Ethics In Action

Ethics in todays business world often receives mere lip service. Companies such as Enron have made the general American contemptuous of those that profess to be ethical. Our political elections show every dirty deed possible and invent them if none can be found. We are told that our military personnel are abusive and unethical and it often seems that the powerless individuals are sacrificed to save the powerful. Our legal system seems to favor the rich. Attorneys will institute a lawsuit on any whim as long as profits may be made. Considering all of this, why would any consumer believe that an insurance agent is ethical?

According to Webster

Ethics are defined as "formal or professional rules of right and wrong; a system of conduct or behavior."

We hear a lot about ethics, but we often dont see value placed on them. Ethics are standards to which an insurance agent or broker must aspire to, feeling a commitment to each client. Every type of profession generally has an informal "code of ethics," which may sometimes be more understood than written. Of course, not only agents or brokers must commit to a code of ethics. All professions are expected to do so. Whether or not that actually happens has been questioned many times.

Why is it important to have a code of ethics? Ethics create standards within any given profession upgrading it and giving it honor. It is a means of measuring performance and, in some cases, acknowledging outstanding individuals. Ethics may be a means of providing priorities and building traditions based on integrity.

We would not wish to do business with many professions if ethics did not play a part. Can you imagine turning over your financial control to an attorney who had no ethics? The same would be true for an accountant and many other professionals. Ethics add an element of trust.

In many industries, the professionals have knowledge that other individuals do not. Individuals who seek out their professional help must rely upon their honesty and integrity. As a result, a feeling of ethical standards must exist. It was the potential for abuse of power (which comes from knowledge not possessed by the nonprofessionals) that provided a set of rules or ethical guidelines. Sometimes, ethics are written standards and may even involve laws that must be followed. The premise upon which practical ethics must be based, according to Stephan R. Leimber of the American College where he is a professor of taxation and estate planning, is that power must be exercised in the interest of the clients who seek the professionals out and may not be exercised solely in the best interest of the professional themselves.

Ethical behavior is mostly a matter of common sense. Insurance agents and financial planners know if they are being ethical. When an agent picks up a check from a client hoping that the client does not learn about the omitted facts, then surely that agent was not ethical. When an agent attempts to imply that he or she has more education or knowledge than actually exists for the sake of a sale or other personal gain that is unethical. Even reporting one's earnings fairly to the IRS is a matter of ethics. We know what is right and wrong, although insurance departments report that agents who are disciplined routinely state they didnt know they were in violation.

Ethics are not just about choosing to do the right thing. Competency can also involve ethics. Of course, most people would not view themselves as incompetent. Incompetence might involve a number of problems, some of which the individual cannot control. In such cases, the industry itself must remove those within it that are incompetent. Sometimes, competency is merely a matter of obtaining required education within your given industry on a timely basis (and taking responsibility when it is obtained past time requirements). All too often, insurance agents tend to take the easiest route when it comes to education. It is not unusual to take on a new type of insurance product or to begin selling some type of service without the proper schooling. That in itself can create a lack of competency. To be ethical, one must also be competent.

Ethics often involves due diligence, a term familiar to insurance agents. Diligence involves doing what is required in a reasonably prompt manner. It also means knowing enough about the companies represented to feel comfortable about their financial strength.

One area of ethics often overlooked is confidentiality. It is very easy, in the excitement of selling, to tell some bit of information about someone else. While we might assume that one client does not know another that is not always the case. Especially in small communities, people often know each other for miles around. If a client discovers that an agent is sharing information they consider private, that agent is sure to experience trouble.

Sometimes estate planners could become involved in what is called simultaneous representation. This means they are representing two different parties who have, or may have at some future date, conflicting interests. If it is possible that representing the two parties may bring about a conflict, the individual should decline to represent the second party.

Most often, ethics simply means being honest. It is representing each client without regard to personal financial gains, but rather with the client's welfare in mind. It is the act of full disclosure on all products represented.

It is not enough to voice an opinion that ethical behavior is desired; such ethical behavior must be exercised on a daily basis in all business functions. It is the insistence that others in your profession do the same. It is often stated that any given professional occupation will not "turn in" their own, whether it be a doctor, attorney, or an insurance agent. Ethical behavior would actually dictate that a professional must turn in another member who is not ethical. This is harder to do than it sounds. Where commissions are involved, turning in another agent could probably be considered a way of beating out the competition. Therefore, it can be very difficult to police the industry. That is where the state Insurance Commissioner's office comes in. They are charged with removing the unethical agent. Whether or not they are successful may be a topic in itself.

Ethics involve businesses as well as individuals. Every business, individual insurance agency and brokerage has a responsibility to develop a code of ethics for their employees or agents. If such a code of ethics is not consistently applied, not only may state regulators be paying them a visit, but also agents within the company may find themselves in a position of fighting each other for commissionable sales. Aside from the in-house problems this would create, honesty for the sake of honesty is reason enough to develop a code of ethics within the workplace.

Insurance has often been given a black eye in the press. Any industry involved with the public's money (as the insurance industry is) suffers when scandals occur. Public confidence is eroded and business is affected. Therefore, it is in each insurance agent's interests to promote ethical activities within the industry.

Although it would probably be denied, we know that some types of unethical actions are routine. It is not unusual for signatures to be forged on insurance forms. Agents copy anothers test to avoid doing their own education. Funds may be commingled. While no agent would likely admit to such actions (because they know they are wrong), most businesses are aware of what is occurring. By not addressing the issue, those businesses are not only allowing unethical behavior among its agents, but also condoning it.

Sometimes deciding if an action is actually unethical is not an easy determination. It may be a matter of opinion. Replacement business is one area where a variety of opinions exist. The senior market, for example, has seen much news coverage in recent years concerning policy replacement. If a new Medicare Supplement policy appears to be better to an agent, is it always wrong to replace an existing contract? Legally, a Medicare Supplement policy may be replaced if the new policy would:

(1) lower premium rates, and/or

(2) increase coverage (benefits).

Where replacement is clearly a matter of opinion, it is probably best to simply outline the features of both policies to the consumer and then let that consumer make the choice.

There is a simple method to determine replacement: if it were my personal policy, and I would not receive any commission at all, would I still replace the policy?

Presenting Insurance Benefits

Most presentations involve a few "set" items, which includes premium rates, benefits, agent services, and company stability. Of these, premium rates should be the least important. However, our clients often do not allow that to be so. As a result, rates often take up the majority of the presentation; yet an errors and omissions claim has never occurred due to the premiums quoted. Negligence is the number one reason for E&O claims according to companies that issue insurance for errors and omissions. This would relate to the benefits sold and how those benefits were discussed. It might also relate to inadequate coverage. Obviously, more time needs to be devoted to that aspect. Then, as an agent, you must hope that the client remembers what was said! That is why documentation is so important. As each segment of the contract is presented and covered upon delivery, it might be a wise idea to have the client initial it, especially if there are areas that are underinsured.

It is not surprising that consumers think their insurance policies contain small print. The insurance contract is intimidating to many of our clients. Technical in nature, complex in its subject matter and seldom read in full by either the policyowner or the agent, it is bound to be misunderstood at some point. It is important to understand that a policy is a legal contract. Like all legal contracts it must contain legal language.

The most important part of a policy in the clients view is the part that begins "We promise to pay". All other parts are, in fact, limitations or conditions on the policy.

A life insurance policy is one of the more easily understood products. If the insured dies while the policy is in force, the promise of a payment is kept. There are seldom gray areas since the insured is either dead or alive. Long-term care policies are not nearly as simple. There are benefit triggers, activities of daily living, qualified plans and non-qualified plans, plus any number of other confusing and easily misunderstood provisions. 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 potential client. Any policy can cause a misunderstanding if not fully covered.

Minimizing Misunderstandings

There are steps that an agent can follow to minimize any possible misunderstandings.

1. Full disclosure is always necessary in any type of policy being recommended to a client. Where different interpretations are possible between a brochure and the actual policy, the policy always wins. The policy is the final word! A brochure is simply a selling feature; never the final authority. The statement the agent received over the telephone from the home office always takes second place to the contract. The policy (which is the contract) 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.

