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This program is designed to provide accurate and authoritative information regarding the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Jan 2017

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When Americans are asked to rank professions in terms of honesty and ethics, insurance agents routinely end up near the bottom of the list - somewhere between politicians and car salesmen. Generally, insurers are seen as clever hucksters who prey on insecurity and ignorance to sell people what they don't need at prices they shouldn't have to pay. James Surowiecki , Journalist

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I. Some “insight” into ethics in American society … or not Business Automobile recalls Banks …Wells Fargo … Insurance companies/agents Politics Students Sports

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II. Overview ...what is ethics Ethics defined …. different things to different people Ethics from Greek word “ethos” (character) And meaning combined with Latin word mores (customs) Dictionary.com

1. (used with a singular or plural verb) a system of moral

principles: the ethics of a culture.

2. the rules of conduct recognized in respect to a

particular class of human actions or a particular

group, culture, etc.: medical ethics; Christian ethics.

3. moral principles, as of an individual: His ethics forbade betrayal of a confidence.

4. (usually used with a singular verb) that branch of

philosophy dealing with values relating to human

conduct, with respect to the rightness and wrongness of certain actions and to the goodness and badness of the motives and ends of such actions.

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Essentially the “rules” of right or good conduct …

There is NO “one” definition - and can vary by: Some organizations define for themselves (CPCU) Government can set the tone Sports figures or other famous people influence Family upbringing Teachers can affect and shape Organizations such as Boy & Girl Scouts Church/religious institutions

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III. Ethical v. moral Ethics can be making the decision in obvious “right v. wrong” situations but that is not our focus We are going to look at “ethics” in relation to situations where the choice is the “lesser of the two evils” wrong v. wrong …. but a decision MUST be made Or just a matter of opinion …but is one more “ethical” than the other” Right v. right….. Ethical is “more” … finding the "best” right …or wrong answer or solution Making the best choice for the situation or organization… may not be the best choice for you personally Ethical Not …black and white ….good v. bad – right v. wrong It is wrong to lie …. Most of the time …..

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Most ethical transgressions fall into 3 categories Stealing Harming Deception STEALING As an …stealing is a “no no” …. It is illegal … Tacking on fake fees …. Taking premiums and never submitting applications What about placing business with a more expensive product to enjoy higher commission???? HARMING Physical harm … should be a “non-issue” in insurance sales Financial harm? Not understanding the risk and selling inadequate product that results in loss of business? Wanting the sale and misrepresenting product

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Deception Lying telling someone something we know not to be true with the intention of misleading them Words to describe Lying fib, embroider, doctor, bend, dress up, cover up, overstate, understate, misinform, misguide, stretch the truth, varnish, inflate, embellish, garnish, warp

Not just con, perjure, distort, bald-faced lies, dupe, spin Lying isn’t just about OUR reputation – Or character it can create barriers to relationships

You’re a salesperson. You are quoting the prospect’s non-standard package policy or HO with an ISO BOP or CPP or HO … the client wants to make sure that they are getting at least apples for apples …..

You’re a salesperson. You know the quote price will turn off your client. If you understate the price now - you “know” the client will agree to/ adjust to the actual price in the long run (worker’s comp – lowball payroll)

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One lie when revealed can cast suspicion on EVERYTHING else we say “white lies” or “sugar lies” are still just that Survey … 32% who lied did so to avoid upsetting the receiver Yet Only 4% of receiving end believed this 62% said lie “justified” – good reasons for doing so 8% of receiving end actually believed this Deception Can ALSO be failing to correct inaccurate perception feigning ignorance withholding information – not telling WHOLE truth Terms re: “deceive” bluff, beguile, gloss over, downplay, puff up, leave in the dark, hoodwink

whitewash, sweet-talk, exaggerate, string along, take for a ride, propagandize, snow

You are a salesperson and want to know what the competition is doing so you pretend to be a potential customer

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“Sometimes being ethical is not doing what you have the power to do, not doing what you have the desire to do, and not doing what you have the right to do” Michael Josephson

“The Day America Told the Truth” by James Patterson & Peter Kim

1. 1 in 2 Americans believe you get ahead by politics and

cheating, not by hard work 2. 1 in 6 Americans regularly drinks or uses drugs on the job 3. 1 in 4 Americans expect to compromise their personal beliefs in order to get ahead in their current job 4. American workers frankly admit they spend

More than 20% (8 hours a week) of their work time goofing off

Americans feel the #1 cause of business decline is low executive ethics

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IV. Importance of being ethical What’s the point …why be ethical? 1) Social responsibility - community v. person It's the RIGHT thing to do .... 2) Contractual obligations

a) Express obligations/authority - written contract

Told what can write ...what can't write Do you "bend" the underwriting guidelines WITHOUT permission? b) Implied obligations/authority Contract doesn't SAY it ...but "obviously" it would be allowed ...advertising companies represent in telephone book or website But what is "obvious" The "X" Insurance Company regularly permits you to homeowners policies on risks that have had two claims in the past three years, though underwriting rules state that you are not permitted to bind these potential clients without referring the account to an underwriter. You have never had one of these homeowners rejected. The account of a valued commercial client comes up for renewal today and she wants you to write her homeowners insurance. The underwriter’s office is closed for business. What do you do?

