Business Ethics
Chapter 9
ETHICAL SELLING
An ethical insurance agent that goes bankrupt because he or she could not bring in the earnings necessary to pay their bills is not likely to do the consumer much good. Therefore, for the good of the consumer, it is not enough to merely be ethical; the agent must be both ethical and skilled in his or her trade. In fact, it seems probable that the financially successful agent is more likely to be ethical since there will be less stress involved less desperation to make each sale.
Education
Education is the key to any successful business person, but in commissioned sales, it is a must. It is not unusual to hear agents and adjusters complain about the educational requirements of their state and the list of requirements is growing as various subjects become mandated. The licensee may be tempted to look for the shortest or easiest educational course to simply get the requirements out of the way.
Consider this:
You are not feeling well so you make an appointment to see your general practitioner. Your doctor states that you must go to a specialist because he or she suspects that you have a heart problem. The specialist that is recommended has a booming practice and obviously does very well financially. The office is plush and he or she drives into the complex parking lot in a fancy foreign sports car. There is lots of office staff and everyone seems intent on pleasing the waiting patients. Even so, you ask the medical specialist some questions that are important to you about their schooling.
The specialist replies, "Oh, don't worry yourself about that. I finished school ten years ago, and I haven't had the time to attend any of the seminars or other educational programs, but don't let that worry you. I've had lots of practice and I make a point to read all the brochures sent to me by my suppliers."
Of course, we realize that a heart specialist is not an insurance agent. Even so, the point is the same. How much confidence would you have in such a doctor? Why should a consumer have confidence in an agent that does not consider education important?
Probably every agent alive has attended seminars where educational laziness was obvious. Of course, it is the responsibility of the speaker to be interesting and cover a topic in an organized and practical fashion. Having stated that, it is also the responsibility of the licensee to attend the seminar in a prepared manner. He or she should have a notebook, ink pen or pencil or a tape recorder. Taking notes is optional, but when the seminar is truly educational taking notes is appropriate.
It is not appropriate for the attending agent to talk to those around him (which is likely to interfere with the enjoyment and learning of others), read the paper or a magazine, write personal letters, or work on personal business during the seminar. It is not unusual to observe an agent or two sleeping through the seminar waking up only long enough to sign the roster that is passed around for attendance. Certainly, the agent who signs in and then leaves for an hour or two is not learning anything. Although most states have specific rules about such actions, they still occur. The agent who must be policed into being responsible about his or her educational requirements cannot be considered ethical or even professional.
As an educational company, we have heard complaints from agents who feel they have been in the business long enough that continued education is no longer necessary. Again, we refer back to the medical doctor who feels education is not necessary for his or her continued medical practice. Just as you would not feel comfortable with such a doctor, your clients want to feel assured that you continue to keep up with current laws and trends in the insurance field.
Additionally, mandated education is a tool for the state insurance departments. It allows them to penalize those who fail to do as they should, because it takes away the “I-didn’t-know” defense. An agent who has completed an ethics or other type of course cannot say “I didn’t know I wasn’t supposed to replace that life policy” or “I didn’t realize that long-term care coverage was not necessary for people on Medicaid.”
Getting Education in a Timely Manner
It is impossible to truly be a professional unless education is made a priority. Every educator's dream is to no longer hear "How easy are your courses?" It certainly separates the serious career agent from those waiting for a better career opportunity.
Education does not have to be what is mandated by the state; many insurance companies and agencies offer education on specific products, which is not an allowable subject matter in state-approved courses. Education companies, such as United Insurance Educators (www.uiece.com) must follow state mandates. These do not allow information on selling techniques or specific products unless it can be demonstrated that the CE is not promoting any particular company or product. Education companies now face even stricter requirements regarding what will be given state credit; the future will see more on federal and state laws and less on general concepts. States are also beginning to discount information that was provided in pre-licensing courses since they expect agents to have learned these subjects at that time.