2. Replacement of an existing contract should not happen until all the facts are known and researched for accuracy. To do so without fully examining what is currently in place would be foolish. The agent should first be fully informed of pre-existing conditions, take-over provisions, and limitations that may exist in the new plan. Health problems of dependents should also be considered.

3. Health issues must be reviewed, especially if replacement may occur. Whether you are dealing with a health program, a disability program, or a life program, it is important that health questions are clearly understood and correctly answered. "Clean Sheeting" means an agent has purposely failed to correctly record an existing health condition of an applicant. The agent is presenting a "clean" application. This is illegal and will not be tolerated by any insurer. It is possible that 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. This will not alter the insurance company's view of it. The insurer may rescind (cancel) the policy as a result of incorrect or undisclosed information. This may occur, for instance, on a question asking if the applicant has high blood pressure. Since the applicant is taking a medication that keeps his or her blood pressure under control they may answer that question "no". In fact, they DO have high blood pressure; it is simply controlled. The question should have been answered "yes". Since these types of misunderstandings can easily happen, an alert agent will want to closely monitor the questions and how the applicant answers them.

4. Eligibility of applicants is always a concern when replacing an existing coverage. Do not overlook the eligibility of dependents as well. Employees or persons nearing retirement are especially vulnerable.

5. Continuity is important when one contract is replacing another. The original contract should never lapse until the new plan is firmly in place.

The Ethical Path

In today's world of materialism, morality is a difficult thing to maintain and almost impossible to prove. Each of us wants to be considered a "moral person," as determined by our peers. Each of us tends to set our own standards of morality, and we always believe we're right. Ethics involve perceptions of right and wrong. Perceptions do not necessarily need facts to back them up. However, even though we may not be aware of it, our perceptions were pulled together over our lifetimes from our experiences, our religious beliefs, and the education we accepted as fact. A person who believes they are right may do terrible things in the name of morality. That is precisely why an individual or group of people can be persuaded others to kill in the name of some moral pretense.

We would like to believe that only other cultures fall prey to terrorism in the name of morality, but we have had some powerful reminders that Americans can also murder in the name of some righteous belief. Abortion doctors have faced this issue for years. They have been the targets of murder because of their belief that a woman has the right to end their pregnancy.

We have also had our own homegrown terrorists. Timothy McVeigh murdered many Americans in the Oklahoma bombing in pursuit of his beliefs.

Ethics are about perceptions of right and wrong.

Professional Ethics

It would be impossible to state a specific code of ethics as the one true code although the states do try to do something similar through the legislation they pass. Ethics are determined by the standards of each culture and by each individual within that culture. Even within each culture, there can be different views of what is ethical. This is especially true in countries like ours that are made up of a wide mixture of backgrounds.

Most ethical codes are simple: behavior, thoughts, and opinions are either right or wrong according to someone's particular perception. It must be understood that ethics are purely about perceptions. If one is acting according to what he or she perceives to be ethical they are acting ethically, even if the rest of the world disagrees. Even though a person is acting ethically based on their own set of values that does not mean the rest of the world must allow their behavior. Consequently, governments mandate behavior in the form of laws. It is this conflict of belief that often pits individuals against the government.

Ethics involve the questioning of why

certain things or actions should or should not be done.

For centuries, probably since man first emerged, individuals and even countries have argued over what is and is not ethical. Wars have been fought over disagreements. In our own country, the civil war was fought over a disagreement about ethical conduct. Ethics involve the questioning of why certain things or actions should or should not be done. Purists believe that what is right for one is right for all. Therefore, slavery could not be considered ethical unless every individual would agree to be a slave to another. Obviously, those who owned slaves would never have considered slavery for themselves. What was stated as a moral stand (our slaves need to be taken care of) was actually based on financial issues. Slave owners wanted to use others for their personal financial good. This is not a new concept and it is certainly still in practice today in other forms.

Establishing A Code Of Ethics

It has been said that it is impossible to mandate a code of ethics; only actions may be mandated. A person who is willing to lie to their clients in order to earn commissions would do so on a continual basis if there were no consequences. However, they may refrain from lying to avoid prosecution. Therefore, the state has successfully controlled the agents behavior, but not necessarily his code of ethics.

Can ethics be taught? The first problem with this question has to do with "teaching" a belief. While education is the basis for most ethical thought, adoption of an ethical belief only works when the recipient accepts the concept. Ethics are based on something we believe in. There was a time when people thought the world was flat, not round. When it was discovered that our beliefs of the earth were mistaken, simply pronouncing this could never have changed all the perceptions people already had. Rather it was necessary to influence them by proving the new facts that had been discovered. Some people accepted and believed these new facts while others did not.

Presentation of ethical views may be a manipulation of facts. This is nearly always the case when the individual presenting those views has something material or personal to gain. The gain need not be financial. Gaining power is often the goal. Power is often the motive of those who are willing to do anything to achieve their goal. Of course, power often brings wealth.

It is generally understood that only behavior may be mandated. Simply passing laws does not mean a person will change their beliefs or their actions. The laws do mean that consequences are in place should the person go against the mandates. We often see problems arise when those from one culture enter another. For example, in many countries women have no legal rights. Some countries even allow husbands to injure or kill their wives without consequences. Those countries do not feel this is immoral. Rather, they believe Western cultures are immoral for allowing their women so much freedom. When two cultures clash, we cannot hope to change beliefs. All we can do is mandate behavior and carry through with legal ramifications when necessary.

Even stealing may have shades of right and wrong. While most of us would generally consider stealing to be wrong, who wouldn't steal in order to feed their child or themselves? If a person is hungry, is it still wrong to steal food or money to buy food? Stealing is always wrong legally, but there may be exceptions from a moral point of view.

Mandated Education

Several states require ethics to be included in their required continuing education. Some of the states that require this are Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Iowa, Kansas, Kentucky, Nebraska, New Mexico, Oklahoma, Oregon, Texas, and Utah. This list is not necessarily inclusive and it may change if any of the states change their requirements.

Certified Financial Planners are also required to take an ethics course, but their required course is very specific. You must complete a course called CFP Ethics.

Most states require agents to obtain some amount of education. This required education is usually referred to as CE hours (for continuing education hours). We like to think that most agents understand the reasons for this and would be continually seeking education with or without an education requirement. We realize that experience is a valuable source of education and a necessary part of our lives. However, when it comes to some professions, who would volunteer as the learning tool? Would we want a doctor learning from his mistakes at our expense? Would we want an attorney, who had never tried a criminal case, learning how from a member of our family who was accused of a crime? Would we want the appliance repairman tearing our refrigerator apart to learn how it works? It shouldnt surprise any agent to realize that their clients do not want agents learning the trade at their expense either. No matter what the profession, we all want someone who is educated helping us.

Most consumers want those they deal with to be educated on a continual basis. We expect the man who repairs our cars to be up on the latest technology. We expect the attorney who handles our estate planning to be well versed in the newest laws. We expect the surgeon who will operate on us (or a loved one) to know the most recent medical breakthroughs. Why shouldnt our clients also expect us to know the latest in insurance design?

As every agent knows, the only way to stay on top of things is to continually learn. This is done in multiple ways. Reading company literature and industry brochures are an excellent source of new information. Insurance companies are probably a better source than any other for new trends or updated information on existing policies. However, every agent must be aware that insurance companies are selling not only to consumers, but also to the agents themselves. Companies always need new blood to market their products.

Agents who live in states requiring mandated education must take responsibility for their requirements in a timely manner. No agent should wait until the last hour before seeking it out. It is true that time can easily get away from us, but there is a simple solution: simply write a reminder note and insert it in the appointment calendar. Then education can be ordered in a timely manner. Of course, ordering it is simply the first step. It must also be completed and returned to the providing company.

