Insurance Ethics Chapter 14
Principles of Honor and Morality

 


It is probably safe to say that everyone would consider themselves moral. Of course, it depends upon whose definition of moral is being used whether or not that is true. Perhaps the first lesson in ethics is that there is no right or wrong, merely opinions.

 

Ethics are defined by the New American Webster Dictionary as:

(1) the principles of honor and morality; (2) accepted rules of conduct; (3) the moral principle of an individual.

 

Sometimes other words, such as moral, may be used in place of ethical, but ultimately the meaning points in the same direction: what we as individuals or a society considers to be right or wrong.

 

The topic of ethics is a complex matter. While it may be simplified into a single statement (Ethics means being honorable and moral), defining what is meant by honorable and moral becomes a complex issue. For example, our society says that it is illegal to defy our laws. Does that mean, then, that it is also unethical to do so? No, it is not unethical to defy societys laws if the individual believes them to be immoral. Such was the case when individuals helped slaves escape to Canada to obtain freedom. They believed so strongly that slavery was wrong that they were willing to risk not only their own freedom, but also their very lives, for that belief. Obviously these individuals were moral people even though they were breaking the law.

 

Although we now believe, as a society, that slavery is wrong, that was not the thought of the day when slavery was legal. What would apply today? One example under todays laws might be abortion. It is legal in many states, but that does not mean that everyone feels it is moral. The next question must follow: if a person feels abortion is wrong should they break the law in an attempt to stop it? Does morality mean simply following what one feels is ethical personally or are they obligated by morality to try to force their opinion on society? There are no easy answers. Obviously, the slaves were glad that some people were willing to help them escape slavery, but that is not really the issue. The real issue is whether or not it is right for one person to attempt to force their opinion on another.

 

There are several ways to examine this question:

 

    Does the moral issue affect others adversely? Obviously slavery did. Does abortion? Again, it becomes a complex issue since there are different opinions as to when a fetus is actually considered a person. Is it at conception or when the fetus could survive outside of the mothers body? When the mother is murdered, the viability of the fetus becomes a legal question (was the baby also murdered?)

    Are we responsible only for our own actions? In most cases, society tends to feel each of us can only answer for ourselves. However, there have been some cases that made parents responsible for the actions of their children. In Puyallup, WA parents were held legally and financially liable when their children burned down a school.

    Can we morally rationalize the forcing of our opinions on others? Many ethicists state that it cannot be ethical to force an opinion on another. Persuasion must be the road traveled. Perhaps the real question is whether or not it is ever effective to force an opinion on another. Anyone who has children has seen the natural resistance in people to anything forced on them. Do you want another to pretend to agree or actually agree to a moral issue? Some people, out of politeness, may listen to another but that seldom signifies agreement.

 

State insurance departments have learned long ago that they cannot mandate morality with laws. Certainly consumer laws must be on the books, but that does not mean that unethical agents will follow them. That is exactly why the states have punishments also on the books for those who violate consumer and insurance laws. The hope, of course, is that agents who would otherwise not follow the requirements will do so merely to avoid the accompanying punishments.

 

We know that societys morals change with the times. Women are now allowed to wear pants in public and own property, in most towns it is legal to drink alcohol on Sundays, and every person of legal age can vote (except under some specific circumstances). Philosophers say that ethics is no more than evolved knowledge and, as the previous examples show, this is mostly true. It was in the fifth century B.C. in Greece that the philosopher Socrates gave ethics its formal beginning. The word ethics comes from the Greek word ethos, which means character. The subject was further developed by Socrates student, Plato and later by Platos student, Aristotle. Some say that these three so completely explored the subject of ethics that nothing new has been said since (although the subject has certainly been discussed).

 

Every time we think ethics, as a subject, is no longer necessary something happens to remind us how very important it is. A few years ago, society was looking hard at our government, particularly the Internal Revenue Service. Following that, during Bill Clintons administration, morality was the topic. In the new century it was accounting practices of corporations that affects the finances of Americans. When Enron went bankrupt it was discovered that those running the company were acting solely for their own best interest without regard for the financial loss that others would suffer. If it had only been operating without regard for others, the results would have been less unnerving, but the company was also engaging in fraudulent accounting practices. It will probably be years before the public is aware of everything that went on, but those investigating the company are saying it was a jumble of errors that allowed stockholders and employees to loose nearly everything while a few within the company became rich. There will be plenty of blame to go around, but casting that blame (however deserved) is not likely to help those who lost their entire savings and retirement funds.

 

 

We are only sales people.

 

As agents, we are not expected to know the answers to the universe. We are expected to know our products and our ethical expectations. Unfortunately, when it comes to commissioned sales, ethical conduct can be in short supply. The insurance company issues contractual agreements to agencies, which then hire agents to produce sales. The producers may be expected to produce regardless of how they make it happen.

 

When an agency stresses SALES, SALES, SALES without regard to other elements, it is not surprising that the sales force may lose sight of their ethical responsibilities. When there is no ethical leadership, problems may develop that bring in state regulating authorities. More often, however, consumers suffer without realizing the full extent of the problem until years later when it is too late to do much about it. The selling agent is often out of the business by then, so resolving the issue often falls on the insurance company that issued the policy.

 

People (not just commissioned salespeople) are likely to consider their job and their personal life separately when it comes to ethical conduct. An agent may bend the law or fail to tell the complete truth in order to obtain a sale, while expecting their child to be honest in school. An agent may cheat on their taxes (or on their required continuing education) while expecting their spouse to remain loyal. Can our conduct be divided between okay for me and not okay for you? Or is ethical conduct something that exists 24/7 for each of us?

 

It might be said that ethics are a recipe for living day in and day out. Our code of ethics gives us our personal rules and values that determine how we think of ourselves and how others perceive us as well. Our choices will affect everyone we know and love. If we cheat on our taxes we may be financially penalized, which affects those we love. If we cheat on our education, we may make mistakes that affect us financially, which (again) affects those we love. These kinds of mistakes can be measured in dollars, but how do we measure other types of mistakes? If we are not loyal to our spouse, what will the emotional toll be on our mate and on our children? Can that toll be measured? Some results may not be seen for years. How is loss of respect measured? Can it be measured at all?

 

Moral conduct is never a separate part of our lives. It is present during an insurance presentation and it is present when we hug our children. It has been said that touching a rock is contact with our past, touching a flower is contact with our present, and touching a child is contact with our future. What we do today impacts our future.

 

Our ethical conduct is part of everything we do and say. There is no separation possible. In todays lawsuit prone society, the wise agent will certainly make a point of following state and federal regulations. Some agents will consider that enough. For others, their personal pride in who and what they are will require more.

 

 

How did I become a moral person?

 

I didnt plan to be moral. How did it happen? Most people develop their moral code during childhood and adolescence. It is fine-tuned in their adult lives. We may not realize why we dislike cats or why broccoli doesnt appeal to us, but those characteristics came from somewhere. Unfortunately, parents give their children more of their traits than they realize. The child who hears ethnic jokes will adopt the attitude heard. Children are much more adept at picking up emotions and attitudes than most parents realize. One does not have to actually state they dislike a culture for the child to realize the emotion is there and to accept it as their own.

 

Moral or ethical conduct is continually learned. Susan Neiburg Terkel reported in her book, Ethics, when Mahatma Gandhi, Indias leader in the struggle for independence from England, was asked why he had changed his views over the course of a week, he replied, Because I have learned something since last week.

 

As individuals accept as truth new ideas or new ways of viewing a subject, their attitude will change with their perceptions. That is why ethics is so affected by acquired knowledge. No person is either all good or all bad; we are made up of many elements. Any person can make a bad judgment without becoming a bad person. In the same way, any person can do a kind act without necessarily affecting their future personality.