Most states now require education be completed in order to renew licenses. How much education is required varies by state, but gradually states are adopting the uniform NAIC guidelines. It is the responsibility of each agent to know and understand their state's requirements. Each agency is responsible for promoting education as an important feature necessary for the welfare of both the agent and the consumer. An agency should never resent the time an agent takes out of the selling field to acquire education. In the end, the agency also benefits.
The words, "in a timely manner," seem to be a key phrase. It is very difficult to get all that is available out of a course if the licensee must rush through the material in order to meet a deadline. Not only does the agent miss a great deal, but the true value of the course is lost. Education is the mark of a true professional.
Some agents complete education that gives them specific designations, such as Chartered Life Underwriter (CLU) or Registered Health Underwriter (RHU). These designations are the result of additional education specific to certain insurance lines. While such designations do not necessarily mean the agent is a wiser or more skilled salesperson, they do show that the individual is serious about his or her profession. Regardless of the line of work a person is in, additional education is always a sign of professionalism. This is true of a teacher, a doctor, a lawyer, and certainly an insurance licensee.
Unfortunately some insurance agencies do not seem to appreciate additional licensee education. There may be situations where an agent might wish to consider changing who they work for when education is not only unappreciated, but even degraded. Hopefully, this is not the normal situation and most agencies probably do promote additional education.
There is another side to education besides formal, credited courses:
Angie is a fairly new insurance producer having only been in the sales field for about six months. She works for a large agency with a very large field staff. While the agency holds product meetings periodically, it is not unusual for new items to be added before they have been formally introduced. As a result, Angie is often given brochures and applications for products that she is not familiar with.
Angie's field manager, Reggie, tells her: "Angie, here are some brochures for a new cancer policy we just got in. It's fairly simple, but if you have any questions give me a call. Just read the brochure. That should do it."
Angie reads the brochure and does understand the basics of what is presented. What Angie is not sure about is where such a policy fits in and who might benefit from buying it. She knows that major medical policies are supposed to cover such things as cancer. Since Angie sells mostly life insurance, however, her understanding of medical policies is not great. Angie makes the determination that many health plans must not cover cancer. Otherwise, why would there be such specific policies on the market? Angie sells two cancer policies in the first week and is highly praised by Reggie. Being so new, Angie does not often get praise, so now she begins to make a special point of suggesting her clients buy the cancer policy.
The question in this context does not necessarily concern the value of the policy itself, but rather how Angie handled a situation concerning education. Since Angie was not sure where this new product best fit in, what should she have done? It was obvious that Reggie thought the brochure would answer her questions and he did offer his assistance if she wanted it.
What were Angie's options?
She could have called Reggie or cornered him at the office to ask questions.
She could have asked other agents more experienced than she.
Angie could have waited for the product meeting and asked questions.
Angie could have called the insurance company marketing the product since most companies have a product support department.
Did Angie need to do any of these things? Since she was able to sell the product even though she was not sure where it fit in, did any questions even need to be asked? Remember that Angie did not have a great understanding of medical policies and made the assumption that some major medical plans must not cover cancer. Is it possible that she misrepresented existing medical policies due to her misunderstanding? We know that Angie would not have purposely misrepresented other policies, but does this lessen her liability? If Angie did misrepresent other plans, what will this do to her credibility if her clients discover her error? If Angie did not bother to explore this product completely, is it possible that this is a work pattern that repeats itself with other products also?
Does the agency bear any responsibility here? Although they do have product meetings occasionally, is it their responsibility to have such meetings before releasing a new product to their agents? Since the agents are basically self-employed, does this mean that education is solely the agent's responsibility and that anything the agency does is more of a courtesy than a responsibility?
We are not attempting to answer these questions. Often the answers vary depending upon such things as contracts and agreements that agents have with the agency they contract through. These may determine some of the answers. Regardless of the contracts agents have with agencies or insurers, it is true that each agent must take on a degree of responsibility when it comes to education in general. To rely upon another person or agency to fulfill educational needs is foolish, both personally and financially.
