Ethics and Business
Is This an Oxymoron?
E. Stuart Powell, Jr., MA
CPCU, CIC, CLU, ChFC, ARM, AMIM, AAI, ARe, CRIS
Vice President of Insurance Operations and Technical Affairs
Independent Insurance Agents of North Carolina, Inc.
Ethics and Business – Is This an Oxymoron?
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I.
The Issue
A prospective customer asks John Q. Agent to quote on his
homeowners insurance. In developing the information for the
quote, John determines that the premises on which the house in
located are only a few feet outside the city limits. John knows that
this area is in a volunteer fire district. But since this particular
house is almost in the city, John feels that the city fire department
would respond to a fire. Therefore, John believes that this risk
should receive the benefit of being in the city for fire protection
purposes. He rates the quote using the city classification. John
gets the business. The customer gets a very good price for
coverage.
Is anything wrong with this scenario?
If so, how do we know what’s wrong?
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II.
Background
A.
Ethics comes from the Greek word - ethos (ς) which means custom, usage, or character of a group
of people.
B.
In ancient times when governments were less formal
and national boundaries were vague, a person was
associated with a group (ethnos –εθνος) by custom or
behavior. One ethnic group was distinguished from
another by the way they dressed, their language, the
customs they observed, and the rules of behavior
that governed their lives.
1.
C.
The American Ethos - those characteristics,
qualities, customs or practices that distinguish
American for peoples of other nations
Definition of Ethics
1.
Ethics are an organized way in which man goes
about understanding whether human behavior
conforms or fails to conform with a given set of
rules or customs for acceptable behavior.
2.
“the discipline of dealing with what is good and bad
or right and wrong, or with moral duty and
obligation” Webster’s Third New International
Dictionary
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D.
III.
Types of Ethics
1.
Theoretical or philosophical ethics
2.
Practical or applied ethics
Right and Wrong
A.
Are Right and Wrong relative or is right right and
wrong wrong
B.
Right and wrong behavior can be relative to the
Standard by which behavior is measured
C.
Scale of Standards of Behavior
1.
2.
3.
Legal (lowest)
a)
Criminal – wrongful acts against society
b)
Civil – wrongful acts against another individual
c)
Agency/Principal or Vicarious – responsibility for the
wrongful acts of others
Governmental
a)
Legislative Statutes – written laws
b)
Administrative Regulation – rules required by written
laws
Business and Professional
a)
Customs
b)
Practices
c)
Professional standards
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4.
D.
Moral (highest)
a)
Religious standards
b)
Philosophical standards
Reasons for Wrong Behavior
1.
Ignorance - Just don’t know
“Ignorance of the law excuses no man; not that all men
know the law, but because ‘tis an excuse every man will
plead, and no man can tell how to confute him.” John
Selden 1584-1654
2.
Knows and understands the standard but chose to
violate it
3.
“Situational Ethics” – Only wrong options
4.
Conflicts of Interests
5.
a)
Behavior in which a person or entity derives a
personal benefit from acting contrary to the interest of
others
b)
Disclosure - transparency
c)
Altruism – a sign of professionalism
“The devil made me do it.”
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IV.
Ethical Standards
A.
Legal Standards
1.
Criminal Standards
a)
Often based on religious standards
b)
Prohibitions against conversion of or destruction of
the property of others
c)
2.
(1)
Stealing
(2)
Embezzlement
(3)
Arson
Prohibitions against bearing false witness
(1)
Fraud
(2)
Perjury
(3)
False pretense
Civil Standards
a)
Common Law Standards
(1)
Torts
(a)
Negligence - Failure to follow a standard of
Prudence that results in damage to others
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(2)
(3)
Contracts
(a)
Utmost Good Faith
(b)
Voidable Contracts
(i)
Concealment (misrepresentation by
silence)
(ii)
Misrepresentation (innocent but
material)
(iii)
Mistakes
(iv)
Duress
(v)
Undue Influence
Agency/Principal (Vicarious Liability)
(a)
(b)
Duties and Obligations of Agents
(i)
Loyalty
(ii)
Obedience
(iii)
Reasonable care
(iv)
Accounting
(v)
Keep informed of relevant facts
Duties and Obligations of Principal
(i)
Perform on agency contract
(ii)
Opportunity to work
(iii)
Compensation
(iv)
Reimbursement
(v)
Indemnity
ONE HOUR
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B.
Regulatory Statutes
1.
State General Statutes
a)
Twisting
b)
Fraudulent representation
c)
Signing blank policies
d)
Unfair and Deceptive Trade Practices
(1)
Misrepresentation or false advertising of insurance
policies
(2)
False information or advertising
(3)
Defamation
(4)
Boycott, Coercion and intimidation
(5)
False financial statements
(6)
Stock options and advisory board contracts
(7)
Unfair discrimination
(8)
Rebates or illegal inducements
(a)
2.