 

Some individuals choose to be moral by following a specific way of living. This is often the case with those who practice a religion. Their church advocates ways of behavior that follow the teachings their organization perceives to be right. Many churches study the Bible for direction in their daily lives. It is not necessary to prove their faith right or wrong. Since ethics is all about perceptions, it is only necessary to believe in their way of living. Since mainstream religions all advocate treating others well, it would be hard to believe that their teachings are wrong.

 

Is it necessary to be religious in order to be moral? Certainly not. Any person can be moral. In fact, any person who is acting according to his or her own perceived beliefs of what is right is, in fact, behaving morally. Agreement is not necessary for ethical behavior to exit.

 

Different conclusions may be reached to the same moral question. That does not mean that someone is right and someone is wrong. It means that each person has their own personal view. It is always important to remember that ethics are not about laws or societys view. Ethics are a personal matter that is individual to each person.

 

 

Is it really necessary to be ethical?

 

Apparently not everyone believes that it is necessary to be ethical. Certainly not some of those connected with Enron. Few people will have such wealth even available to them, but it does bring up a question: Does money corrupt? Money is neither bad nor good. It is merely a function of our society that enables us to trade goods and services. It is how money is used that changes how we measure the results. Wealthy people who give to charities are not said to be unethical.

 

Why does one person choose one path while another goes a different direction? There are mountains of books exploring that question, but the simple answer is not complicated. We make our own decisions. While some of what we base those decisions on came from our parents teachings, ultimately each of us must take responsibility for the choices we make.

 

When we ask the question Is it really necessary to be ethical? we must then assume that people choose to be one way or the other. This addresses four basic issues:

 

1.     Is it possible to teach ethical behavior?

2.     Whose ethics would we teach?

3.     What does it take to practice morality?

4.     Are we responsible for the morality of others?

 

There is no doubt that each of us affects others, often when we do not even realize it. How we treat the clerk at the store or the driver beside us on the freeway will have a domino effect. The emotions that we spread to others are then spread to those they come in contact with. Each of us has experienced rudeness that affected the rest of our day, yet we continue to treat others in ways we ourselves would find offensive. The golden rule applies to everyone: treat others as you would like to be treated.

 

Is it possible to teach ethical behavior? It is possible to teach children ethical conduct because their personality is being molded. By the time we are old enough to hold an insurance license, there is some debate on the matter. Ideally, each agent would desire to display ethical conduct and a commitment to each client. In reality, that is not always the case. State regulating authorities can mandate behavior and hope that agents will follow what is required of them. Most agents will because they do not want to cause themselves legal problems. Those few who refuse to are unlikely to remain in the profession very long. Thats not to say that they wont do lots of damage before they depart. It will be the career agent who follows them that will have to clean up their financial messes.

 

Agents who wish to remain in the profession will follow what is legally required, but they may also pick up some ethical direction as well. Usually that is the result of management that expects ethical conduct. Each of us faces ethical questions that we determine as individuals, but our past training as children, our adult experiences, and the schooling we have received will give us direction. We may not realize why we make the decisions we do, but instinctively we seem to know what is right.

 

When an individual wants to make the right decision but is unsure of what that is, we look to others for guidance. That guidance may come from family, friends, or our church. In the insurance industry, agents turn to the management or the insurance company for direction. Every type of profession has an informal code of ethics (although it may be referred to by many different names). Often conduct is more understood than written. Ethics create standards within any given profession to upgrade it and give it honor. It is a means of measuring individual performance and acknowledging outstanding people. Ethics provide priorities and builds tradition based on integrity.

 

It would be hard to imagine doing business with anyone we knew was unethical or immoral. What client would allow an agent to handle their finances if they knew the person was not trustworthy? Who would take their car to a mechanic that was known for cheating people? Would you allow a doctor to operate on someone you love when he had a reputation of not caring about the quality of his work? Each of us wants a professional regardless of what the job relates to. It doesnt matter if the professional is our accountant, our doctor, our attorney, or our waitress. We want professional service. Do we think our clients want anything less than that?

 

 

Egoism: Acting in our own self-interest.

 

Plato argued that immorality is ultimately self-defeating. However, one does not necessarily have to be immoral to act in their own self-interest. Websters dictionary defines egoism as the doctrine that self-interest is the basis of all behavior. It should not be confused with egotism, which is the habit of being too self absorbed or conceit.

 

Psychological egoism maintains that people are always motivated to act in their own perceived best interest. Psychological egoism is not an ethical theory since it does not tell people specifically how to behave. Rather it attempts to explain why people behave in certain ways. Ethical theorists may still treat it as a theory, however, since it does have a bearing on their own theories that they wish to introduce as fact (Is this acting in their own self interest?).

 

There is a version of egoism that is a genuine ethical theory because it states how people ought to act. It is called ethical egoism. An ethical egoist (again, not to be confused with egotist) argues that people should act in their own best interest at all times because it is good for the general economy, providing industry and jobs, for example. Ethical egoism and psychological egoism are separate and distinct, but they tend to be meshed together by writers and speakers. We will not, therefore, dwell on the differences either. Just be aware that psychological egoism is an explanation of behavior whereas ethical egoism is a theory of behavior.

 

Many philosophers agree with ethical egoism. The English philosopher, Thomas Hobbes is one who feels the theory can be substantiated with fact. He points out that it is because of ethical egoism that America has become a world leader. Our business men and women worked for their own self interest in building companies that employ millions of people enabling our citizens to maintain one of the highest standards of living.

 

In the marketplace we all try to buy low and sell high. It is unlikely the buyer worries about the seller or vice versa. Each person wishes the best price for themselves. It works well because the practice is both orderly and productive. This is the positive side to egoism.

 

What happens when a persons self interest is in conflict with the self-interest of another? That actually happens quite often without necessarily hurting the theory. For example, when an insurance agent replaces the business of another, each agents self-interest is in conflict. The replacing agent will earn a commission and the one being replaced will lose a commission. The hope is, of course, that the consumer benefits by either receiving more for their premium dollar, or saving the amount of premium dollars being spent. If the consumer saves money, he or she is likely to spend it another way, which benefits our economy. The agent who earns the commission will also spend what they earn. The agent that loses the commission will have to work to re-earn it through another sold policy. Each transaction benefits society in some way.

 

The theory of egoism does not fit well to some acts of heroism where the person is obviously not acting in their own self-interest. We read often of someone who lost their own life or endangered their own life for another. While there are many such examples, perhaps one of the most obvious pertains to the passengers on United Airlines Flight 93. Surely, none of the passengers who left Newark, NJ on September 11th, 2001 intended to be heroes that day. Even so, a united act of many, including Jeremy Glick, Tom Burnett Jr., Mark Bingham, and CeeCee Lyles, saved the lives of others in one of the most dramatic events ever seen in the United States. We may never know what the planes target was, but we do know that the willingness of the passengers to act in the interest of others saved the lives of those who were the intended victims. It is doubtful that the passengers of Flight 93 gave any thought to the morality of their actions; they merely came together for the good of people they didnt even know.

 

Each of us may be a hero in ways that go unnoticed by others. The child who shares his lunch with another who doesnt have one, the woman who gives her last dollars to the homeless man, the teenager who volunteers at the local cancer ward are all heroes. They just arent acknowledged as such.

 

When anyone gives time or money to a cause or person that has no personal fulfillment, the theory of ethical egoism does not seem to fit. Is it possible for a person to both fulfill their own needs and the needs of others? Apparently it is. How else could we explain the agent who is ruthless when it comes to replacement business, yet gives their time and money to charity on a regular basis?

