling securities and by some home offices. Seldom was due diligence thought to be the agent's responsibility.
Today legal experts recommend that agents complete their own due diligence to protect themselves from lawsuits. This recommendation is the result of past court actions. In other words, it has been legally determined that individual agents are responsible for the recommendations they give, the products they sell, and the companies they represent.
Defining Due Diligence
What does the term, due diligence, actually mean? For the agent, due diligence is the analysis of a particular company's products, performance and financial standing. Where life insurance is concerned, this is often done to determine whether or not there is a reasonable expectation that the illustrated values presented can actually be achieved. Life insurance is, in some measure, the business of making long-term promises to clients. It is vital for the clients that the company be able to keep the promises they made. Due diligence is the agent's analysis of whether or not the company can, in fact, keep their promises.
The term, due diligence, is primarily derived from the securities industry.
For the insurance company, due diligence is an ongoing process which insures that pricing objectives are being realized, and that integrity and consistency of internal procedures are being maintained. It is working with the agents and agencies, as well as their policyholders, to preserve fairness in all parts of the operation. An insurance company that is concerned with due diligence will treat its sales force and back-up members as well as they treat their policyholders. Company due diligence also means making investments that are sound and prudent. For life insurance companies, due diligence is not a new concept, even though it may be for many agents.
The life insurance industry has moved their product design away from fully guaranteed values and benefits towards a dependency on current and sometimes more favorable parameters for the insurer. This means greater risk has been transferred to the consumers. The factors more often used these days also tend to be more volatile. In many cases, only the strength and the integrity of the company involved can ensure that projected, non-guaranteed elements of the policy are actually realistic.
As agents and the general public have become more educated on the variety of options available, insurance has seen a change in how it is perceived. While price has always been considered, additional elements are now commonly looked at as well. Agents need to know if the company they are considering can manage its overhead expenses, mortality expenses and investment returns in a way that allows the company to make good on its promises in the contract.
The insurance agent agent’s role has changed over the last twenty years. Whereas the agent was typically thought of as only the person representing the insurer, consumers now consider the agent to be someone who must give reliable information for the good of the policyholder. The buying public no longer accepts the view that the agent represents only the company. This change in the general perception of an insurance agent places greater responsibility, both legal and ethical, on the agent. It is not just the public that now views licensees as having responsibility to correctly and adequately represent products; state lawmakers also feel licensees are responsible for the information they convey.
In the public's view, the level of service and the quality of the advice given are linked directly to the insurance company and that company's performance. Practicing adequate due diligence makes sense from many standpoints, one of which is financial protection for the agent, as well as the consumer. When agents take the time to investigate their selected companies (and document that investigation), they are also protecting their own financial futures. Lawsuits are common and it is reasonable to believe that even a good agent can experience one. Due diligence is, of course, an ongoing process since companies can and do change how they operate. Due diligence might be considered as a method of self-protection through knowledge.
Some agents might groan when due diligence is brought up. They picture hours of work put into a schedule that is already difficult. It should brighten their day to know that there are more answers than one might imagine at their local library and on the internet. A morning spent looking up the companies they are representing, or are considering, is a morning well spent. There are several reasons to do so:
To prevent lawsuits from angry consumers who feel they have been taken,
To protect the trust the licensee has spent hours building up with their clientele, and
To determine if the people associated with the companies they sell have the level of integrity desired.
When agents base their company affiliations on commission levels, leads provided, or where the next convention will be held, they are in for a few surprises down the road. Agents are wise to request a copy of the insurer's annual statement and pay particular attention to the interrogatories, because they are brief and speak to short-term changes from the previous report.
Agents need to begin their due diligence process by gathering information on the major components of the insurer being considered from as many sources as possible. This would include seeking information directly from the company. In fact, this is probably the first place to seek information. Generally such information is readily available. The agent should not overlook another simple way to gather information: ask questions. Talk to their immediate manager or regional manager, the home office (especially the underwriting department), and even the company's competitors. Anytime an insurance company seems reluctant to provide information to their own agents, a red flag should go up.
In many cases asking other agents who have been with the insurance company for a relatively long period of time brings more information than one might expect. Ask about the speed of the company's claim service since this is often an indicator of company solvency. Find out if commission checks seem to be consistent, correct and on time. If a financial error is made, how long does the company take to correct it? Any company can make an error, but when errors in benefit payments, commissions, or other elements seem unusually difficult to correct, that may mean other problems also exist.