Education providers are not responsible for an agents time requirements. Nor are education providers required to keep a list of previously taken CE courses. It is the agents responsibility to begin their education and complete it well before the actual due date. Some providers do keep records of previously taken education and will alert the agent if they are repeating a course. However, this is a courtesy and not a state requirement in most cases. Agents should keep a file with a copy of each Certificate of Completion in it. The most recently taken course should be on top and the oldest on the bottom. Many agents also prefer to tab the edges by year. That way, an agent can see at a glance the year in which each course was taken. If an agent is audited by the state, the agent must provide proof of all courses taken. That means they must have either copies of their certificates or the originals (depending upon the state) accessible. The agent would be wise to go one step further: keep a list on the outside of the file folder. It would look like this:

Date:	Course Title:	Course Number:	Provider:	Credits:
3/1/98	Fire Insurance Made Easy	000001	Allstate	5
2/2/99	Insure That Home Today	000002	Insurance World	12
4/8/00	Insurance Principles	000003	UIECE	6

Keeping a record of this type prevents repeating a course and it alerts an agent when he or she is short the required amount of credit hours. In nearly every case one hour is the same as one credit.

Agents may be audited by the state. Why would an insurance agent be audited? There are many reasons. If the company they purchased their education from felt that unethical behavior existed in completing the test, the state may be notified. Some states actually require that the education provider notify them when suspected cheating occurs. Seldom will the state tell the agent who reported the suspected illegal activity. The state will simply request all records and begin an audit.

The state might also simply audit on a hit-or-miss basis. In other words, periodically agents are pulled from state records at random and audited. It does not mean that any wrong was suspected.

Most audits occur because consumers have been complaining about an agents activities. In this case, an audit of the agents education is simply a part of the overall investigation.

When an agent appears to have completed their education in an unethical or illegal manner, their state will not be sympathetic to their reasons. No matter how compelling the reason may seem the state will expect agents to act ethically. Would consumers want it any other way?

States do change educational requirements periodically. Not all states will notify agents individually. Luckily insurance companies do a fairly good job of printing changes in their newsletters. Of course, this means agents must read them!

Insurance agents are not the only professionals who must complete mandated education. Medical professions generally are required to complete education, as are accountants, real estate agents, and attorneys. No matter what the profession happens to be, education is an important part of keeping current.

Principles Versus Rules

There are two distinct and separate sides to ethics: principles and rules. Principles are the statements expressed in desired conduct, though not actually mandated by law. Rules are those actions and non-actions that are mandated by law. Rules often start out as principles but become rules, as more and more agents seem to violate them.

Those states that have chosen to either make ethics part of the renewal education cycle, or as part of punishment when rules have been broken, hope that exposing agents to ethical concepts will impress upon them the importance of high professional standards. Since many professional educators do not feel that ethics can be taught, there is disagreement about the concept. Even so, it seems to most of us in the educational field that it is better to expose a person to the expectations of ethical standards than ignore them entirely. At least by exposing individuals to ethical standards, there can be no excuse for not following them. The old "I didn't know" excuse can't be accepted if the agent has repeatedly had to take education that did specifically address ethical requirements as well as rules of conduct.

Legal Issues

We know that insurance agents and financial planners have legal obligations that are mandated by law. Ethical obligations, while often similar to legal obligations, are more personal in nature because they reflect what the individual believes in personally.

Moral obligations often closely mirror legal obligations, since laws are passed to protect the consumers. Just as the law restricts the agent from using premium dollars for personal use, ethical considerations would also restrict similarly. Personal ethical views are likely to be similar from agent to agent, with variations based on personal beliefs. As an educator, we feel each agent has some very definite obligations to the consumer and to the industry. These obligations are both moral and legal. Our list would include:

1. Completing your own education without help from other people or entities. Agents have been known to have their secretaries complete their correspondence education for them. They have also been known to have someone sit in seminars in their place, or leave for most of the day after signing in. Such practices are not only unethical, but illegal as well. We know that many agents feel they already know everything worth knowing. When state guidelines require education, however, that becomes a legal obligation (and lets be honest: even the smartest agent doesnt know everything). It could be argued that it is also a moral obligation to follow state requirements.

2. It is obviously a moral and legal obligation to treat our clients well. This includes many elements, including (but not limited to) being honest, correctly stating policies as they actually are, and giving each person the courtesy that we ourselves would expect. Some consumer contact issues are also legal obligations. This would include the manner in which we advertise, how we represent ourselves and the products, and the promises we make.

3. In our private lives, we also have ethical obligations. We certainly have obligations to our families. Legal obligations involve such thing as child support, planning ahead for retirement, and paying our bills on time. As is so often the case, these legal obligations could also be called our moral obligations. We also owe our families respect, courtesy, and kind treatment. It is sad that so many of us treat strangers better than we treat those we love. Some individuals seem to feel that those who love us should tolerate treatment that strangers never would.

4. We have a legal obligation to our employers and, if applicable, our employees. Whether we are a captive agent or an independent agent, each company that we represent deserves to be represented honestly and fairly. This is a moral obligation, but it is also a legal obligation. Agents sign contracts with the insurance companies they represent. Those contracts will specifically state that agents are to fairly and accurately represent them. The same is likely true for those subagents we hire.

5. In some situations there is a legal obligation to our immediate community. It is becoming increasingly common for communities to have legal agreements that state the duties of those who live within their gates. It covers everything from noise levels, to the number of cars on the premise, and even the colors of their houses. These covenants are legal agreements and, as such, legal obligations.

Each of us has moral obligations to everyone we come in contact with. Certainly we must follow the legal obligations in our lives, but what forces us to follow the moral ones? Unless they are connected to our legal requirements, there is nothing that actually forces us to be moral. Peer pressure might bring some results, but moral actions are primarily up to each individual.

Integrity

Since our clients must trust that we will perform appropriately and with skill, personal integrity is necessary. Websters dictionary defines integrity as 1. Fidelity to moral principles; honest. 2. Soundness; completeness. Soundness and completeness, while usually considered a physical term rather than a moral term also applies since financial planners must achieve a complete financial picture and construct a complete financial plan for their clients. While anyone can make an innocent error or have a difference of opinion regarding a financial matter, integrity is never greedy or dishonest. A person with integrity applies not only the letter of the law, but also the intended spirit of the law.

What is the spirit of the law? This means following the regulation as it was intended. We have all heard of the so-called loopholes in a law. We understand the meaning all too well. An individual or company has discovered a way to circumvent the intended benefit of the law.

Objectivity

To be objective, one must be impartial and that can be a difficult thing, especially when we are selling on a commission. Even so, intellectual honesty does pay off as one client tells another of what the agent presented to them.

Competence

Ethics can involve something as simple as competency (although proving it is anything but simple). There are several types of incompetence: the inability to adequately perform ones job, lack of necessary education, or a mental deficiency that does not allow proper job performance. There may be additional types of incompetence, or multiple shades of those stated. Perhaps the most pervasive type of incompetence in the insurance industry is lack of education (not necessarily formal education).

A common problem relating to competence is seen in nearly every profession: those who insinuate or actually state that they have more education or experience than actually exists. To mislead a new or existing client in such a way is certainly unethical and may lead to severe financial errors. Competence includes the wisdom to recognize ones limitations and inform the client that the subject is an area that he or she is not sufficiently schooled in. Doing so will not hurt the client/agent relationship. In fact, it is likely to seal it since the client will know the agent is trustworthy.

The courts have determined that agents are considered to be contract specialists. Therefore, merely possessing a valid insurance license qualifies the individual as a contract specialist. While that sounds like a good thing, it can lead to lawsuits against agents who presented and sold insurance contracts inappropriately. When these agents ended up in court, the I didnt realize defense was not acceptable. Most agents report, however, that they have never read the very policies they are selling. They commonly read only the brochures and rely upon them to determine which products they sell to the public. This can be a very costly mistake for the agents. It is ironic that insurance agents routinely tell their clients to read the very documents that they themselves have not read.

The inability to perform ones job is not unusual. Who has not had a clerk who could not properly count change or spoke on the telephone with someone who did not seem to know their own job? Most of us complain about it, but it is not something that will permanently affect us. When it comes to the insurance industry, incompetence affects both the agent and the consumer. Like accountants, insurance agents can be found negligent and financially liable for that negligence in very broad areas, including health insurance, life insurance, long-term care protection, and retirement planning issues. In fact, in the book written by Cheryl Toman-Cubbage, titled Professional Liability for Financial Planners, she writes, Negligence is the broadest area of exposure for an insurance agent. It involves errors and omissions made by him or her. The most typical are failure to place necessary insurance, failure to obtain proper coverage, failure to properly advise of the companys rejection or lack of coverage, failure to cancel a policy at the insurers request, and failure to fully disclose the nature of the risk.^[1]

Negligence is the broadest area of exposure for an insurance agent.