 

 

Perception is everything

 

Ethics are totally about perception. Each person perceives what he or she believes to be right and wrong. There is no right or wrong to these perceptions. Perceptions of what is right and wrong are taught to us from childhood. Of course, children often receive very mixed messages. Johnny is punished by his father for lying, then overhears him tell his boss he is sick so he can go play golf.

 

Perceptions of ethical or moral conduct depend upon many factors, including societys views, religious views, and personal views. No person or society can state ethics for universal use. As we said, perception determines ethics. If Johnny decides that it is not ethical to lie, except to the boss, that is then his code of ethics. As long as he only lies under what he perceives to be acceptable conditions, he is maintaining his ethical code.

 

How do we view lying? A study conducted some years ago found that 90 percent of Americans admit to lying occasionally. We legally allow police officers to lie to those they have arrested in the interest of justice. We apparently allow our politicians to lie routinely (since we continue to reelect those that have been caught doing so). Do Americans consider lying an offense? Not according to studies that have been done by the University of California. Americans consider it to be only a minor flaw.

 

Although Americans may not view lying adversely, some organizations certainly do, among those the state insurance departments. While we may not care if our politicians lie to us, we fully expect our insurance agents to be truthful. Insurance departments will follow up complaints against agents suspected of lying to consumers. Penalties will be levied if the agent is found to be guilty.

 

Exactly what penalties are levied on an agent who is found guilty of misconduct depends upon the state. Misconduct includes many things and will have some variance, also depending upon the state.

 

 

Promoting ethics is a full time job.

 

While our history shows disagreement from time to time on what is ethical, everyone seems to agree on one point: lack of ethics promotes disorganization, financial turmoil, and sometimes even the demise of governments. While we may believe that could never happen in America, we do have a history that says otherwise. The Southern Confederation was a government that did fall due to a dispute over whether or not slavery was ethical (and therefore legal).

 

As individuals, we may feel that we have little control or even say in our government. In fact, this attitude probably explains why we have such low voter turnout. In other countries that often have no voting rights, their citizens are amazed at our apparent apathy. Perhaps the only real say we do have is in the voting booth. Those that actively seek change have found that their greatest strength lies in a united voting front.

 

This has also been true for those who have sought change in companies and company policy. Some investors want to do more than just invest their money for their future security. Some investors want to invest in companies they can be proud to be a part of. While it is possible to merely seek out such companies and avoid those that do not meet the individuals standards, some investors have chosen the activist role. This is called the activist approach. These investors seek out basically good companies and then become involved in their business practices. The activist investor starts with one basic fact: shareholders own the company.

 

The activist investor starts with one basic fact:

Shareholders own the company.

 

The average investor does not own enough stock in a company to be able to change how they conduct business or what the business invests in. Without a large voting block, the opportunities to bring about change will be limited. Influence can be increased if an individual is willing to put in a lot of time campaigning for their views, but most people are unwilling to put in the amount of time and energy that would be necessary.

 

The activist investor usually selects companies that influence national policy on issues they care about. Often it is a company that already agrees to some degree with the investors views, but does not routinely follow the path that would promote them. Since the investor understands that each share equals one vote, they work to bring the votes together in one powerful statement. In other words, corporations operate on a one-share, one-vote system. If an investor can influence a majority of the voters, the company will follow the path desired by the investor.

 

Companies often issue thousands or even millions of shares. Therefore, a block of even 25,000 votes may not influence the policies or structure of the company. Even so, it is possible for only a handful of people to sway company policy to a large degree IF they operate effectively to do so. Some small groups have been extremely effective in swaying very large portions of the voting shareholders. Sometimes this is done by attending shareholder meetings and sharing education that sways votes. Sometimes it is done by obtaining proxy rights to voting shares.

 

When small shareholders actively pursue change, they are referred to as gadflies. The dictionary defines gadflies as insects that bite and annoy livestock. It is a fitting description for the shareholders that pursue change. They politically bite those in charge and annoy them by sharing information with the shareholders that often force those in charge to make changes. Gadfly shareholders have been amazingly effective and they have certainly annoyed those in charge of company policy.

 

Gadfly shareholders are not new. They have been effectively influencing company policies for over twenty years. Ralph Nader was among the first (and best known) gadflies. Initially, gadflies were not taken seriously. They first aimed the strategy at the more powerful investors, who were referred to as institutions. This would include banks, trust companies, union and corporate pension funds, mutual funds, money market mutual funds, college endowment funds, and any other organization that had poolings of money to invest. Because of their large amounts of contributors, these institutions had great power when it came to influencing the companies they invested in. Pension funds, for example, hold billions of dollars in investments. Anytime a large institution, such as a pension fund, wants to know a corporations policy regarding a specific topic (such as equal opportunity employment for example) the corporation is quick to comply in a favorable manner. Simply put, gadflies are often able to make favorable social changes that would take decades to achieve otherwise.

 

The changes gadfly investors wish to make may vary, but usually they direct their energies toward social issues. Prior to their involvement, institutions tended to automatically vote with existing management. Companies now realize that such support can no longer be taken for granted. Gadflies are simply too active these days.

 

A surprising number of individual investors now require their investments to meet their personal code of ethics. While no company is all black or white in their structure, most do meet basic fundamental policies. When investors take the time to investigate companies, even if they are not totally in agreement with their management, there will be many similarities with the desires of the investor. For example, an investor that is opposed to animal experimentation will look for companies that develop products without the use of lab animals. An investor that is concerned with human rights will look for companies that fairly treat all their employees without regard to religion, race, gender, or sexual orientation.

 

What does the investor need to consider to invest according to their own ethical standards? While there may be many factors one wishes to consider, some assumptions must also be made:

 

1.     Every investment has some sort of ethical dimension.

2.     Investors can, if they choose to, apply their ethical standards to their own investment strategies.

3.     Investors who do decide to apply their personal ethical criteria may be more successful than those who do not.

 

Investors are often surprised to find #3 is true. It is not really surprising since the investor must investigate the companies prior to investing. When a company is investigated not only will their ethical approach be learned; the strength or weakness of their production will also be revealed. The reason so many ethical investors do better is simply a matter of financial education. The investor learns much more than they would otherwise know.

 

The most widely used investing approach is called the positive investment approach. It might be referred to as the invest in what you know and understand approach. Anytime an investor looks closely at a company more time will initially be required. This is true in ethical investing and positive investing. Either way, the investor must take the time to learn about the company. It may be possible to ask an investment counselor to do the work, but the more successful investors will put their own time and energy into it. Some investment counselors, having received numerous requests, have put together specific investment strategies for specific interests (environment, animal rights, and human rights are the most common). Investment professionals say the problem they often encounter when trying to put together specific types of investments, such as environmentally sound companies, is obtaining specific information relating to the subject. In past years, companies did not think about such things and consequently did not try to hide adverse elements of the company. Today companies are much more aware of the publics concerns so they may hide some adverse elements.

 

Some companies are already investing ethically according to their own philosophy. If the companys philosophy corresponds to the investors then it can be easy to decide where to put those investment dollars. However, few companies are totally in line with each investor. In addition, it would be foolish to put all ones eggs in the same basket. The key to this type of investing is finding companies whose views match that of the investor. If he or she is willing to invest in companies that mostly fit their views, it may not be so difficult to find what one is looking for.

 

Investment professionals have discovered another factor when they encourage ethical investing. People are both more likely to invest and also more likely to stay with the advisor when the investing matches their ethical views. Obviously this is good for the professional who makes their living from individual investors.