Agents should collect the three most recent sets of financial statements and study them. Does the company seem to be making excessive profits? Does the company seem to be making minimal profits? Perhaps too little profit to ensure continuance? Compare the surplus in relation to the amount of business being produced. Inquire with the state Insurance Department to see if there are any watches or cautions outstanding; this information is typically online with the department. How many consumer complaints have been filed against the company over the past year? How many complaints have been filed over the last three-year period; does there seem to be a pattern (such as late benefit payment, benefit denials, and so forth). The agent may also want to watch for any shifts in the management of the company since this can change the philosophy of the company.
Once a measure of information is gathered, the agent must assimilate it in a manner that can be easily understood and assessed. There are several ways to assess this information, but often the agent simply looks at it from the standpoint of "Does it feel right?" With so many carriers to choose from, there is no need to represent any carrier that does not bring confidence.
Other sources of information the agent should consider are the rating services. It is best to look at more than one rating service since some of the ratings given will involve the analyst’s opinion and opinions can differ. One company may feel, based on their criteria that an insurer is financially safe while another company, based on different criteria they use, feel it is wavering financially.
Being the Best You Can Be
Much has been written on ethics in all professions. The legal profession and the medical profession continues to wrestle with conflicting ideas as society changes. For example, even though federal law forbids it, some states now allow personal use of marijuana. Eventually federal law and state law will experience revisions to accommodate this change in society’s views.
The insurance industry does not tend to have the intenseness in their legal conflicts that other areas experience, but that may change as marijuana affects some aspects of health insurance as claims are made for injuries or health issues resulting from its use. For example, if a person using marijuana injures another due to an altered sense of conduct, should the policy have to cover the liability claim? Many questions eventually are solved through court cases that create rulings.
Most of us are simply navigating through life trying to do the best that we can. Our morals guide us past most of the risks we come in contact with. Luckily most people never have to face great ethical dilemmas since most people follow a basic code of conduct that adheres to society’s laws and general sense of right and wrong.
In some respects individuals do not entirely choose their moral path. Personal ethics are jointly taught during youth by parents, teachers, and friends; eventually coworkers also affect how people act and view life. It is an accumulation of both what was taught and what was not taught. Although in court personal behavior is often blamed on others, personal responsibility says that every individual is responsible for their own decisions and actions. Once adulthood is reached, each person becomes totally responsible for his or her actions. Of course, those facing legal results due to their actions would like us to believe otherwise. To some degree, the American court system allows this legal manipulation. The truth is, however, that each of us has free choice and are personally responsible for our actions from an ethical standpoint.
Sometimes an individual experiences something that dramatically alters their view of morality. It is an epitome that brings new information in a way that is unforgettable. This is often an experience that teaches us the fundamentals of ethics or moral behavior. In fact, with new experiences, many people acquire a different focus of ethics. These individuals acquire a new moral path as a result of a life-altering experience, such as near death experiences. Morality should point the way in life based on the desire to lead our lives in an ethical way. Greed has no place to exist when ethics or morality is in command.
We see examples of greed being in command on the news every day. Whether it is a person who becomes rich through the losses others experience, an oil company that ruins the environment due to unethical business practices, poachers in Africa, or an animal smuggler stuffing live exotic birds in plastic water bottles to get them into the U.S., greed is the ruling factor.
Not everyone has the same moral outlook of course. The poacher in Africa killing elephants for their tusks may be feeding a starving family. His act is viewed as unethical by us but by his starving family’s standards he may be a hero. Even very moral and ethical people can disagree on moral issues. Some types of ethics tend to be universal, which means that they apply to all people in all countries. An example of a universal moral law is the Golden Rule (always do unto others as you would have them do unto you).
Some groups consider their view to be a universal moral law, even though other groups disagree. Perhaps the most prominent example of this has to do with abortion. Some individuals believe abortion is wrong totally and completely under all circumstances. In their view this is a universal moral law. Others believe in the mother’s right to choose as a legal matter, not a moral matter.