Even good agents can be found legally liable, but with proper communication the potential harm can be minimized. Many areas can cause legal problems. Advice or instructions that prove to go against what the family felt appropriate can cause legal action. In addition, property/casualty agents might be expected to suggest flood insurance in certain areas of the country. Certainly, a property/casualty agent would be expected to suggest umbrella liability insurance to those clients who have financial assets at risk. Failure to inform them of this possibility can lead to lawsuits. For the life and health agent who practices financial planning (with or without the proper credentials), courts have ruled that they have a responsibility to suggest a long-term care insurance policy, especially if their client has large financial assets at risk. Suggestions for these additional coverages, while producing a commission for the agent, should really be done for a much greater reason: self-preservation. By suggesting coverage that protects the assets of the client, the agent is also protecting their own hard earned assets. Of course, there must be proof that such suggestions were made. The agent would be wise to have a disclaimer signed when the policyholder refuses to accept suggested insurance policies. Many lawsuits are not brought by the insured that knew what the agent had suggested, but rather by their families, who had no knowledge of past conversations.

For example:

Ralph King was seventy years old when his agent, Jose Moralez suggested that he purchase a nursing home policy. The cost was more than Ralph was willing to pay, so he declined the coverage. Luckily, Jose had Ralph sign a form stating that such coverage had been offered.

When Ralph suffered a stroke, his family found it necessary to institutionalize him in a local nursing home. Ralphs son blamed Jose Moralez because his father had no coverage for this very expensive care. He hired an attorney to force Jose to pay for the care out of his own pocket. However, Mr. Moralez was able to produce the signed disclosure form, which freed him from any financial liability.

There are many situations that pose a liability for the agent when their clients are underinsured or not insured at all for risk exposures. Agents often feel that they cannot win: if they try to sell too many products, they are accused of greed; if they fail to sell enough they are accused of incompetence. The educated agent will offer all the necessary products and leave the final decision up to the client. Whatever decision is made, however, it should be noted and signed and filed away indefinitely in the clients file. Documents should be kept several years past the clients death or policy cancellation.

Fairness

When we were children, our parents told us to play fair. Even children grasped the concept that fairness required honesty and consideration of others. In todays world, it seems adults often do not understand this very simple concept. In the insurance industry, fairness requires disclosure of conflicts of interest, intellectual honesty and certainly impartiality. It also means setting aside personal prejudices when working with others to achieve a proper balance in a financial plan for a client.

Confidentiality

We all know that it is wrong to state or sell the personal information of another. For the insurance agent, confidentiality generally does not involve selling information. It is more likely to be a matter of keeping information private. People seem to have trouble keeping their mouths shut. Personal trust can never develop if the client does not trust the person they are working with. This is especially true when it involves their finances. Except as required by state or federal authorities, client information should never be released or stated to anyone.

Professionalism

We hear the word so often that it has lost its meaning. Specifically, professionalism means reflecting credit upon ones given profession. This covers a broad range from courtesy to knowledge of the services offered. Even though the definition is broad, we know a professional when we see him. He is well educated in his field, his demeanor lends respect, and he is respectful of others. Of course, appearances can be deceiving. Some of the best con men looked extremely professional in their demeanor. Appearance is no guarantee of trustworthiness, but performance of ones job certainly is.

Diligence

Diligence is the rendering of services in a reasonably prompt and thorough manner. Due diligence is the complete investigation of any products sold. Both are necessary.

Express and Ostensible Authority

Agents, as we know, are liable to the clients they serve. Agents can also be liable to the insurance companies they represent. Agents may be considered to be representatives of the insurance company, and therefore liable to the insurance company. These agents are usually called "Captive Agents." Brokers are considered to be representatives of the insured. The brokers primary allegiance is to the individual clients, whereas the agent's primary allegiance is intended to be to the companies they represent. Legally, knowledge of the broker is not considered to necessarily be knowledge of the insurance company, whereas the agent and the insurance company are deemed to have the same knowledge. That means that it is assumed that the insurance agent has shared all knowledge (such as for underwriting) with the company. The broker, who may not have had any contact with the insured, is not deemed to necessarily have the same facts as the agent would (having had personal contact). This legal distinction is critical if someone decides to sue both the agent and the broker, along with the insurance company. In most cases, if the broker is sued, the insurance company can escape liability. If the agent is sued, the insurance company is often considered to be liable along with him or her. This is true even if the agent has been found to have overstepped their express authority. The term, "express authority" refers to the powers given to the agent in the agency agreement or contract. In many states the agent also has implied powers. This might cover anything that the consumer could reasonably have expected the agent to be able to do. These implied powers are often referred to by the courts as "ostensible authority".

For example:

Sheila Fields wanted to purchase a life insurance policy. Her health was not exceptional, so she urged the agent to write her up immediately. Her agent, Brenda Bar, was fairly new and obviously inexperienced. The company that Brenda chose did not allow any premium to be accepted until underwriting had been completed. Even so, Brenda did accept the premium, and issued Sheila Fields a receipt. Before underwriting had been completed, Mrs. Fields suffered a heart attack and died. Her family found the receipt and argued in court that it implied acceptance. The court agreed and held the insurance company liable for the death proceeds even though their procedures had not allowed Brenda Bar to accept the premium payment. Sheila Field's family won because it was reasonable for the consumer to believe that the agent had the authority to accept the premium payment. This premium acceptance could be considered a "binder" of the contract.

Even though it seemed obvious that Brenda Bar was not an experienced agent, any agent or broker is expected to act with reasonable care and diligence. Therefore, it is in the insurance industry's best interest to expect their agents to be trained. That is precisely why many of the country's largest insurance companies have favored state mandated education. It is also why expanded education, especially in the long-term care insurance field, has been backed and promoted by the insurance companies writing the products.

Ethics and Risk Control

One of the most compelling reasons to be ethical is to control the amount of risk we face professionally. Businesses need ethical agents to avoid financial loss due to lawsuits. Insurers need their agents to be responsible to avoid accepting applicants that are actually uninsurable or marginally insurable. Knowing this, companies often try to do their part to ensure that agents are aware of their responsibilities. For example, the New England Life Insurance Company requires their agents to view a half hour video. This video contains various situations of potential professional liability and gives possible solutions. Although this is merely exposure to ethics and cannot necessarily change or motivate perceptions, it does tell the agent what is expected of them professionally. If a lawsuit then follows, the video also demonstrates legally that the company is attempting to promote ethical business practices.

Agents are encouraged by virtually all insurers to purchase Errors & Omissions insurance. Some companies will not contract with an agent who does not own such a policy. In a career such as insurance, having E&O protection is a must. Errors and Omissions coverage protects the agent from errors they have made in a presentation or upkeep of a policy and from omissions of statements that should have been made or omissions of policies that should have been placed. Most errors and omissions are made due to sloppy business practices. E&O policies reimburse the injured party for direct financial loss and may, in some cases, also cover defense and court costs. Exactly what is covered will depend upon the policy language of the E&O policy. Many E&O policies are purchased through group plans offered by insurance companies (typically life insurance companies).

E&O policies are a type of liability insurance, which means insurance agents have joined other professionals in their exposure to financial risk directly related to the job they perform. For example, doctors have carried liability insurance for years as protection against lawsuits for mistakes they have allegedly made. Although doctors were the first to recognize the need such coverage, they were followed by attorneys, then accountants, and now finally insurance agents and financial planners. Even though costs have continually gone up for the coverage, primarily due to lawsuits filed, the mounting fear of agents is that eventually no coverage will be available at any price. Even though expensive, professionals realize that the price of E&O insurance is simply part of the cost of doing business.