Laying Out Policy Benefits and Limitations
Once a consumer has agreed to hear an agent's presentation the agent enters into many possible pitfalls. Policies can be very difficult to understand and difficult to effectively communicate benefits and limitations. Most presentations involve a few set items, which include premium rates, benefits, agent services and company stability. Of these, the premium amount should be the least important, although our clients may concentrate more on cost than anything else. As a result, rates often take up the majority of the presentation, yet an errors-and-omissions claim has never occurred due to the premium quoted. Probably 98 percent of the E&O claims filed relate to the benefits of the program and how those benefits were discussed (or not discussed, as the case may be). Obviously, more time needs to be devoted to that aspect. The agent must then hope that the client remembers what was said and understands the concepts discussed.
The insurance contract can be very intimidating. Technical in nature, complex in its subject matter and seldom read in full by either the insurance agent or the policyowner, it is bound to be misunderstood at some point by somebody. It has been said that insurance contracts are the number one unread best seller. More insurance contracts are probably sold than nearly any other type of contract, yet they are seldom read by the consumer. Unfortunately, policies are seldom read in their entirety by the selling agent either.
To our clients, the most important part of the policy is the part that begins: "We promise to pay . . . ” In reality, all other parts are, of course, limitations and/or conditions on the policy.
In some ways, life insurance policies are more easily understood than other types. After all, a person is either dead or alive. If the insured dies while the policy is in force, the promise of a payment is kept. In a medical policy, there may be numerous limitations or conditions of payment that the consumer (policyholder) has difficulty understanding. Medical policies contain such things as co-payments, stop-loss provisions, elimination periods, plus a variety of other confusing and easily misunderstood clauses. All of the provisions can create dissatisfaction, which can cause questions regarding an agent's diligence in presenting the policy and providing services. This is not to say that a life policy should not also be clearly explained to a client. Any contract can be confusing to the consumer. Any contract can cause misunderstandings.
There are steps that an agent can follow to minimize possible misunderstandings:
Full disclosure is always necessary in any type of policy being suggested to a client. Where different interpretations are possible between a brochure and the actual policy, the policy is always the final authority. A brochure is simply a selling tool; never the final answer. The statement the agent receives over the telephone from the agency or home office also takes second place to the actual contract. The policy is the final word every time. An agent who has not read the contracts he or she is selling is an agent waiting for a lawsuit to happen.
Agents must always be slow to replace an existing contract of any type. This is not to say that an existing contract should never be replaced but to do so without fully examining what is currently in place would be foolish. The agent should first be fully informed of any new or preexisting health conditions, take-over provisions and limitations that may exist in the new plan. Existing health problems of applicable dependents must also be reviewed.
Sometimes owners/employers may not be enrolled in and paying premiums for worker's compensation coverage. While this does not typically apply to senior insurance applicants, increasingly more older-age people are still working and might need consideration.
Whether the agent is dealing with a health policy, a disability policy, or a life insurance policy, he or she must be certain that health questions are clearly understood and correctly answered. A term that has come into wide usage lately is clean sheeting. It means that an agent knowingly failed to correctly list existing or past health conditions of the applicant. The agent is presenting a "clean" application so that the company will accept the risk and issue a policy. This is obviously illegal and will not be tolerated by any insurance company! With the changes in health coverage, clean-sheeting will be less of an issue today than it was in past years, but clean-sheeting in other types of insurance coverage continue to be an issue.
Sometimes an agent simply is not aware of existing health conditions. If the applicant does not fully understand a health question, it may be incorrectly answered through no direct fault of the agent. We say direct fault because it is ultimately the responsibility of the agent to present the questionnaire in a way that is understandable. Even if the agent thought the health portion of the application was correctly completed, it will not alter the insurance company's view of it. A policy may be rescinded (taken back) by the insurance company for incorrect or undisclosed information. This may occur, for example, on a question, which asks if the applicant has high blood pressure. Since the person is taking a medication that keeps his or her blood pressure under control, the applicant may answer the question "no" when, in fact, it should have been answered “yes.” Since these types of misunderstandings can easily happen, an alert agent will want to closely monitor the questions and answers on applications.