A German philosopher who lived during the eighteenth century, Immanuel Kant, believed that a person’s morality could be reduced to one universal law governing all morality. He called this law a categorical imperative. He stated it this way: "Act so that you can simultaneously will that the maxim of your action should become universal law." What he meant by this statement is that all individuals should not do anything unless they would want anyone else in the same circumstances to do exactly the same thing. Immanuel Kant is saying, for example, that it must be wrong to lie because we would not want lying to be practiced universally. It must be wrong to misrepresent an insurance policy because we would not want such contracts to be universally misrepresented.
Some people believe that right is right, at all times and in all places whereas others believe that moral truths are relative to culture, personal ideals and legal aspects. Even one's economic situation can have a bearing on their perception of what is ethical. For instance, if a mother’s child was hungry, it might seem acceptable to her to steal food to feed her child. In fact, who would not steal food to feed their hungry children? Certainly, it is not ethical to allow a child, any child, to suffer. Which ethical standard is more important: not stealing or feeding a child? Using the universal moral law aspect, we certainly would not wish everyone to steal universally, nor would we want children to be allowed to go hungry universally. It is very difficult to apply one standard everywhere.
Individuals tend to feel strongly that their interpretation of ethical or moral is right and others are wrong. Yet, when it comes to ethical behavior, there certainly are areas that vary greatly with neither side being either totally right or wrong.
Some have argued that the end justifies the means. It is the Robin Hood approach of robbing from the rich to give to the poor. In fact, that is exactly what Marilyn Louise Harrell did some years. As a private escrow agent for the federal government's Department of Housing and Urban Development, she diverted funds (illegally) from H.U.D. to feed, clothe, and shelter the poor in the suburbs of Washington, D.C. where she lived. While there is little doubt that her illegal use of $5.5-million in H.U.D. funds was to help others, not herself, can such deception ever be ethical? Any wealthy person might take exception to being robbed in order to feed, clothe, and house others, even if it was to aid the poor. Just because a person is wealthy does not mean they are greedy; most worked hard for their money, sacrificing many other aspects of their life to achieve what they did.
Many issues are difficult to paint as totally black or totally white. Indian leader, Mahatma Gandhi, desperately wanted India's freedom from England. However, he also strongly believed that the only way to reach the goal of freedom was through nonviolence. Explained Gandhi: "I would not kill for freedom, but I am willing to die for it."
Many people are more concerned with how they live their lives than about how they acquire material goods. There are many stories of poor parents who stress education and personal dignity to their children, creating exceptional people in the process. We are also well aware that these values are not always rewarded by society.
Viktor Frankl, author of Man's Search for Meaning, put it another way when he talked about aiming for success: "The more you aim at it and make it a target, the more you are going to miss it. For success, like happiness, cannot be pursued; it must ensue, and it only does so as the unintended side-effect of one's personal dedication to a cause greater than oneself or as the by-product of one's surrender to a person other than oneself."
Another philosophy often heard expressed is: If it's legal, it must be moral. Again, we only have to look at our country's past history to know that this is not necessarily true. The fact that slavery was in some places legal did not make it right. While American laws are intended to have a strong connection to morality, we know that this is not always the end result.
It is certainly necessary to teach our children to respect the law. It is necessary to not only respect the law, but in most cases, to follow it as well. Otherwise, our country could not prosper. However, not every law reflects what is moral. In the past, laws have allowed slavery, segregation, sexism, child labor, discrimination, and other injustices. As Martin Luther King, Jr. said: "Any law that uplifts human personality is just. Any law that degrades human personality is unjust."
We have often heard that doing good deeds for others makes people feel good about themselves. While this is likely true, when there is a commitment to a cause (versus just a good feeling), people have demonstrated that great things can be accomplished with lasting effects for communities and individuals. Behaving ethically has to go deeper than merely feeling good.
Moral inconsistency appears to be part of human nature. Even good people can be tempted in some situations. When an individual is charged too little money due to a clerk’s error, when credit is given where credit is not due, or when a person would gain a sale by allowing a false assumption to remain with the consumer, temptation has visited. How individuals react to presented temptations says a great deal about who the individual is.
It is possible to buy many things in life, but it is not possible to buy how other people perceive us. Certainly, we may be less likely to tell the rich man what we actually think, but that lack of assertiveness does not change what we actually think of him. Licensees might tell the truth 99 times during sales presentations, but the lie told on the 100th sales presentation has the potential of adversely affecting the policyholder. Even if the person is not adversely affected, the possibility of a bad outcome is an ethical problem.