Agent Liability

Company Insolvencies

In the past, agents merely had to worry that they practiced good sense personally. Now they must also consider the solvency of the companies they represent. This was demonstrated in 1987 in the Higginbotham case in Texas. It began when an insurance company bounced a $429,000 claim check for a fire loss. The jury awarded the policyholder $752,000 from the agent because they agreed with the theory that the agent had not fulfilled his obligation to "obtain the best possible insurance for the best possible price so that the client was adequately insured at all times." One very important point: the award was against the agent, not the insurance company. Even though the appeals court reversed the decision, this Texas award still established the principle that an agent has a duty to inform their clients of a carrier's financial strength (or the lack of it). Having established this principle, every agent would be foolish to represent any company that could cause a client to collect a verdict due to a company failure. It should be noted that as long as an agent correctly disclosed a company's financial strength (or lack thereof) and can prove disclosure, he or she would probably be clear of liability.

Third Party Liability

In the past, there was little or no liability as it pertained to third parties. That has gradually changed as court cases have produced new decisions. Usually this would apply to situations where use by third parties was foreseeable. The agent would not generally be liable to the third party, only for results that affected their client or the client's beneficiaries.

Hidden Costs of Litigation

There are always hidden costs when litigation happens. Sometimes hidden costs can have a larger and more long-range effect on the agent and his business than does the settlement itself. An E&O policy will not cover loss of field time, for example. If the agent is not free to pursue new or additional business (commissions) his income may suffer. Loss of reputation is also certainly a consideration. If the suing client has contact with other clients of the agent, there would almost certainly also be a loss of other business, as the perceived injured client spreads the news of their unhappiness. It might even result in additional lawsuits if the unhappy client influences others to follow his or her lead. In fact, if the client receives a large settlement, others may easily follow with lawsuits in hopes of also receiving a settlement.

Documenting Procedures for Self Protection

The defensive attitude adopted by doctors, attorneys, accountants, and even architects, must be adopted by insurance agents as well. Obviously all current laws and company policies need to be followed, but the agent also needs to begin to document their interactions with clients or potential clients much more fully. Most importantly, agents must begin to stay within their areas of expertise. This is not as easy as it might seem. Many insurance companies have recently begun to require their agents to move into new areas of insurance. For example, many traditionally property/casualty companies have started to move into the life insurance field. Some life insurance companies have started requiring their agents to begin selling securities. Such moves place their agents into potential liability claims. The good news is that the insurers may be forced to share the blame if lawsuits happen. This would especially be true if agents are smart enough to keep all documentation regarding this forced spread of expertise.

When an agent sells a product, if he or she is not fully educated in the product, misrepresentation can easily occur. There is a term often used for verbally expanding what a policy can accomplish for the consumer; it is called "puffing." When an agent claims a policy or security will do more than it actually will, this is generally not grounds for a lawsuit, primarily because it cannot be proven one way or the other what was actually stated. However, in circumstances where an agent assumes additional duties, has a special relationship of trust with the buyer, or holds himself or herself as having more expertise than actually exists, then a special "duty" is present. When an agent gives assurance of proper coverage and that turns out to be wrong, the agent is legally liable for negligent misrepresentation. The insured is not legally required to independently verify the accuracy of the claims or representations made by the agent; he or she can accept them at face value. Therefore, the weight of accuracy bears directly on the agent. Even if the agent told the facts as he or she understood them at the time of presentation, if the agent is wrong, they are legally liable. That is why it is so distressing to consumer advocates when insurance companies pressure agents into fields they are not qualified to deal in.

Unwritten, Invisible or Implied

Every insurance contract contains an unwritten, invisible or implied term referred to as the covenant or promise of good faith and fair dealing. This promise exists because it is imposed by law. Each insurance company is required by law to always act fairly when handling matters involving the consumer. Even if such a clause is not put directly into the policy, it still exists according to law. Judges know this and will act as though such a clause were part of the policy. Legally it is understood that insurance companies must act in good faith and fairly towards consumers. Insurance companies are required to meet the reasonable expectations of the policyholder. Of course, this does not mean that every risk must be covered by the policy. It does mean that the policy is expected to perform as indicated.

Law imposes a covenant or promise of good faith and fair dealing.

When a case does go to the jury, the jury is always asked to decide whether or not the insurance carrier performed as would be reasonably expected. This would also apply to the agent who represented the insurance product. A company's or agent's business practices or common course of conduct is routinely admissible to show motive, opportunity, intent, plan, knowledge, or the absence of a mistake, or an accident in the manner in which it dealt with the insured party. Intent is not an issue. In other words, even though an agent may have had no intent to misrepresent a policy, if they did in fact do so, they are still liable financially. The policyholder only has to show that misrepresentation happened. The reason it happened is not relevant to the courts.

Time limits on filing claims against agents and insuring companies will vary from state to state. These time limits are called statutes of limitations. In most states, there is a two-year limit, but it is important to know the laws of your own state. Some states have only one year to file a claim against an insurer or agent.

There are policies that actually state the statute of limitation in the policy, regardless of what the state might impose. This policy limitation is called a contractual obligation. This contractual obligation may override any state time limit. As always, it is necessary to seek legal council to determine what applies to each individual circumstance.

Professional Ethics

Specialists in any industry have knowledge that other individuals do not. Therefore, laypeople must rely on these professionals to be honest. Confidence of ethical standards must exist for laypeople to trust the professionals. It was the potential abuse of specialized knowledge that provided a set of rules commonly referred to as ethical behavior. Sometimes, ethics are written standards; they may even be in the form of legislation or laws. The premise upon which practical ethics must be based, according to Stephan R. Leimber of the American College where he is a professor of taxation and estate planning, is that power must be exercised in the interest of the clients who seek the professionals out and may not be exercised solely in the best interests of the professionals themselves.

Professional ethics are a means of creating standards within any given profession to upgrade it and give it honor. It is a means of measuring performance and, in some cases, acknowledging outstanding individuals. Ethics often are a means of providing priorities and building traditions based upon integrity.

Every industry claims to have professional ethics, but the public believes some industries have little or no ethics. Unfortunately for the honest agent, insurance is an area that is often accused of having no professional standards. These accusations have led to changes in the law and even changes in the commission structures of some types of policies (such as Medicare supplemental policies). Only by demonstration will the public begin to perceive the insurance industry as ethical.

Honesty A Moral and Legal Obligation

Not only is honesty a moral obligation, but in the insurance industry it is also a legal obligation. Simple honesty should not be complicated. It means representing each client without regard to personal financial gains, keeping the client's welfare in mind. It is the act of full disclosure on all products represented and personal integrity in the process.

Few of us actually spend any time thinking about honesty. Each of us certainly expects those we deal with to be honest. Some years ago, dishonesty in the insurance profession didn't seem to have many consequences, but that is no longer true. Attorneys constantly need new industries to conquer, and the insurance field has been hit with more lawsuits than ever before.

In the late 1970's, insurance regulatory changes and high interest rates brought about products that seemed ideal for those interested in financial planning. These included such things as universal life products, along with some other types of products. Permanent life insurance, rather than term products, became part of investment portfolios.

Computer software also became the insurance agent's best friend. Such software allowed an agent to print assumptions based on interest rates that were unrealistic. These printouts looked very professional to the consumer and influenced sales of products that made promises, which would prove impossible to achieve. Some of the exaggerated printouts came directly from companies, but many more came from the agents themselves. Percentage rates as high as 19% were commonly demonstrated. These high interest rate illustrations gave the impression that the life insurance premiums could "vanish" entirely in as little as four or five years. While many policies do allow the policy to pay premiums after a length of time, these interest illustrations were not realistic.

Normally, premiums vanish because the dividends in whole life policies, or the interest rates in universal life policies, are high enough to allow the premium payment from these earnings. The premiums are paid from the cash buildups. Universal life policies were especially sold on the basis of vanishing premiums because the policy contract allowed the owners to pay more than required, less than required, or no payment at all.

When the interest rates of the 1970's and the 1980's began to fall, the results had the opportunity to be disastrous from the policyholder. Those who purchased policies on the basis of disappearing premiums actually found they had to pay premiums years longer than promised or loose the coverage entirely, as it devoured itself. A properly illustrated policy can eventually pay for itself without collapsing as it uses cash values to keep the policy going. This usually requires a minimum, at current interest rates, of 15 to 20 years of premium payments. If these policies had been sold honestly, insurance agents might have avoided the current reputation that exists.