 

Since money is a deeply personal subject, finances are something that people may not share the details of, even with a money manager. If the topic is first about ethics and those areas the individual finds incompatible with their views, the details of their finances are more likely to come out. This will, in turn, allow the money manager to be more effective. Even with a money manager, however, the investor must become personally involved. It is important for the financial manager to make this point if the investments are to last long-term.

 

Some investors may simply want to avoid some companies based on their business practices. This is called the investment avoidance approach and it is, in some ways, the easiest to follow. Under the investment avoidance approach, the investor merely avoids investing in companies that engage in disagreeable practices. Environmentalists may avoid investing in all logging companies, for example. Animal rights activists would avoid investing in most chemical companies. Basically, the investor is saying Not with my money!

 

The Investment avoidance approach is easiest because the disagreeable activity is usually fairly easy to recognize. Obviously logging companies log trees. Beauty products tend to experiment on animals. While a company may be overlooked that would fit the favorable profile, companies that are disagreeable will also be avoided. The investor simply tells the money manager which industries are not acceptable and the funds invested avoid them.

 

The avoidance technique is seldom used to call attention to disagreeable activities, as some of the other methods are. Rather, these investors merely desire to not personally support any activity they dislike. There is no intent to make a public statement or to bring forth social change. The investor is not interested in provoking public awareness. He or she simply wants to invest in companies and products that do no harm. In addition, it is easier to find companies that do no harm than it is to find companies that promote good.

 

The investor, no matter which method is preferred, must realize that no technique is fail-proof. The avoidance technique is especially not fail-proof since little research is required. The company that appears to use no animal research may actually do so in a sub-company that they own.

 

 

Combining investment methods for a satisfying result

 

Most investors do not totally use any one method. Most investors use some of each. The two methods most often combined are the positive and avoidance investment techniques. This allows the investor to avoid companies that are obviously at odds with their beliefs while investigating companies that appear to agree with their views. In other words, some companies and products are actively avoided, while others are actively sought out. Positive investing usually tends to go with companies and products that enhance the quality of life in some way. It may be something as simple as a food that is enjoyable or something as dramatic as a medical breakthrough. Companies are often preferred when they participate in the surrounding neighborhood, promote good work relations, and produce a favorable service or product.

 

The National Council of Churches put together the following investment criteria:

 

    Do the products meet government standards for quality and safety?

    Is their labeling adequate and easily understood?

    Will the products last for a reasonable amount of time?

    Does the company actively recruit women and minorities?

    Is the company pioneering safe alternative energy sources or studying ways to reduce the demand for natural resources?

    Is the company researching the development of new products or means of production that will enhance the quality of life?

 

This list may not satisfy the needs of everyone, but it is a good starting point. Again, it is important to realize that companies and products change, especially if management or company ownership changes. What was right for the investing individual this year may not meet the same standards next year. The investors criteria may also change. For example, Joe was against the use of animals in research until his daughter was diagnosed with a severe disease. He learns of promising research for a cure using monkeys as subjects. Now he has a personal stake in the outcome of the research. He may have to reconsider his position on the use of animals. How his views change may be determined by how the animals are used. Do the monkeys suffer physically, emotionally, or mentally? Are they sedated to keep their suffering at a minimum? Do the researchers seem to understand the correct criteria for using animals in their research or do they seem cold to the animals living standards? All of these factors may impact how Joe changes his views.

 

Few companies will come out of the research as all good or all bad. It just isnt that simple. Companies want to make a profit and their shareholders want them to make a profit. That is, after all, the point of investing. Most major companies are well diversified which means that an individual may agree with one of their subsidiaries, but not with another. Each investor must make personal decisions regarding which of their views are concrete and which are fluid. Where the investor is firm (absolutely no animal experimentation) investments will require extensive investigation into the companies, but where the investor holds views that simply mirror preferences (I have concerns about the environment), he or she may be flexible in the companies selected.

 

 

Where do I start?

 

There are multiple avenues for investment. Some have been used for decades and have proven themselves while others are pure speculation. When an agent suggests an investment, he or she should never assume that the consumer understands what is being discussed. Have you considered an annuity? gives the consumer no opening. It would be far wiser to ask, Do you understand how an annuity works for you?

 

Because investments tools are so numerous and diverse, investors tend to refer to them as vehicles. A vehicle is simply an avenue for producing the possibility of financial gain. Please note the word possibility. Few, if any, guarantee financial gain.

 

Some investments will automatically be eliminated on the basis of ethical views. For example, an investor who was concerned about the environment might automatically be opposed to oil investments.

 

There are two basic categories of investments: debt and equity. Either a loan is made to a company or a division of government (debt) or the investor buys part of a company (equity).

 

If a debt vehicle is purchased, such as bonds, commercial paper or bank notes, a loan is made. If an equity is bought, such as common stock, part ownership in a corporation is made. The value of the interest depends upon the companys success. If the company is successful, the investor has a right to share in the profits, but only after debt holders receive their interest and principal payments. Unlike debt, the investors ownership interest entitles them to a voice in the companys affairs (the one share-one vote system).

 

The terms, capital gains and income, describe how one makes money on the investments. If the investor sells for a profit, the difference between what is paid and what is received at the time of sale (after deducting brokers commissions) is a capital gain. The formula for calculating a capital gain or loss is:

 

Sale price minus purchase price,

minus commissions on both the purchase and the sale

equals either a capital gain or a loss

(depending upon the final figure).

 

Any interest or dividends received are ordinary income. It is possible to get both income and capital gains from some investments.

 

Growth describes investments held for their appreciation in value rather than the income, which might be produced. Investors do not expect to profit from some types of investments until they are sold. A growth investment is a long-term commitment in most cases.

 

An investment intended for income is generally something that produces income on a regular basis, perhaps even monthly. It may also produce a profit when sold, but that is not necessarily the primary goal. Income investments tend to produce smaller profits when sold than would a growth investment. Most investors tend to seek one or more of each type of investment rather than limit themselves to just one or the other. Balance tends to be the key to successful investing.

 

 

Investment portfolios

 

A portfolio is a term used regarding liquid assets. A portfolio holds all the investors assets that may easily be turned into cash, thus the term liquid. Liquid assets often include such things as cash, stocks, bonds, money market funds, and mutual fund shares. Non-liquid assets include anything that is not necessarily transferred quickly to cash. That would include an investors home, pension plan, antiques, or fine art. Obviously, other items would also fall into this category, although not listed here.

 

A portfolio is strongly influenced by the investors age. A person who is still in their younger years, when earnings will continue for some time, will invest differently (or should be) than would a person who was nearing retirement age. Unfortunately, how a person invests is often more likely to be influenced by who rings their doorbell than by deliberate thought.

 

Planning ones financial future requires time and thought. Many elements need to be considered:

 

         How many earning years are left?

         Can additional income be obtained and shifted towards retirement planning?

         Will college planning be necessary for children or for the adults in the household?

         Should the wage earners consider the possibility of job interruptions?

         If retirement is near, where will the investor live after retirement?

         What additional costs (such as long term nursing care) should be considered in retirement?

         If retirement is far away, would it be wise to consider occupation changes to maximize earnings?

 

This list is certainly not exclusive. Many future costs will depend upon the individual and their lifestyle.

 

One thing is certain: planning for the future is absolutely necessary. This is true whether the individual is 20 years old or 60 years old (and every age in between). Simply planning will not work, of course, unless the plan is followed to some degree. There will always be times or situations that may change the course of the plan, but one must always exist. Financial planning must be flexible, but it must also be precise. General statements (I plan to retire at 50.) are useless unless there are measures in place that ensure success.