Eligibility of applicants is always a concern when replacing an existing coverage. Do not overlook the eligibility of dependents also. An employee's spouse or disabled child may be especially vulnerable.
Any time an existing coverage is being replaced with a new policy, continuity must be considered. The old plan should never be dropped until the new plan is firmly in place. The policy should actually be in hand and reviewed for accuracy before the old policy is dropped.
The actual way in which a plan is presented can be very important since many consumers do not understand industry terminology. The weight falls on the agent to present the policy in such a way that understanding is possible. Again, this often comes down to good communication skills. Agents must pay close attention to the body language of his or her clients. It is often possible to tell that a consumer is lost merely by the expression on his or her face. Many people feel awkward saying that they are lost. This might especially be true if they feel their agent is in a hurry to get on to another appointment.
There are a few agents who cannot seem to resist being overly technical. The agent may feel that such technical explanations are necessary or he or she may simply be trying to impress the client. These agents may be extremely knowledgeable, but they are unable to present their knowledge in a way that is understandable to the layperson. While this relates more to skills than it does to ethics, an ethical person will put a priority on client understanding. If the agent is trying to impress the client, then we must ask the question, does ethical conduct allow for such self-serving purposes?
Policy Replacement
Agents may be expected to replace other policies, if necessary, to bring in business. Even the most ethical of agents realize that this will often be part of their sales day. In some areas of insurance, replacement became such a problem that state and federal legislation was enacted to protect the consumer.
Most states require that comparisons (for the purpose of replacement) be precise and done in a manner that fairly compares the two policies. Often there are specific forms, which must be utilized if replacement of an existing policy takes place.
Agents often complain that it is very difficult to compare policies if the types do not have much in common. It ends up comparing apples to oranges rather than apples to apples. Whatever the situation, an ethical agent will fairly compare the two products, not only because he or she is ethical, but also because it is simply smart to do so. We live in a lawsuit prone society and it is not surprising that many consumers are all too willing to sue.
Most consumers are aware that competing agents will be attempting to replace each other's business. Consumers who understand that some areas of insurance commonly use replacement sales techniques are likely to use personal judgment before replacing their policies. Replacement practices may not be as obvious to the consumer when it involves an agent replacing their own policy. Consumers seldom question a replacement when it is the same agent (versus a competitor) doing the replacement.
Why would an agent replace their own business? For several reasons, some of which may not be sound or ethical.
One of the major reasons that some types of policies are replaced by the writing agent is to gain another commission or a higher commission, depending upon the type of product.
Another common reason for agents replacing their own business has to do with the mobility of the insurance industry. It is not unusual for agents to work for a period of time for one agency and then, for one reason or another, move on to a different agency. If an agent is not meeting production standards, the first agency might terminate the agent or terminate benefits, such as providing leads. When the agent moves on to another agency, he or she often feels that his or her clients belong to them. Legally this may not be true, depending upon the agent's contract provisions with the agency. Whether or not it is proper legally, the agent often tends to attempt to bring his clients with him to the new agency. Since the agency is benefiting from the additional business, few agencies worry about the ethics of such replacement business. In fact, it is not unusual for agencies to actually encourage the practice.
Another reason for policy replacement deals with company stability. The industry has seen some ups and downs in the financial stability of some insurance companies. If an agent feels that he has clients with a company that may be suffering some financial problems, agents may change their client's policy in an effort to protect the consumer. Certainly, it is best to try to use strong companies so that this will not be necessary, but even the most careful agents may, at some point, find their clients with an unsound company.
Replacement of business is sometimes proposed by the agencies who have legal rights to the business but, due to contracts with vested agents, are paying part of the commissionable earnings to those terminated agents. The agencies may be able to move the business within their agencies and, therefore, discontinue the commissions paid to those agents who have been terminated. As we have stated, not only individual agents, but agencies as well have a duty to behave in an ethical manner. That does not necessarily mean that they do. Most insurance laws protect consumers, not agents.
When the Agent Allows Misconceptions
It would probably be surprising how many policies are sold on the basis of assumed facts or misconceptions. Agents may not purposely mislead consumers, but when it happens, they do not correct the assumptions either.