Churning Policies

When policies are replaced needlessly, it is called churning. There are times when it is wise or necessary to replace one policy with another. However, when it is done repeatedly it would be hard to argue that there was a need for doing so. Insurance departments may cite an agent who seems to be replacing policies needlessly. Unnecessary replacement harms the consumer because rates will be higher as they age. A policy that is well thought out should not need to be replaced except in specific cases.

Agents who churn policies convince policyholders that a new policy is more advantageous than the one currently in force. This may well be true, since newer policies often give benefits that older policies did not. Unfortunately, too many agents churned policies that should have been left in place. This was often especially true when it came to life insurance policies that needed duration to provide full benefits. These older policies contained large cash values, which were used to buy replacement policies. The newer policies typically had a much higher death benefit, although they may not have cost more in monthly premiums since the cash value in the old policy offset the cost. Many policyholders reported that they were told, on the basis of illustrations using higher interest rates than were actually realistic, that they would only have to continue paying premiums for a short time. In fact, they used up their cash value in the old policies, yet still had to continue paying premiums for much longer. If these clients actually desired higher death benefits, the change in policies may have been warranted, but often this was not the desire of the policyholders. What they really wanted was a paid up policy.

What was the result of these policy replacements? Many consumers contacted their attorneys and lawsuits followed. There was even talk of a class action lawsuit which would have involved thousands of policyholders who considered themselves financially injured. Such a class action lawsuit would potentially include:

Those who purchased a policy and then let it lapse because of cost.

Those who cashed in one permanent life insurance policy, using the cash value to purchase another, unless there was a valid reason for doing so.

Those who received an insurance illustration using unrealistic interest rates, which assumed premium would vanish. Today, an unrealistic illustration almost certainly would come from the agent rather than the company. Today's companies are careful not to get caught up in such legal danger.

Those who bought permanent insurance policies between 1979 and the mid 1990's. These consumers may automatically qualify for some amount of restitution, even if they were not visibly victimized. That is because class action lawsuits generally do not argue their case on the basis of individual claims or circumstances, but rather as a group. As a result, those who fit the general profile may automatically be included whether or not any unlawful or immoral practices were present.

Individuals may be both part of the class action lawsuit and file for individual recourse as well. Although the courts do not always allow both legal actions, it is not uncommon for both to exist. In most cases, the individual will need to choose between a group legal action and an individual legal action. Generally, only those who can show individual fraud or egregious behavior by the agent will do well individually.

A class action lawsuit does not necessarily hurt those who caused the problem initially, which would primarily be the selling agents in this case. The insurance industry is an ever-changing field. The turnover rate of agents is exceptionally high. It is likely that the majority of agents who used the outlandish interest rates and replaced policies that should not have been replaced are no longer even in the insurance business. Not only do many agents voluntarily walk away from the insurance industry, but when companies feel uneasy about an agent's selling practices, they also terminate them.

Many companies have already settled to avoid a class action. Those who were injured by stockholder owned companies come out well. On the other hand, when companies are mutual companies, they are actually owned by the policy-owners themselves. In that case, they are, so to speak, suing themselves. As a result, the lawsuit, while benefiting individuals, also harms individuals. Some mutual companies that have settled include Prudential, Sun Life of Canada, John Hancock and Metropolitan Life.

Some insurers have absorbed huge losses. They must pay some individuals large amounts to compensate for the financial harm that was done to them. What the policy-owners may not realize is that the multiple payouts to the consumers will also affect the policy-owners that remain with the companies. These losses will affect the amount of dividends or interest paid in the future to current policyholders.

When publicity makes insurance companies and their agents appear unethical, it is bound to affect the industry as a whole. Even those companies who employed good ethical people and made a point of overseeing the actions of their agents will be hurt. Many companies, who seemed to have an overall good reputation, have settled lawsuits quickly simply to avoid adverse publicity. Class action lawsuits always hurt the perception people have of the industry and this does show itself in the marketplace. Prior to the 1970's, the life insurance industry held a good reputation. Those who were in the industry prior to that time enjoyed a respect for their career that is no longer present today.

The extreme results of restitution, as well as the penalties that resulted, have been staggering. Prudential, as of 1999, had paid out, or agreed to pay out, $410 million to policyholders and more than $60 million in fines and other costs. John Hancock paid out settlements to policyholders of $350 million. Their settlement included 3.7 million affected policies. Equitable of Iowa agreed to pay $22 million in settlements. Metropolitan Life, which was the first company that agreed to settle, paid around $70 million in restitution and fines. Sun Life of Canada agreed to pay $65 million to their Canadian policyholders, which amounts to approximately 400,000 policy-owners. Their affected policies were sold between 1980 and 1995.

These are not the only companies involved, but they are some of the best-known names in the industry.

The industry analysts believe that insurance industry lawsuits will continue for some years to come because more and more injustices (or even simply perceived injustices) will come to light. Most consumers believe insurance companies are rich beyond imagination and there are enough bad practices that opportunity exists for attorneys to make a good living doing nothing more than suing insurance agents and their companies. It must be noted that the individuals who bought policies or had old policies replaced have not received big fat checks in the mail. Typically, they have a variety of options including (though not necessarily limited to): extra dividend or interest payments, a low-interest rate loan to pay off debt incurred by borrowing from the policies, the waiver of premiums on all future policies, and additional cash value put into their current policies.

There is not a great amount of good that comes from class action lawsuits. Even so, one "good" that does result is a tightening of control by companies over their agents. It forces insurance companies to monitor to a greater degree the actions that happen in the selling field. In the past, most companies seemed only to consider the amount of business sold, with little regard for the process that happened prior to the sale. They now realize that supervision must be there if they are to avoid future problems.

While there are measures that can be taken by insurers to monitor their agents, they are right when they argue that there is only so much they can do. One thing most companies do now require is a copy of the illustrations used attached to each policy application. Of course, agents can still give one copy to the applicant and a different copy to the company. This, of course, is the point that many insurers are trying to make. In the end, they must depend upon the ethics of the individuals they contract with because there is no way to supervise the face-to-face activities of their agents.

Corporate Ethics

Moral obligations do not just apply to individuals. Corporations have moral, as well as legal, obligations. Corporations are entities rather than people, but people run them. When corporations are accused of misconduct or unethical behavior, it is really a reflection of those in charge of the company. Since the employees are most likely following corporate policy, it is further likely that it is those individuals at the top that make these errors in ethical judgment.

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. They have primarily blamed accounting errors for the misbalanced payouts.

It will probably be years before everything about Enron is known, but so far those investigating the company are saying it was a jumble of errors that allowed stockholders and employees to loose nearly everything while some within the company became rich. In a report released by William Powers, Jr., Dean of the University of Texas Law School (as part of a special investigating committee) he stated: The tragic consequences of mishandling the partnerships were the result of failures at many levels and by many people: a flawed idea, self-enrichment by employees, inadequately designed controls, poor implementation, inattentive oversight, simple (and not so simple) accounting mistakes, and overreaching in a culture that appears to have encouraged pushing the limits.

There seems to be plenty of blame but not very much apology on the part of Enron. Founder Kenneth Lay was at the top of the empire, but he seemed to have little time to actually do his job. He did not oversee members of the companys management as required by his position, and he allowed the companys chief financial officer to profit from the partnerships without regard for his stockholders or employees.

Jeffrey Skilling failed to monitor dealings between Enron and the partnerships. Skilling had been president and chief executive for six months prior to his resignation in August of 2001. He has been accused of approving a partnership transaction in March of 2001 that was designed to conceal large operating losses from the board. Jeffrey Skilling denies that charge.

The board of directors waived Enrons conflict-of-interest rules to allow Andrew Fastow, Enrons chief financial officer, to run the partnerships. The board did set up procedures to monitor his compensation, but then failed to follow the very procedures they put in place.

Enrons outside auditor, Arthur Anderson, LLP, appears not to have followed normal auditing procedures. He certainly failed in his professional responsibilities. Anderson was paid $5.7 million to specifically review and approve the setup of the partnerships that led to Enrons financial downfall.

Enrons outside law firm, Vinson & Elkins, is accused of failing to bring a stronger, more objective review of the required disclosures given to investors about the partnership transactions and the role Fastow played in them.