Ethics may sometimes require tough choices. Sticking to one's ethical convictions often means traveling a rougher road. Choices between right and wrong are not always easy to identify. Individuals must make what they perceive to be the best choice. Businesses must follow ethical guidelines even if it means a lost sale or choosing not to represent a product with a questionable value.
It is advocated that people should follow their conscience, yet studies show that people often do not do so. While nearly everyone will state that cheating is wrong, researchers Edward Diener and Mark Wollbom found that 75 percent of the students in college would cheat when the opportunity presented itself. This is true outside of college as well. In a National Opinion Research Survey of adult Americans, 75 percent said stealing was wrong, although most of them admitted they would steal anyway.
There are many reasons why so many people do not follow their conscience. Perhaps the most obvious reason is a lack of personal control. When it seems unlikely that any punishment or embarrassment will result, many people simply do not have enough self-discipline to do what they know is right. Many people ignore their conscience because of outside influences such as loyalty, friendship, and the desire to fit in with the current group of people. That is why it can be very important to carefully choose agencies.
It should be pointed out that a moral dilemma is the struggle to determine what is right, while a conflictoccurs when the individual knows what is right, but does not particularly wish to do the right thing. For example, among friends, relatives or colleagues it can be difficult to take an unpopular stand even when an individual feels strongly on the issue. Interestingly, studies have shown that individuals are more likely to take a stand on political issues than on morality issues. Perhaps it is more socially acceptable to disagree on politics than it is on moral conflicts. Ethnic or sexually-objectionable jokes are often told even when feelings might be hurt as a result. When a colleague tells an ethnic joke that another person feels is in poor taste, even moral people may remain quiet rather than state an objection. The joke-teller may be avoided in the future, but it is unlikely that the individual will voice his or her opinion unless others in the group first object.
In studies it was found that a person in trouble is more likely to be helped by a stranger if only one or two other people witness the incident. If a group of people witness it, it is less likely that any one person will step forward to help. Just as a violent mob can materialize under the right circumstances with people joining who would not otherwise do so, if no one in a group leads to help the stranger, others will also refrain from doing so.
Lack of involvement is common. Bystanders have no moral commitment to risk their lives to rescue someone else, especially a stranger. Studies on this type of human behavior began shortly after Kitty Genovese was assaulted in 1964. She was stabbed multiple times over an hour's time while 38 witnesses did nothing, not even call the police. Following that incident, a study was conducted to see what type of person would help a stranger. The most striking thing to come out of the study had to do with the "safety in numbers" concept. Individuals are more likely to receive help from a stranger when the stranger is the only person or one of only a few people around. The larger the crowd, the less likely an individual is to receive help from a stranger. It appeared that people were afraid to step out and be noticed by others who might judge them.
Fear and moral conflict can paralyze people into doing nothing. In addition, most people try to avoid anything that might embarrass them or make them look weak or unattractive. Perhaps if we better understand why good people can stand by and do nothing, we can then break out of our paralysis and forcefully act. It is easy to say that we would certainly do the right and moral thing if the situation presented itself, but the truth is that most people stay with the group and fear acting individually. Those who have training to act instantly are more likely to help because they have already practiced stepping forward and taking control. This includes law enforcement, firefighters, and military personnel.
Another interesting conclusion is that it depends on what the event relates to. A person being assaulted yelling for help might be ignored, but those who yell “fire” are more likely to receive help. There are no direct conclusions as to why this is the case, but it may relate to what is considered stressful. While a fire can cause stress, it is a situation that may not be perceived as stepping out from the crowd.
People who step forward and act possess moral certainty. They strongly believe in their views and act upon those views, even when it is not popular. It does not necessarily mean that they are right in their views, but they are certain that their views are correct. Two separate studies have shown that a strict religious upbringing substantially contributes to a person's moral certainty. This may be because there is no ambiguity about what is right or wrong. There are straightforward definitions of right and wrong; good and bad. Another study revealed that when a person is presented with multiple choices and ideas of what is right or wrong, the more likely that person is to be indecisive unless he or she has some practice in the same situation (such as law enforcement or the military may have). Apparently, it is more difficult to narrow down multiple choices of what is right or wrong and easier to make the choice when only a couple of alternatives are presented.