An agent relayed this story:
I was sitting in the home of an older client who was interested in investing in an annuity product. I was showing him several plans available. One was paying a higher interest rate than the other two, and the consumer liked the higher rate. I made a point of telling him the ratings of the companies, carefully pointing out that the higher paying company only had a "B" rating.
After a moment's pause, he replied: "Hell, I would have been happy with B's when I was in school."
It is obvious that the consumer did not understand the importance of financial ratings. It would have been easy to simply fill out the application and never address the obvious misconception on the part of his client.
Any agent who has spent time in the field can probably tell their own stories of people who made incorrect assumptions placing a sale directly into the lap of the agent. Some misconceptions may simply be amusing, while others may cause serious legal problems. Sometimes it can be so difficult to clear up a false assumption that the agent simply lets it slide by. This is seldom wise. It is always better for the client to correctly understand what they are buying. The next agent in their home may clear up the matter, making the first agent appear either inept or unethical. As one agent relayed, he hates coming into a home where he must spend most of his time correcting the false information left by the agent before him. While this does tend to cement the sale, it is also a waste of time and energy for the second agent on the scene.
Insurance agents seem to have a reputation only slightly higher than that of a politician. Why does this happen? It is probably safe to say that the majority of this reputation comes from consumers who feel that they were "taken" by an insurance salesman. Either the consumer did not get what they thought they were buying or they felt pressured into buying something they did not really want or intend to buy. We often hear people say that the "big print giveth and the small print taketh away." In reality, print size is generally mandated by each state. There is no "big" or "small" print. What the consumer really means is that claims were not paid due to policy limitations or gatekeepers. A policyholder who knows a specific claim will not be paid is not likely to be upset, but a policyholder that thought a specific claim would be paid will be most upset when he or she is turned down for the claim. That policyholder will probably feel the salesperson misled him or her or at the very least, failed to fully disclose the conditions and limitations present in the policy.
When the Premium Seems too High
Another area of ethical behavior that should never happen still needs to be addressed. It needs to be addressed because it does happen. There was the client who thought he was paying the premium for a full year of coverage only to discover that it was a 6-month premium. There was the woman who was told her bank would be drafted one amount only to learn that the draft was for a much higher figure.
Sometimes when an agent fears he or she is losing a sale due to the amount of the premium, figures may be incorrectly stated for the benefit of the sale. We would like to think that such situations are merely misunderstandings, and certainly misunderstandings may happen. There is never any excuse for purposely misstating premium amounts.
Premium amounts may be misstated simply because the agent is inexperienced in using premium tables for types of policies using formulas to arrive at the final premium amount. For example, many long-term nursing home policies have premium rates that vary according to multiple factors, each of which must be considered. Major medical plans are based upon ages and the plan selected.
Obtaining Proper Signatures from Clients
The practice of forging client signatures is not only unethical, but illegal as well. Despite this fact, it is much more common than many people might realize.
There are many reasons why signatures may not be obtained from the client. Often, it was merely an oversight by the agent. Such oversights clearly state disorganization on the part of the agent. New agents might benefit from highlighting signature lines on all their forms before entering the field. Doing so could prevent the omission of needed signatures.
In some cases, signatures might be purposely overlooked as a way of avoiding the explanation of certain forms. This commonly occurs when replacement forms are required and the agent feels inadequate explaining the information contained in them. Again this is not only unethical, but generally illegal as well since all forms need to be disclosed to the client. In addition, the well-trained, well-organized agent simply does not need to omit signatures, whether by oversight or by intention. Anytime an agent feels uncomfortable about a particular form, he or she should seek council from an experienced ethical agent.
Keeping in Touch after the Sale
The hardest policies to replace are those belonging to agents who keep in touch with their clients. Aside from the business retention standpoint, what are an agent's ethical duties regarding service after the sale?