As we said, it will probably be several years before everything is fully disclosed to the public, but what is clear is that Enrons top people clearly had personal gain in mind. Even though a great deal of information may have been withheld from the board, it seems that no one cared enough about the company to investigate when it seemed obvious that proper moral and legal procedures were not being followed. Enron seems to have used partnerships as depositories for assets it wanted to get off its books. While that is not necessarily improper, it should have raised questions.

Americans seem to raise ethical questions only when it has hurt a substantial number of pocketbooks. If we, as a society, made it an issue on a daily basis, there might be less large failures like Enron. Luckily, most businesses do have enough checks and balances that when a company fails it is due to other causes rather than corporate greed. However, corporate greed has been responsible for many planet and community failures polluted water supplies, ground erosion, wildlife failures, worker safety concerns, and political corruption.

A Personal Choice

Ethics are a matter of making personal choices. Whether we tell the truth, pay our fair share of taxes, cheat on our spouse, or do whats best for our clients are all personal choices. Whether or not we feel a moral obligation is the result of what we have been exposed to and what we have accepted as fact. The results of those choices will determine much of our future. They will also determine how our children, family, and others remember us.

Most people probably do not realize how much of their life is the result of personal choice. Like the Enron executives, we shift blame to others but are quick to accept any available success. A person who has considered what is ethical and right for them will be prepared when a questionable situation arises. Of course, anyone can be taken by surprise occasionally, but without any conscience decision to be moral and fulfill those obligations of life, it is doubtful that our path will be a consistently moral one.

All of us make daily decisions that impact our ethical path. We tell the grocery clerk she gave us too much change, we explain a moral detail to our child, we make the time to call a friend, we pause to appreciate those we love. Every day we do make choices that define our lives. We just may not label it as such.

Although every person needs to have a sound moral base from which they operate, this is perhaps especially necessary in some industries, such as insurance and financial planning. Of course, we would like to have all industries to be ethical. Wouldnt it be nice to know that the car repairman would always be ethical? Certainly we need ethical attorneys. To really stretch the imagination, just think if our politicians could be counted on to be ethical!

It is a sad fact that we have actually come to regard some industries as perpetually unethical. Many industries have fought hard to change these perceptions by the public; others do not seem to care as long as they can continue their lives and actions selfishly. President Clintons administration, for example, spent as much energy combating public perception as it did running the country. Enrons actions may change the laws that apply to 401(k) plans and may permanently affect how the public invests.

Is it really important to be ethical? There can be financial reasons for doing so. Lawsuits happen regularly, even to good people. When an ethical code of conduct cannot be legally demonstrated, each of us is much more likely to suffer financially. We suffer, of course, if we are sued personally, but we also suffer when others in our profession are sued. Insurance has a cloudy reputation already, and additional lawsuits simply add to the storm of controversy. If a particular lawsuit is in the news, our clients and especially potential clients will be less likely to buy from us.

The Exceptional Man

While most people identify with the common man some feel they are the exceptional man. Some individuals feel they have a right to take more. Moral obligations dictate that each of us must do our part not only for ourselves, but also for those around us: our family, our friends, our coworkers, our employer, our community, and our planet. Is there ever such a thing as the exceptional man? The person who has a right to more than the general population receives? It is certainly true that some people acquire more than others. The acquisition of material goods has nothing to do with moral obligations, however. It is perfectly acceptable to acquire goods. In fact, some people are just better financial planners than others. There will always be those who, through their own efforts and intelligence, come out with more than their neighbors do. That is perfectly acceptable from both a moral and legal sense. Each of us has different levels of ability. Some are painters, some are builders, some are communicators, and so forth. When we use our talents effectively it is not unusual to gain financially.

Although most of us would say we want equality for everyone that is not always true. Most of us really do like having an edge. Our justice system is an excellent example of the difficulty in delivering equal justice. Even though it was set up with that in mind, the delivery depends upon the expertise of the people involved. If the attorney representing one side is considerably better than the attorney representing the other side, justice may not be delivered equally. Additionally, if we have the better attorney, we are happy with the unequal justice. The fault does not necessarily lie in the system itself, but rather in those delivering the justice. The most well meaning, ethical person may not be able to deliver equal justice to all. There are simply too many players (people) involved.

Taking the Moral Path

Those who are able to rise above difficult situations and triumph personally are admirable. Most of us are not in situations that require noble acts or strength. We must merely earn a living, pay our bills, raise our children, and continue our daily routines. Taking the moral path should not be difficult. We merely fight the little personal battles: telling the truth even though we might not get the sale as a result, being kind to the woman who annoys us, or calling a friend wed rather avoid.

Morality is a personal choice and the reasons for choosing morality are just as personal. For some, they are simply happier when morality is part of their lives. They experience a deeper sense of worth by giving than they do by receiving. In fact, it is common for those who give to say they receive more in their gifts to others than they do when they themselves are the recipients. Perhaps there is an inner peace for them, some type of satisfaction that feeds them mentally and emotionally.

Others state a sense of duty as the reason, a feeling of responsibility to some entity, whether it happens to be their country, their wife or husband, their children, or even themselves. These people are motivated by some internal need to produce something positive. At the end of the day, they want to see accomplishment. Those with this sense of duty often experience a driving desire to meet specific goals. Their personal code of conduct includes following specific rules for their own lives.

Religion plays a part in the lives of many ethical people. They have a strong belief in their own personal God. Part of this belief involves doing what is right, not only for themselves, but also for others. Mainstream religions are based on ethical or moral attitudes. The Ten Commandments, or similar teachings, are generally the basis of what is considered right and wrong. For those with a strong religious belief, nothing less than personal responsibility would be acceptable. Religious beliefs have been the foundation of ethical behavior for centuries. It has often been the strongest motivational force for social change. These changes, pushed by religious beliefs, have affected the lives of millions, improving the quality of life even for those who do not believe in God themselves. In virtually every written source on religion, strength of character is emphasized.

Love can also be a strong motivating force. Although we usually think of love in connection with people, it can also be love of country or even love for the profession in which one works. When it involves people, the motivating factor can be very strong. Parents want their children to grow up happy and successful. Children want their parents to be proud of them. Husbands and wives want to demonstrate their love for each other.

These are not the only reasons that a person chooses to be moral, but they are perhaps the most common. It should be noted that the term moral may be replaced by words such as ethical, character, or principled. Politicians love such words when they make speeches, but the actual situation only exists when actions demonstrate a true belief in performance. Any person who is dedicated to their moral obligations brings with them a strength that is enviable.

Developing A Work Ethic

Most parents want their children to have what we term a work ethic. What this usually means is getting a job and being willing to put forth the energy and loyalty that will keep the job. Although the word ethic is part of the term, the actual meaning seems to have been lost. Work ethic is more than just showing up for work every day and putting forth the required effort to please the boss. The original meaning included honesty as well.

Each of us faces important moral issues daily. Most are relatively small (should I tell my boss what I really think of her dress?), but some will be large and significant. Unfortunately, we dont always recognize the significance of our ethical decisions. This is especially true in the insurance industry. Insurance agents deal with the publics trust and certainly their futures. Every insurance contract and annuity has the option of changing the future for those involved. A policy that is poorly fitted to the client can cause severe financial difficulty in the future.

The insurance field does have differences of opinion, but if integrity and professionalism are involved, even when there is disagreement, the agent will be working for the good of the client and not their own pocketbook. When there are federal laws or state regulations in place, differences of opinion will be decided by points of law. Some situations will be left up to individual opinion. Where there are no clear state or federal regulations, consumers depend upon their agents to be knowledgeable and professional. They depend upon their agents to act with integrity for their clients best interests.

Acting in the Best Interest of the Majority

Before our modern civilization emerged it was necessary for the tribe's survival to consider the group over individuals. In that context, what was best for the group was also best for the individual. The worst thing that could happen was to be alone. It took a group to hunt for food, to keep warm, to find and maintain shelter.

In some ways, it is still in man's best interest to consider the group first. That is why we instituted laws: to enable the group to survive, including the weaker members. If we must survive only as individuals, survival would go only to the strongest, which could eliminate many members and perhaps eventually the tribe itself. We just don't think of it in "tribe" terms anymore. We call it consumer law, we call it family law, we call it whatever seems to fit, but it still comes down to considering the group over the individual. Consumers, as a group, are considered over the individual who sells insurance to them. The family, as a group, is considered over the desires of a single member. This becomes especially evident in divorce proceedings when the courts try to protect the children or the weaker adult. Our code today is designed to protect members of the group who may not be able to protect themselves individually.