Fees for Service
(9)
Unfair claims settlements
(10)
Misuse of borrower’s confidential information
(11)
Over-insurance in credit transactions
Regulation By Department of Insurance
a)
Licensing requirements
(1)
Prior civil and criminal records
(2)
Conditions for suspension or revocation
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C.
b)
Continuing education
c)
Agency/Company operational practices
d)
Enforcement of statutes and regulations
Professional Standards
1.
Trade Associations
a)
Code of Conduct/Ethics
(1)
b)
IIABA (Appendix p. 15)
(a)
To the Public
(b)
To the Companies
(c)
To Fellow Members
(2)
Trusted Choice (Appendix p. 16)
(3)
NAIFA (Appendix p. 17)Professional Societies
Code of Ethics
(1)
CPCU
(a)
Oath/Pledge (Appendix p. 18)
(b)
Ethics Code from By Laws (Appendix p. 19)
(c)
Nine Canons (Appendix pp. 20-21)
(i)
(2)
Rules and Guidelines for each Canon
CLU (Appendix p. 22)
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D.
Moral Standards
1.
Religious Standards
a)
Most religions have established rules or codes of
behavior
(1)
Codes are usually part of the created order (natural
law) or are given specifically by the supreme being
(2)
Specific codes - The Ten Commandments
(3)
General guidelines - The Golden Rule
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2.
Philosophical Standards
a)
Principals for evaluating behavior that are derived by
human rational activity
(1)
b)
The way things ought to be
Philosophical standards can parallel religious beliefs
or be secular in nature
(1)
Aristotle’s Golden Mean - “all things in moderation”
(2)
“The ends justify the means.”
(3)
“If it feels good, do it.”
TWO HOURS
V.
Applying Ethical Principals - Several Case Studies
A.
Is Ethical Behavior Good Business?
1.
Should businesses behave in their own self
interests?
2.
Is what is for the customer, best for the business?
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B.
Case Studies
Ethical Decision Making
Does it violate any criminal standards?
Does it violate any civil standards?
Does it violate any business standards?
Does it violate any professional standards?
Does it violate any personal standards?
Signatures on applications
A prospective insured calls an independent agent to get some automobile
insurance. The agent quotes the coverage over the phone. The insured
authorizes the agent to place the coverage. The agent gets an auto application
and asks the insured all the questions on the application. The agent tells the
insured that he will need to come by the office to sign the application. The
insured says he will be by that afternoon but to make sure that he has coverage.
Two days later the insured has not come by to sign the application and the agent
has been unable to reach the insured by phone. Knowing that the insured wants
the coverage and that the insured has answered all the questions on the
application, the agent signs the insured name to the application.
A life insurance agent gets a commitment from an insured to buy some life
insurance. The insured is in a big hurry so the agent has the insured sign a
blank application and indicated that the agent can complete the application from
the information she has developed in her fact finding questionnaire.
a)
Insurance Applications
(1)
Offer or acceptance
(2)
Application information as representation
(a)
Material misrepresentation
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Ethical Decision Making
Does it violate any criminal standards?
Does it violate any civil standards?
Does it violate any business standards?
Does it violate any professional standards?
Does it violate any personal standards?
Misrepresentation of the insurance process
Life and Health Insurance
Agent A has been encouraging a client to buy a very large life insurance policy to
coordinate with some estate planning that was done by a local attorney. The
client calls to let the agent know that he ready to buy a policy but is also getting a
proposal from another agent. Agent A feels that he has done a lot of work on
this case and should get to business. To make his proposal attractive, he uses
an interest rate on the ledger statement that is 2% higher than the company is
currently paying. Agent A believes that interest rates will rise in the future and
therefore this proposal is not unreasonable.
Property and Liability Insurance
1. An insured has several large trucks, including a dump truck, that are used in
his sole proprietor contracting business. The insured is concerned about the
high cost of insuring these vehicles. He goes to another agent for a quote.
The prospective agent asks the insured if he lives on a farm or has any farm
animals. The insured indicates that he lives on a farm. The prospective
agent proceeds to rate the vehicles as farm vehicles. The premium for the
vehicles is much lower and the insured is satisfied.
2. Your pick up the policies from a local heating and air conditioning contractor
who installs heating and air conditioning units for residential and small
commercial customers within in a 50 mile radius or your community. In
reviewing the classification under the CGL, you notice that there is only one
classification listed, i.e. “sheet metal – shop only”. Knowing that the risk is
under classified, do you quote the risk using the correct classifications or try
to price the risk as written by the current agent?
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Ethical Decision Making
Does it violate any criminal standards?
Does it violate any civil standards?
Does it violate any business standards?
Does it violate any professional standards?
Does it violate any personal standards?
Product/Service vs. Compensation
An agent is asks by one of his commercial property and liability insureds to get
his company some health insurance. The agent gets several quotes. The quote
from Company A has the better benefits. But Company B is running a contest
and the agent can get a 3 day cruise if he places one more group case with
Company B. The agent presents the Company B quote and the insured accepts
it.
THREE HOURS
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Appendix
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