 

A surprising number of Americans have never even set up a budget, let alone a financial plan. Few financial plans are effective unless a budget is first in place. This is not surprising. How can an individual save for the future if he has no idea where his money is even spent?

 

Where does a person who wants to invest start? He or she first starts with the budget. Map out every expense. From there, look for cash that may be diverted to savings. Once savings have been built up, transfer a portion to an investment. Initially, the savings may go to something essential, such as the first home. As time goes by, the home becomes established and other goals materialize (college savings for the new baby, for example). At some point, retirement will be the goal.

 

When people first begin to save, there is often no real plan in place. As long as a plan is eventually developed, thats fine. The first step is to learn to save anyway. That first step can be the most difficult one. Our culture does not emphasize saving money; it emphasizes spending it. We receive numerous offers for credit cards, equity home loans, and sales pitches. The simple act of saving part of what we earn can be the most difficult habit to develop.

 

Agents often use the phrase No one plans to fail; they simply fail to plan. Part of the reason so many people fail at saving is because no goals have been determined along the way. It is easier to save for something specific than it is to just save for the sake of saving. More than one goal typically exists simultaneously. It is not unusual to be saving for college educations for children and retirement at the same time, for example. Usually the first goal is a down payment on a house.

 

Along with the big savings goals there should also be some smaller ones. A family vacation is often one of the smaller goals. Most of us need some smaller goals that give rewards along the way in order to stay with the larger long-term goals.

 

Planning for the future is an ethical pursuit. Why? Because it means we are not leaving our future in the hands of the taxpayers or our children. An ethical person cannot expect either to support them financially. Certainly, our children may feel no regret in doing so, but it is never ethical to willingly expect it of them. The taxpayers have no moral obligation to support an individual (although this is often the case as we age and enter a nursing home). Part of planning for our future is the ethical responsibility to plan financially for the costs of aging.

 

 

How do I know what is ethical?

 

Ethics are entirely about perception. It is not possible to be ethical if an individual is only following someone elses lead. Ethics must be beliefs that a person feels strongly about. Thats not to say that some people ever establish a moral code intentionally. Many people simply go day-by-day without ever choosing any specific path. However, that in itself is a choice.

 

Moral standards relate to the society the person lives in. Because much of our ethical standards are developed as children, it is expected that each person will take on as their standards those of their parents and friends. Most people also reflect part of their ethical standards on what society deems appropriate. Who doesnt want to fit in?

 

Scientific discoveries have occasionally changed our perceptions of the world. We no longer believe the world is flat, for example. Science changed our perception of our world. Probably nothing is absolute, so society changes as our knowledge changes. To be absolute one must be fixed and unchangeable. We have all known people who seemed to be absolute, but seldom are they successful as business people or as humans. Some elements may benefit by being absolute. Absolute honesty is certainly a plus. Perhaps it could be summed up best by saying that ethical conduct must be absolute, but the basis of ethics must be flexible to allow for additional knowledge.

 

Some ethical topics have no easy answer. A few years ago, President Clinton wanted to allow equal opportunities for gay and lesbian citizens in the armed forces. There were strong feelings on both sides. Past legal opinions did not seem to offer appropriate answers. In the end, no real change was made in how the services view gays and lesbians. Some questions simply have no easy answers.

 

How individuals view moral questions nearly always involve their upbringing and education. Both sides of an issue will feel strongly that they are right and the opposing side wrong. From an ethical standpoint, both sides are right if they truly believe so. Being ethically true to oneself never means that society must agree with their views. The variability of moral valuation depends upon each persons perceptions.

 

Some ethical views seem to be universal and have lasted through the generations. For example, even the very early cultures viewed homicide as wrong and prohibited it within their own community. However, the term, homicide, was not universal. It was both permitted and even encouraged when the victim was an outsider or stranger. The culture of that time considered this to be self-preservation. In some cases, it was permitted to kill the elderly, based on what was perceived as good for the majority of the people. Life was hard and many in the society did not survive the harshness, so some killing served a practical purpose. It is not unusual for society to base their ethical standards on practicality. That may explain the resistance to ending slavery. It was practical for plantations to use slave labor from a financial standpoint. If the North had needed similar labor they may not have been so noble. Of course, there is no argument that slavery served the element of human greed. It is not surprising that greed often leads to rationalization.

 

Past cultures gave little rights to a stranger or outsider. In Greece, the stranger had no legal rights. He would be protected only if he were an acknowledged guest of a citizen. The intentional killing of a citizen was punishable by death whereas the intentional killing of a non-citizen merely resulted in exile.

 

Not all ancient societies were discriminatory to outsiders. The Chinese Moralists pressed for benevolence making no national distinctions. Mih-tsze, who lived in the interval between Confucius and Mencius, taught that we ought to love all people equally. Buddhism commands the duty of universal love. It was the Stoic philosophy that first gave the idea of world citizenship positive meaning and raised these ethical thoughts to historical importance.

 

Today we give voice to freedom and equality for all, but our actions often say something different. America has many lifestyles and it is not surprising that everyone does not agree on moral issues.

 

Moral valuation depends upon personal views. Personal views come from the standpoint of How will this affect me? Unfortunately, few people ask: How will this affect my community? In addition, no matter how much we would like to deny it, we still have a tribe mentality. Our definition of tribe has changed, but it still exists. Today we refer to our family, our neighborhood, or our coworkers, but how we react to situations is no different than how past cultures reacted to those outside of their tribe. This perception affects how we view possible threats. What threatens us today? Fear of job loss, social status, or simply a change in our expected routine. Some of us fear for our safety if we live in areas of high crime. Fear affects behavior. Even if not rational, fear will make us treat others differently.

 

Sociologists have felt that fear has been responsible for many of the racial attitudes we have seen in America. People tend to fear what they do not know and understand. People who grew up with mixed races may still have prejudices, but they are less likely when exposure has brought about knowledge. Many prejudices, whether racial, religious, or orientation, are learned from parents, family, and friends. Knowledge is the only way to understanding.

 

Nearly every authority on prejudice has said that education is the best solution for bigotry. Laws may be passed to prevent the most outrageous forms of bigotry, but laws do not change attitudes. When children are exposed to various cultures, ethnic backgrounds, religions, and lifestyles they will understand them and understanding leads to tolerance. It is never necessary to agree with a lifestyle or culture, but understanding is necessary. Once understanding exists, fear subsides. When fear subsides, tolerance is possible. Once tolerance exists, people get to know each other.

 

Knowledge is not necessarily the result of formal education. Many extraordinary people were self-taught. In fact, formally educated people may still be prejudiced. There is the saying: It is not so much what he knows, but what he understands.

 

 

Mores

 

Customs that are enforced by social pressure are called Mores. Mores are relative to individual cultures. They are established by patterns of action to which the individual is expected to conform. Deviation may bring disapproval and perhaps even punishment.

 

While ethical behavior may be dictated by law, laws cannot enforce belief. Since mores are ethical standards that are enforced by social pressure, individuals may not necessary agree with the social standards. Professional groups create standards for their members. Conformity is required in order to remain in the group. Insurance agents and professional designations must adhere to required standards. Such standards are often a foundation to improve the groups social standing within the community.

 

Many professionals deal with knowledge that the average person does not possess. Therefore, it is important that the professionals follow a specified code of conduct. Those who seek out the professionals must rely upon their honesty and integrity. It was the potential for abuse of knowledge that provided sets of rules or what is often called ethical standards.

 

Ethical standards may be either written or merely understood. Often what begins as unwritten (but understood) standards become law when too many people do not follow the desired codes of conduct.