Why do we care if the group survives in today's society? Because each of us represents a part of that group. It could be ourselves that would not survive if the group as a whole were not considered.

Listening Our Way To Success

For the salesperson, listening is the only route to success. Without it, the salesperson might hang on for a period of time, but he or she will never really experience the thrill of success. Not all great listeners are sales people, of course. Oprah Winfrey is one of the greatest listeners of all time and this skill has made her rich as well as famous. She took the art of listening (and sensitive response which only happens because she listens) and built a television show around it. Although she is gifted in many ways, it is her ability to listen and understand that has made her best known among the talk shows.

Salespeople are often taught a specific format which they are supposed to follow during their presentation. The salesperson concentrates so hard on following a particular format that they simply shut out everything else. The salesperson is so afraid that they will make a major error in the words they themselves say that they forget to listen to the words of their potential client. Certainly it is important to follow a format for the presentation. It is important legally to do so, in fact, since that sets a pattern, which can be relied upon if a lawsuit is filed. However, the presentation must leave room for the clients needs as well. Only by listening to these needs, will the presentation ultimately be successful.

A salesman once said in exasperation I hate it when I have spent time explaining what Im offering and the client says It sounds great, but I have to think about it. What is there to think about? Its a great product!

Many professionals would have had a chuckle at his expense. This salesman had spent so much time listening to himself (his presentation) that he failed to listen to the potential client. Since his presentation had satisfied his needs, he saw no reason to satisfy the needs of the client. What are the clients needs? No one can answer this question except the client. Only by listening will the agent know. Each clients needs are individual and only by listening when they speak can you discover them. These needs are labeled many things. Needs are often called objections by sales promoters. How often have you heard the statement that an objection is merely a way of telling you the consumer needs more information? While this may be true, the truest statement is simpler than that. An objection is the client speaking. Are you listening? Are you asking the right questions? Unless you listen, it is impossible to ask the right questions.

Fulfilling Our Obligation to the Client

It does not matter what one is selling as long as the salesperson believes in the product. Of course, merely believing in the product will not necessarily insure a sale. It is true that, for some, sales are a natural thing. For these individuals no struggle is apparent from the first day in the selling field. For most, however, building a career in sales means doing many necessary things, including obtaining product education, establishing a client base, and learning how to serve existing clients.

A career in sales is not an easy path. There is no guarantee of a paycheck. A successful sales career must be considered for the long term. Otherwise, it is not a profession, but simply an occupation for today. Long term planning has to do with many aspects, including planning for oneself in retirement. It is amazing the number of people who sell retirement planning packages and yet have put nothing in place for themselves.

Sales seminars often tell us to picture in our minds what we want for our futures. This can be a valuable tool, but it should never allow us to loose sight of what we must do for ourselves. Simply wanting, wishing, and hoping (which this picture technique can turn into) will never take the place of strategic planning. If sales were easy, everyone would be doing it. Therefore, it stands to reason that building a successful sales career is difficult, demanding, and sometimes downright frustrating! Any type of excellence, whether it is in sports, business, or personal relationships requires effort. That is why it is so important that ethics be a part of the plans. Without a direct decision to be moral, it would be very easy to get caught up in all the other aspects.

Policy Presentations

Morality can be difficult to identify. As we stated, professionals do not always agree on ethical issues, so how can we expect laypeople to understand them? Sometimes, it is merely a matter of opinion. Replacement business is one area where a variety of opinions may exist. Consequently, education of the products is very important. An educated agent is less likely to make an honest replacement error. Sometimes the simplest method of determining policy replacement may be asked in this form: If it were my personal policy and I would not receive any commission at all, would I still replace it?

Most presentations involve a few "set" items, which includes premium rates, benefits, agent services and company stability. Of these, premium rates should be the least important. However, our clients often do not allow that to be so. As a result, rates often take up the majority of the presentation. Yet errors and omissions claims have never occurred due to premium quotes. Probably 98 percent of the E&O claims filed relate to the benefits of the program and how those benefits were discussed. Obviously, more time needs to be devoted to this aspect of insurance presentations. Then, as an agent, you must hope that the client not only understood the benefits, but remembers them as well. That is why documentation is so very important. As each segment of the contract is presented and discussed upon delivery, it would be a wise idea to have the client initial it.

Representing the Companies With Honesty

Agents have an ethical obligation to the insurers they represent. Agents have an obligation to describe accurately to the client the financial strength (or weakness) of the insurance company being proposed or replaced. They also have a legal obligation to do so. A lawsuit could be brought against an agent who causes a client to suffer financially as a result of the agent's failure to fulfill these due diligence responsibilities.

An agent who plans to make a career of insurance wants to represent quality products with financially strong companies. This is necessary simply to stay in business. Often, it is the agent's lack of understanding of, or attention to, some of the technical terminology used in documents pertaining to the financial strength of insurance companies that causes headaches later on. The agent either does not understand what he or she reads, or simply does not take the time to read the financial data available on the companies represented.

There are so many things that play a part in an insurance company's financial strength that an agent may wonder how he or she is supposed to recognize possible problems. Such things as underwriting standards, how the company sets up reserves, risk spreads, management personnel and reinsurance practices are a few of the things that will affect an insurance company's financial strength. An agent cannot know all that is involved in a company in many cases. However, an agent can look past the surface of the brochures put out by the company. It is important for the agent to remember that any given company is selling itself, not only to the policyholder, but to the agent as well.

Acknowledging Our Moral Obligations

Moral obligations exist for every individual not just for insurance agents. Every person owes something to someone else. This is not only morality, but simple survival as well. Agents do not have an easy job. They are at once required to recommend a product for every perceived risk and at the same time admonished not to "oversell." They are required to be contract specialists. Their clients often expect service that the agent receives no compensation for. The plumber would never consider doing free work for their insurance agent, yet will expect their agent to give them free services (plumbers- please dont call or write, it was just an example). The insurers may place business requirements on agents that they are not equipped to handle. For example, it is common for property/casualty companies to require their agents to write life business. Life agents may be required to sell securities. Agents are usually required to meet minimum production standards. Few consumers or regulating agencies have any sympathy for the stress the agent must deal with on a daily basis. In addition, there is seldom any state or federal agency that sets standards for the protection of the field agent. Companies can run over their agents freely.

Luckily, insurance is also a fascinating industry. Agents are often on the cutting edge of new information, new resources, and new financial strategies. Agents also meet some of the best people in the world - their clients.

Agents Are Also Clients

Consumers are not the only targets of sales practices. Insurance agents are also the targets of sales ploys. Insurance companies and financial organizations must recruit agents to sell their products. For a busy agent, it can be difficult to follow through on all financial details involved in an insurance company's financial report. While the technical analysis is certainly important, such analysis is not always possible. However, common sense should tell any agent that if it sounds too good to be true, it probably is.

A lack of public trust can cause problems. If a product has the potential to cause public concern (such as the living trust industry has done), an agent may want to stay clear of it, at least initially. There can be the fear that others will get the commissions first narrowing the field. In fact, promoters like agents to feel this way. It is a false fear. A good product will continue to sell.

Is It Too Good To Be True?

Perhaps the best common sense approach is simply looking at the products being offered. If any given product seems to give much, much more (commissions plus high interest rates for the policyholder, for example) than other similar products, then it is possible that trouble is waiting down the road. Product design may also reflect the company's outlook and philosophy. If gimmicks rather than sound design seem to hold the product together, that could well be the philosophy of the company. Is the product set up to "catch and hold" a policyowner rather than benefit them? Could you find yourself in an embarrassing situation down the road when your client requires service or benefits?

It is never an easy task to be both a successful agent in the field and an ethical person as well. Over the long run it will pay off, however. Think of each contract (policy) as a personally signed document. You place your name on each policy you write. Do you want your name on anything less than the very best?

End of Chapter Ten

United Insurance Educators, Inc.

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^[1] Professional Liability Pitfalls for Financial Planners by Cheryl Toman-Cubbage