This often depends partly upon the arrangements made between the agent and his or her agency or insurance company. Some companies have a separate servicing staff so that the selling agent is not expected to do any further service work. Most agents, however, are probably expected to do any necessary service work personally. Even if the selling agent is not expected to do so, most professionals feel that referrals and additional sales result from close client contact. In addition to that aspect, everyone likes to feel that they were more than a commission to a salesperson. Even a simple birthday card at the appropriate time is appreciated by the consumer.
Many agents want to provide service to their clients. Not all agents or agencies feel this desire. Many simply do not wish to take on the burden of service after the sale. Certainly, servicing one's clients is prudent, but is it required from an ethical standpoint? Some states mandate that each client must have an assigned agent. This means that the insurance company must assign an agent to every account if the writing agent is no longer with them. Those states then expect those assigned agents to handle any claim requests that might occur. Many states report that the lack of claim service is the number one complaint from their consumers.
Earlier in this text we pointed out that it is only possible to mandate behavior, but not necessarily ethics. Is it possible to force an agent to properly service their clients? Probably not. If the agent is not smart enough to understand that service promotes sales and helps business retention, it is unlikely that he or she will be smart enough to understand service requirements imposed by his or her state. In fact, an agent who is unwilling to service his or her accounts, probably will not even be educated enough to know how to service the accounts. When this happens, one can only hope that the insurance company or agency will step in and handle the matter. If no one handles it, eventually the client will simply change agents and insurance companies.
Selling the “Fast-Buck” Items
Some might consider this an unfair statement. However, we feel the evidence is compelling that many people, not just insurance agents, will quickly step forward if there appears to be a "fast-buck" available by selling a particular item. There may be differing opinions on what constitutes a "fast-buck" item. In fact, it is often true that the fast-buck lies not in the item sold, but in the manner in which it is sold.
In some states, selling revocable living trusts became big business. While there is no doubt that a living trust can be very beneficial in the proper circumstances, many of these trusts were sold for inflated prices to people who did not benefit in any way. Sometimes the consumers do not benefit because the trust was not properly executed; sometimes the consumer simply did not need the trust, so their purchase was unnecessary.
Perhaps the most perplexing aspect of the sale of these revocable trusts has to do with the way in which they were sold. An item is definitely a "fast-buck" item when the seller says anything necessary to get the sale. Consumers have been told so many incorrect things about trusts that it has become clear to many state regulators that the aim of many trust companies was simply to bring in cash. If this were not the case, there would be more control exercised over the sales force. Unfortunately for those who are honest in their promotion of revocable living trusts, many states began addressing the abuses they saw happening. How the situation was addressed varied from state to state, but in some cases legislation began limiting who could represent trusts.
Our use of the term, "fast-buck," is not intended to imply that particular items are in this category. Actually, it has to do with how the items are sold. Any product, which pays a fairly high commission or finder's fee, can become a "fast-buck" item. "Fast-buck" has to do with the attitude of the salesperson. Is the salesperson thinking almost entirely about making some fast money or are they considering where the item fits and whom it best serves?
As we saw with the living trust sales, a valuable estate planning tool was misused by salespeople for the sake of making a fast buck. There was often little concern for the consumer or the consumer's needs. Therefore, this item is both a useful vehicle in the right circumstances and a "fast-buck" item in the wrong circumstances.
Commingling Funds
Any professional should always be shocked when they hear an agent express ignorance regarding the hazards of commingling funds. This is something every agent should be fully aware of. While state laws do vary, the basic concept remains the same: insurance funds and personal funds should never be mixed. By this, we mean that two separate accounts must be kept. It might even be wise to go a step further and use two separate banks, one for the agent’s personal account and one for his or her insurance account. Most professionals have an operating account and a trust account. The trust account is used for funds that do not belong to the insurance agent or the insurance agency. The operating account is used for commissions that are due and payable to either the agent or the agency. The operating account is used to pay the routine bills that come with running a business. The trust account holds funds "in trust" for either the insurance company or the policyholder.
Any agent that is not clear on this should contact their state's insurance department for that state's specific requirements.
End of Chapter 9
United Insurance Educators, Inc.