 

Mores are not the same for every culture. They will depend upon what the culture considers important for the good of the majority. Many laws develop as the realization develops that there is a need to restrict or direct actions. We often see this in insurance. In the senior market, Medigap policies were originally unrestricted. As problems became apparent, laws were developed.

 

Mores always relate to customs, but not necessarily law (although laws may apply). Customs do often develop into law. Exactly what the mores are will depend upon the culture.

 

The United States is a melting pot, so each culture may have different mores that they follow within their immediate group. Because of the different beliefs, the United States has sometimes been at odds with some groups of new citizens. Governments always expect their citizens to follow the laws, even when those laws go against their cultures mores.

 

 

An agents ethical requirements

 

Each insurance agent is expected to follow specific laws relating to their profession. While there may be variances from state to state, the basic requirements are similar everywhere.

 

Education

Although agents may feel the state is trying to bankrupt them with requirements, it is actually important for the agent to be financially stable. Otherwise, the pressure of being financially insecure may tempt the agent to become unethical with the consumers money. That is one of the reasons states require pre-licensing and continuing education. Of course, they also want the consumers to receive the type of advice that will benefit them. If the agent becomes skilled at their job, the consumer will benefit from their advice and the state will not receive complaints. The agent will benefit from the commissions they earn and be able to remain in business. Any way you look at it, a knowledgeable agent is worthwhile for everyone.

 

Exactly what an agent is required to earn in education will depend upon the state of residency. Agents with a nonresident status must meet the educational requirements of their nonresident state unless that state accepts the requirement of their resident state. If special types of education are required (such as ethics), it is likely that the nonresident agent will need to meet that requirement even if resident education is otherwise accepted.

 

Each state imposes time requirements on the agents continuing education. It is not the responsibility of the schooling organizations (often referred to as education sponsors), the agents secretary, spouse, or state to keep track of completed education. Each agent is solely responsible for keeping track of completed hours (avoiding duplication of course numbers). Each agent is solely responsible for completing education in a timely manner.

 

Some states require a monitor or proctor to be present during completion of the test. Agents are required to follow state procedures in the manner prescribed. Schooling agencies may not issue certificates of completion if testing is not completed in the manner required.

 

Whether or not the agent agrees with the states requirements has no bearing. If an individual wishes to sell insurance or engage in an activity requiring state mandated education, they must comply with the law. There is little point in lecturing the schooling organization. Agents may contact their state insurance department if they wish to input their views. Schooling organizations have no power to change or alter laws. Nor may they change or alter reporting procedures for the convenience of the agent.

 

 

Meeting the people

As every agent knows, no matter how knowledgeable the agent is, if there is no one to sell to, no commissions will be earned. Therefore, one of the most time consuming jobs for an agent is finding a place to be. The method used varies, but whatever method the agent uses, he or she must be sure they do not violate his or her states laws.

 

Each state will have specific laws regarding consumer contact, but a few things seem to be universal. First of all, the agent may not state or indicate in any way that they are representing any state or federal agency. Each agent must clearly state the company they are representing. For example:

 

Good morning, Mrs. Jacobs. My name is Brenda West. I am calling you as a representative of American Insurance Company.

 

It is always prudent to announce what company or product is being represented. There is no point in using valuable time with a consumer who has absolutely no interest in the product.

 

Agents often feel that consumers will automatically say no if they are aware that insurance will be presented. It is true that consumers generally say they are not interested in buying insurance. Of course, they say this before they even know what products are being presented. Despite this fact, it is still important to state who we are and what we represent. First of all, it is required by law, but even if it were not it would be important to do so. A person who feels they have been deceived will not trust the agent enough to buy from them. Trust is very important when it comes to money transactions and insurance certainly falls into this category. It is possible to maintain trust through honesty.

 

Example:

Mrs. Jacobs: I am not interested in buying insurance. We have plenty.

 

Brenda West: It certainly would not be prudent to over-insure. In fact, I find that situation more often than you might imagine. Ive been in the business a long time, so I can afford to sit back and enjoy my job whether there is a need for additional insurance or not. I dont just work for a living. I work because I know my trade and I can spot problems that others might miss. I think youll benefit from our conversation. You will only be donating some time and I promise not to take too much of it. Im busy, too.

 

Mrs. Jacobs may still turn Brenda down, but if she does listen she will not feel that there was any deceit. Trust will be possible. When trust is established, not only will Brenda possibly get a sale, she will keep the business on the books. Long-term business relationships are often the most rewarding.

 

Agents may also be the target of sales pitches. Their managers try to sell them the art of manipulating sales, even when the agent feels it is not totally honest. Each person must decide for themselves the sales practices that fall within their ethical comfort zone. The problems develop when agents begin to feel comfortable being less than honest with consumers.

 

There is no replacement for good communication skills. Communication is not only talking, but also listening. A salesperson that listens well always has an advantage over one who tries to do all the talking. It would impossible to know and understand what the consumer is interested in without listening.

 

Instead of spending ones time learning the tricks of the trade,

it would be better to simply learn the trade itself.

 

 

What is covered and for how long?

Consumers usually prefer simple information that is important to them: what is covered and for how long? Of course, agents must also cover items the consumer may not ask about, especially limitations of coverage. An agents greatest area of legal liability is negligence, according to Cheryl Toman-Cubbage in her book titled Professional Liability Pitfalls for Financial Planners. One does not have to be a financial planner to be sued. One of the fastest growing areas of law is lawsuits against agents and their affiliates.

 

Most presentations involve some set items. The presentation itself should always follow a specific format, even if consumer questions push it in a different direction. Why? Because using a set format helps agents to prove what they say in each and every situation.

 

Although consumers may not agree, the premium rate is actually the least important part of a presentation. No one has ever been sued because of the cost of the insurance. Negligence, the number one reason agents are sued, center on such things as limitations of coverage, dates of coverage, and failure to properly handle claims. There have also been complaints when an agent fails to cancel a policy as requested. Approximately 95 percent of the E&O claims filed relate to the benefits of the program and how those benefits were explained by the agent.

 

An insurance contract is complex. Because it is a legal contract, it must be written in legal terms or legalese, as it is often called. The contract is technical and hard for many consumers to comprehend, even if they do take the time to read it. It has been said that the insurance policy is the number one unread best seller. As far as our clients are concerned, the only part that matters is that which begins with the words: We promise to pay. . .

 

The type of policy will have much to do with its complexity. It is generally felt that life insurance policies are easier to understand than health policies, for example. While life policies do have many other aspects to them, basically the person insured is either dead or alive. Consumers can understand this concept with little trouble. Medical policies, on the other hand, have numerous conditions, limitations, and clauses. Medical policies have such things as co-payments, stop-loss clauses, elimination periods, and preferred providers.

 

Of course, any policy can cause confusion for the consumer. Even when the selling agent has been very careful, covering every aspect of the contract, the consumer may still end up confused or angry over a non-covered item.

 

There is no way to guarantee that one cannot happen, but communication is always the agents best avenue to prevent this. There are some steps the agent can follow to minimize misunderstandings:

 

1.     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 printed for the convenience of the client and agent, but it is never a legal document.

2.     Agents often rely on the telephone when they need answers to their questions. While this is a quick and easy way to understand a product if it would involve any legal aspect, be sure to get something in writing. The company is not compelled to honor misinformation obtained by telephone.

3.     An agent should always be slow to replace an existing contract of any type. This is not to say that some policies should not be replaced. Many in-force policies are old and outdated. The newer mortality tables and newer health plans often offer much more for the consumer. However, it is never prudent to replace a policy without fully examining what is currently in place along with any health conditions that may have developed since it was issued. Health conditions of any dependents should also be considered.