Clearly those who have practice, whether in simulated situations or actual situations, are quicker to make decisions and take the lead when necessary. Those who have not been exposed to stressful situations are less likely to take the lead and act on behalf of another.
We could continue to study the issues of morality, which is simply acting ethically, indefinitely. We could cloud issues with multiple views and supporting facts. The topic of ethics is a complicated and complex issue. Basically, however, ethics is simply a matter of doing what is perceived to be right. Acting ethically is not a difficult thing, but it can be a struggle. People and businesses do not act ethically for multiple reasons ranging from simple laziness to indifference to ignorance. All too often greed is also an element.
Sometimes the question becomes: "what's in it for me?" Answering that it will make the individual feel good if he or she does it is seldom adequate for those who think this way. Although ethical actions do make sense in many cases, there are not always any rewards. As long as communities continue to need each other to provide aid, comfort and ordinary necessities, it is simply practical to treat each other ethically. While there are always exceptions, generally people tend to return the same kind of treatment they receive. In past eras, barns were raised as a community event. Participating guaranteed each person that they would also receive help in building their own homes and barns as a community event. It was a cooperative understanding that what helped one community member would also help other community members. Habitat for Humanity is using the same concept to provide housing for low income members of our society.
Certainly, ethical behavior is practical from the legal standpoint. Behaving unethically means the offending individual may find themselves in legal dilemmas. Unethical behavior may mean legal action by the state’s insurance department against an insurance agent, the represented agency and the insurance company.
A twelve year old from Ohio wrote: "If everyone did their share, no one would have to save the entire world." This statement makes an amazing amount of sense. If each of us acts responsibly, everyone benefits. This is especially true in the insurance world.
There are no clear or easy answers to many of the moral dilemmas in our lives. Most of the ethical choices ordinary citizens face are not complicated however. Insurance agents know what is legal and what is not. Agents know if they have concealed necessary information when presenting policies, whether they have lied or been truthful; agents know the laws and they know what is expected of them. Each person has personal shortcomings of some type, but ethical behavior is something that everyone has personal control over. With free choice comes responsibility. This course is not attempting to, and cannot, provide personal answers, but each person does have the ability to determine personal choices based on personal moral codes.
Each person must make their own personal commitment to ethical behavior based upon his or her personal beliefs. Simply stating a desire to be ethical is not enough. Individuals must make a commitment to acting ethically. If this means getting additional education (being competent is part of your ethical responsibility), if it means speaking out, if it means installing an ethical code of conduct in our business, if it means changing the firm or insurance company we work for, then that is what our commitment must include.
Being ethical means simply doing the right thing. It may not be the easiest thing. You will have a "gut" feeling for what is right in many circumstances. Each day brings multiple opportunities for behaving ethically or unethically. Often the choices are clouded by temptations to better yourself at someone else's expense. This means overcoming greed, laziness, indifference, temptation and perhaps even fear. We all will come face to face with temptations. The truly committed ethical or moral person will have personal convictions by which they live. These convictions didn't happen by accident. They were convictions, which were fully adopted and forcefully abided by.
It is easy to be moral and ethical when it makes us look good or noble. It is easy to behave ethically when others will be observing us. The difficult part comes when there will be no recognition for our convictions, when we may even be unpopular or have to face another who is acting illegally or unethically. Doctor Martin Luther King, Jr. said a person's worth is "not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy."
In the end, what you and your business represent will be established by your convictions, your principles, your actions and your words. It will not matter how many material things you have, what you look like or who you know. You will be defined by what you do and what you say. WHO you are is the only thing that no one can take away from you. It is your final statement about yourself, your business and your life.
We had hoped to end this course on some grand statement that you would carry with you throughout your lifetime. In the process of researching this material, however, it became evident that each person must arrive at their own grand conclusion. For in the end, we each make our own choices and our own directions. We choose our own mishaps, our own miseries, our own troubles. We also choose our own principles, our own victories, our own happiness, and our own ending statement about ourselves.
Perhaps the greatest challenge is not philosophical knowledge, but rather moral understanding. The challenge is not your financial goal, but rather your moral living. The financial goal will come on its own.
United Insurance Educators, Inc.
PO Box 1030
Eatonville, Washington 98328
Email: mail@uiece.com