4.     Owners and employers of companies may not be enrolled and paying premiums into workers compensation coverage. This could apply to a person of any age who relies on company benefits.

5.     Health questions must always be truthfully answered. Wrong information could cause the policy to be rescinded (taken back) by the company. Misinformation or omitted information is a serious matter to insurers. Agents who routinely are found to have problems in this area are often terminated by the insurers because they are felt to be untrustworthy. When agents attempt to present an application that is free of health issues, it is called clean sheeting the application.

6.     Eligibility of applicants is always a concern when replacing an existing coverage. Any dependents must also be considered.

7.     When one coverage is being replaced by another, continuity must be given prime importance. The old plan should never be canceled until the new plan is firmly in place (issued and delivered for acceptance). The policy should always be viewed for accuracy by the insured.

 

 

When filling out the application, the agent must be diligent in answering all health questions and lifestyle questions. Applicants may not necessarily intend to omit information or mislead the insurer. Miscommunication is a constant possibility.

 

For example:

Mrs. Jacobs has high blood pressure that is controlled with medication. Because it is controlled (giving normal readings) she states on the application that her blood pressure is normal. Her medication will alert them, but it should also have alerted the agent.

 

Many agents like to go through the health and lifestyle questions with their applicants rather than simply handing over the application and waiting for the individuals to fill them out. Insurers typically also have a form for the agent to fill out. It may ask specific questions regarding the apparent health condition of the applicants, such as Did you observe any oxygen equipment in the home?

 

Body language should be observed during presentations of insurance. Many people feel awkward saying they do not understanding an issue. Agents who are observant may be able to realize when the consumer does not understand what the agent is explaining.

 

While insurance is technical in nature, it is a mistake being too technical during the presentation, unless the applicant has the background to understand what is being said. Most consumers will not have the technical knowledge of insurance that the agent has. Therefore, an agent who talks above their understanding is not performing his or her job correctly. The role of the agent is not to impress people with their knowledge. The role of the agent is to educate consumers on the purchases they are making.

 

 

Policy replacement

The insurance field is one of replacement. While many state insurance departments would like to minimize that, it is a fact of life. From the time an agent acquires their license to sell insurance, they are taught how to replace the business of another agent. This is not necessarily bad since many outdated policies need replacement. Unfortunately, many policies that do not need to be replaced are.

 

Some sections of the industry have seen legislation due to inappropriate replacement. This has especially been true of the insurance market that deals with Medicare aged consumers. State departments have liked to say that agents were also stacking Medicare supplemental policies, but that has not been proven by research. Rather, it appears that stacking of Medicare supplements has been the exception, not the rule. However, there is no doubt that supplements were replaced very inappropriately as often as possible. In fact, agents were replacing their own business, often on a yearly basis. The legislature has no way to ban replacement of business. After all, if a consumer wishes to change companies that is their choice. What the states can do is limit the commissions, and that is precisely what they have begun doing.

 

Many types of insurance, such as life products, require replacement comparisons be made for the client and turned in with the completed application. The specific forms used will depend upon the state and their requirements.

 

 

Does the applicant understand what was said?

It is not unusual for a policy to be sold on the basis of assumed facts or information. An agent can imply that which is not totally correct and the applicant may never question it. For example: Of course you only want to purchase products from A rated companies. Such a statement would make the consumer assume that the company being represented was an A rated company. If it actually was less, the consumer is unlikely to realize it. If a consumer did question the rating, obviously the agent would then loose all creditability and the sale.

 

It is never, under any circumstances, permissible for an agent to knowingly allow an applicant to assume false facts. Any seasoned agent has stories of misunderstandings of the facts, but to knowingly allow a misunderstanding to continue is inexcusable. Sometimes it is very difficult to clear up such a situation, especially when the consumer is convinced that they are right in their thinking. Some consumer misconceptions may simply be amusing, while others may cause serious legal problems.

 

When a consumer misconception is not the result of intentional actions on the part of the agent, it may be tempting to let the misunderstanding go by. This is never wise because at some point the consumer will feel the agent is at fault. This could especially be true if the information is corrected by a replacing agent. Career agents say they hate coming in behind an agent that allowed false or inaccurate beliefs to continue. These experienced agents spend most of their time cleaning up after the previous salesperson. While this does tend to cement the sale, it is also time consuming and not always productive. Some consumers, at this point, refuse to believe anything said by anyone.

 

 

Validating premium cost

Most people think everything costs too much these days. Gasoline costs too much; housing costs too much; and insurance costs too much. Agents might even agree with the consumer on this. That still doesnt change the fact that it costs what it costs. We still drive our cars; we still live somewhere; and we still need to purchase insurance to protect our lives and the financial future of those we love.

 

While there may be no way to really explain why a policy costs what it does it is possible to explain why the coverage is necessary. Agents are often afraid to state policy costs for fear they will lose the sale. Sometimes the agent is correct: they will lose the sale. However, there is no way to soften the cost of any item, whether it is the house one lives in, the car they drive, or the life insurance that will protect their wife and children.

 

Agents may be tempted to incorrectly state the amount of premium. Their hope is apparently to get the insurance in place and hope it sticks. While it is never ethical to mislead a person as to cost, it is also a foolish thing to do. Obviously, the insured will eventually learn the truth and is likely to cancel at that point. If the agent has been paid in advance, he or she will be required to return the unearned commissions.

 

 

Applicant signatures

Every contract requires original signatures. This is also true for insurance contracts. When an agent is selling a policy, there typically are multiple forms that must be signed. Even an experienced agent has the potential of overlooking one of them. Professionals recommend that agents put the products in packets, each containing every required form. Some forms may not be necessary, but each potentially required form should be included. The agent should then purchase signature tabs. These are tabs of various colors that may be attached to the outer edge of the form, indicating the need for a signature. Doing so will prevent a missed signature, which would require a return trip for the agent.

 

Obviously, it is illegal to forge a persons signature. That doesnt mean it never happens. In fact, forging of signatures is one of the most pervasive problems experienced by insurance companies.

 

There are several reasons why signatures are forged by agents. Often agents do not even consider it to be unethical, merely convenient. The agent may have overlooked the required signature on a form. The agent may have been worried about explaining a form (this tends to happen with replacement forms). The agent may be so inexperienced or disorganized that he or she did not realize a form was even needed until they returned to their office.

 

If an insurer suspects a signature is false, they may require every document be resigned. This should come as no surprise, since insurance companies are named along with the agent in lawsuits.

 

 

Keeping in touch with your clients

Perhaps one of the most ethical aspects of insurance has to do with keeping in touch with the applicant following the sale. The hardest policies to replace are those belonging to the agent that has kept in touch. Time is precious to those in commissioned sales since it must be divided between searching for new business, claim work, sales meetings, and family life. What many agents may not realize is that keeping in touch is as simple as dropping a birthday card in the mail at the appropriate time. With todays computer software, it is easy to know when birthdays, wedding anniversaries, and policy anniversaries arrive. Even a Christmas newsletter is a means of keeping in touch.

 

Ideally, agents should try to maintain some measure of face-to-face contact with their clients. This is not always easy, especially if their clients are in multiple towns or even states. The most common time to re-contact a client personally is around the policy anniversary date. In fact, some insurance companies actually require anniversary contact.

 

Some lines of insurance are more likely to have contact than others. For some agents, their clients are local and come to their office when they need help with some element of their policies. These agents may hire office staff that does the support work for them.

 

 

Commingling Funds

As every agent knows (or should) company funds are not necessarily their funds. Even when an agent holds a trust agreement with their companies, funds must be kept separate, as required by law. These requirements are discussed in every pre-licensing class. Even so, every year agents are fined or lose their licenses because they have misused the clients or the insurers money.

 

Professionals will have a company account used only for consumer funds. Their own accounts will be separate, perhaps even at a different bank. If the agent has a trust agreement, they will maintain two company accounts:

         An operating account, and

         A trust account.

 

The trust account is used for funds that do not belong to the insurance agent. It holds funds in trust for either the insurance company or the policyholder. The agent may deposit a check made out to the insurance company into their trust account because they have a trust agreement with the insurer. Any agent who is uncertain how their trust agreement pertains to consumer funds should contact their insurers legal department for instructions.

 

 

Making personal choices

 

Whether or not we choose to be ethical will impact not only our own lives but also the lives of those we come in contact with. This certainly applies to our family and friends, but also to strangers and clients. Much has been written on ethics. All professions require ethical conduct, although some seem to need it more than others. Most of us will never face the really tough issues. We are not doctors who must determine when it is ethical to allow a person to die or perhaps even assist a patient in dying. We are not attorneys who must decide whether or not we can fully back a person accused of murdering their spouse. We merely have to do our duty as insurance agents. That should not be hard.

 

For most of us, our days move from one to the next without any great moral dilemmas. Our ethical decisions will involve what television shows are appropriate for our children, if we should lie to prevent hurting anothers feelings, or whether we can work for a boss we feel is immoral. For most of us, our lives are not complicated. Why, then, does it seem so difficult to maintain ethics in the insurance profession?

 

It has been said that money is the root of all evil. Money actually has the ability to help others if it is used well. Perhaps it could be more accurately said that greed is the root of all evil. In commissioned sales, greed can certainly play a role in whether or not one acts ethically. An excellent example is that of Michael Milken who, during the 1980s, earned over half a billion dollars trading in junk bonds. Whether it was greed or a lack of judgment, he used illegal means to increase his wealth using inside information, which was unavailable to the general public. As a result of greed, thousands of stockholders lost substantial sums of money.

 

A current example of such greed may be seen in the Enron Corporations management. When Enron went bankrupt it was discovered that those running the company were acting almost solely in their own best interest with little regard for others and how their actions would impact everything from stockholders to retirees. Not until the media became involved were many of the actions even acknowledged by the company. For example, in one transaction Andrew Fastow, Enrons chief financial officer, took in $4.5 million profit in just two months from an initial $25,000 partnership investment. Many of the partnership transactions were designed to hide huge Enron losses from the investing public while overstating profits to investors. This has been primarily blamed on accounting errors by Enron.

 

A German philosopher who lived during the eighteenth century, Immanuel Kant, believed that ethical conduct could be reduced to one universal law governing all morality. He called this law a categorical imperative. He stated one should act in a manner that would be accepted by anyone universally. This would eliminate any bias towards any person since how he treated others would mean he accepted and welcomed the same treatment in return.

 

Viktor Frankl, author of Mans Search for Meaning, said this of success: The more you aim at success 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 ones personal dedication to a cause greater than oneself or as the byproduct of ones surrender to a person other than oneself.

 

All things are relevant to ethics, whether it is how we treat others or obtaining success. Martin Luther King, Jr. said: Any law that uplifts human personality is just. Any law that degrades human personality is unjust.

 

Morality is about how we affect people and other living things. A person living alone lying daily to oneself will do no harm. Morality also involves other life forms. It is just as morally wrong to needlessly harm an animal as it is to harm a person. Even when raising livestock for food, there is a moral element to how they are raised and killed.

 

A moral dilemma is a struggle to determine what is right, while a moral conflict occurs when one knows the right path to take but finds taking that path to be undesirable or difficult. It is likely that those who broke the law to help slaves escape were initially in a moral dilemma, which then evolved into a moral conflict.

 

It can be very difficult to take a moral stand that is not socially popular. Simply realizing what moral path should be followed is not enough. Since ethics is entirely about perception, once an individual concludes the direction that is right, he or she is not acting morally unless they also follow that path.

 

Ethics is the perception of right and wrong.

 

Most of us try to avoid anything that would cause embarrassment or criticism. Even when we feel the moral thing to do is step forward; we may not do so if there are others around. In the 1960s, following the stabbing death of Kitty Genovese while 38 witnesses did nothing to help her, a study was conducted. The results were surprising. A person is more likely to receive help if only a few people are witnesses. The larger the group, the less likely a person will receive help. It seems people are more likely to wait for a leader to step forward if there is a crowd. The smaller the group, the more likely a person is to help another.

 

Fear and moral conflict can be paralyzing. Few people like to perform any activity in front of a crowd (including helping another in trouble). Even when we want to step out of the crowd, we may not do so for fear of looking inappropriate or wrong. Those who are able, despite the circumstances, to step out of the crowd and think and act for themselves possess moral certainty. They know what they must do and they do it. This is not an easy thing. Perhaps that is why there are so few of those types of leaders. Martin Luther King, Jr. was certainly a person who had moral certainty. His job was very difficult and dangerous, life threatening, in fact. Still, he stepped forward.

 

Why is one person able to perform under extreme duress while the multitude is not able to? Two separate studies have shown that a strict religious upbringing substantially contributes to a persons moral certainty. There is no ambiguity about what is right and wrong. There are straight-forward definitions of good and bad. Additionally, those who grew up with religion were taught about a person who was able to stand out from the crowd against extreme danger: Jesus. Because this concept is clearly understood, those who grew up with (and believe in) religion have thought out the possibility of standing alone. Because it has been thought out, they are able to respond. Having previously considered the necessity of standing alone seems to make the individual more likely to do so.

 

Another study revealed that when a person is presented with multiple choices, where ideas of right and wrong may not appear concrete, it may have paralyzing effects. The more choices presented, the more likely the person is to be indecisive.

 

The issue of morality could be studied for years, although it has been said that nothing new has been added since Plato. The Golden Rule will always be the universally accepted standard of ethics: Do unto others as you would have them do unto you. Obviously our forefathers did not want to be slaves, yet they kept them. Obviously Enron executives did not wish to be robbed of their pensions and savings, yet that is precisely what they did to others. It would be nice to believe that people follow the Golden Rule, but in reality many do not. Because many do not, state insurance departments and other government agencies pass laws to mandate ethical behavior.

 

 

Why bother with ethical behavior?

 

Why should an individual bother being ethical, especially if those around him do not seem to care? Some years ago, the environment was being discussed in the news. A twelve year old from Ohio wrote: If everyone did their share, no one would have to save the world. This simple statement makes an amazing amount of sense, yet no one paid much mind to it.

 

Most adults know that everyone is not likely to do their share. That is why organizations always have the same handful of people doing everything (the rest of the membership is too busy). That is why a small group of people can control our government process even to the detriment of the majority. Most people simply do not care enough to get involved in anything, even voting. Unfortunately, this is not likely to change.

 

If one is to be ethical, they must disregard what others are doing (or not doing, as is often the case). No one is ethical by accident. Each person must make a choice to be ethical, because it is the right path for him or her personally. Most of us make these choices because of those we love. We want our spouse and children to be proud of who we are and what we stand for. We want the respect of those we love and admire.

 

It is easy to be moral when it makes us look good. It is difficult to be moral when it is against popular opinion. Martin Luther King, Jr. said a persons worth is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.

 

Perhaps the greatest challenge is not philosophical knowledge but rather moral understanding. Those among us who understand their moral role in life and believe in it will see success that others may not. Success will not always be measured in dollars and cents. Often it will be measured in other ways: a happy marriage, successful children, and loyal friends. Perhaps the best measurement of moral success is a sense of happiness and personal fulfillment.