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b) Legal theory - agent/principal 1) Apparent authority

Not given by the principal (the insurer), but is based on circumstances that create a reasonable belief to a third party (i.e. the consumer) that the agent had authority. Protects innocent people where the circumstances create a reasonable appearance of authority in an agent. Consumers do not understand the business of insurance and their assumptions of what the agent can and cannot do may be flawed. You have bound coverage for a homeowners policy and an auto policy for your client. Today she wants umbrella coverage and believes that like the other two coverages ...you can bind that, too

2) What the agent knows ...the company knows!! 3) Avoid public criticism Enron .... Madoff ....Martha Stewart ....

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4) Law/regulation (unfair trade practices)

a) Federal laws ...privacy, etc. b) State laws ...unfair trade practices Massachusetts has unfair trade practices law - some excerpts

CHAPTER 93A REGULATION OF BUSINESS PRACTICES FOR CONSUMERS PROTECTION

Section 2. (a) Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful. (b) It is the intent of the legislature that in construing paragraph (a) of this section in actions brought under sections four, nine and eleven, the courts will be guided by the interpretations given by the Federal Trade Commission and the Federal Courts to section 5(a)(1) of the Federal Trade Commission Act (15 U.S.C. 45(a)(1)), as from time to time amended. (c) The attorney general may make rules and regulations interpreting the provisions of subsection 2(a) of this chapter. Such rules and regulations shall not be inconsistent with the rules, regulations and decisions of the Federal Trade Commission and the Federal Courts interpreting the provisions of 15 U.S.C. 45(a)(1) (The Federal Trade Commission Act), as from time to time amended. ….penalties In all other cases, if the court finds for the petitioner, recovery shall be in the amount of actual

damages or twenty-five dollars, whichever is greater; or up to three but not less than two times such

amount if the court finds that the use or employment of the act or practice was a willful or knowing

violation of said section two or that the refusal to grant relief upon demand was made in bad faith with

knowledge or reason to know that the act or practice complained of violated said section two. For the purposes of this chapter, the amount of actual damages to be multiplied by the court shall be the amount of the judgment on all claims arising out of the same and underlying transaction or occurrence, regardless of the existence or nonexistence of insurance coverage available in payment of the claim. In addition, the court shall award such other equitable relief, including an injunction, as it deems to be necessary and proper.

5) Minimize EO Making ethical decisions will most probably align with prudent E&O procedures

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V. Characteristics of an ethical person What would you say? Honesty (truthful, sincere, frank, candid)

Honesty is the cornerstone of ethical behavior, because it means: Telling the entire truth - lies can be outright or by omission

Always being candid, trustworthy, and straightforward in a situation of trust

Taking care not to deceive others, either by what is said or what is not said

Making sure others receive all that they are entitled to, and not accepting things not entitled to.

Integrity (sound moral principles/courage of convictions) the quality of possessing and steadfastly adhering to high moral principles or professional standards. Similar to honesty, but carries with it the connotations of being incorruptible no matter what. Respect (courtesy and consideration for rights of others) a commitment to carry out responsibilities with an understanding of,

and a consideration of the needs of others. (Put others first)

Caring/compassion (concern for well-being of others) not selfish, manipulative or controlling

Trustworthy (Accountability, promise-keeper, reliable, dependable )

Fair (commitment to justice and impartial and equal treatment of others)

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Responsible–(competent to carry out duties in best interests of others)

to be reliable and trustworthy Courage —It takes courage to be ethical. In the short term, there may even be a price to pay. But in the long run, it always pays to do the right thing. (not putting something on a certificate you know you shouldn’t just to make customer happy) Accountable (accept responsibility for consequences of actions and decisions)

Loyal - confidentiality, loyal to one's obligations, faithfulness to others and devotion to duty

Do some of these characteristics compete?

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VI. Kidder's ethical conflicts

How good people make tough choices by Rushworth Kidder

truth v. loyalty Truth to customer - agency or company Who gets loyalty first ..customer/employer/company You are talking to one of your best personal lines clients who mentioned he just bought a trampoline for his son

individual v. community Good for agency v. insurance company Good for customer v. agency Good for customer v. insurance company Good for YOU v. customer The ABC companies have just increased commissions by 5% which is higher than anyone else in the market, should I just move as much business to ABC as I can? Even though the policy coverage is better under EFG company? Or … Coverage the same as EFG but ABC is much more expensive Is that commission a lure?

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justice v. mercy Underwriting rules v. compassion for customer Claims adjusting rules v. compassion for predicament You are driving through a client’s neighborhood and see him walking a pit-bull puppy. He waves. You pull over and he introduces you to his new dog. You write his homeowners policy .

short-term v. long-term Immediate good for agency ....v. customer Immediate good for me v. agency Immediate good for agency v. insurance companies The ABC companies have just increased commissions by 5% which is higher than anyone else in the market, should I just move as much business to ABC as I can? Even though the policy coverage is better under EFG company? Or … Coverage the same as EFG but ABC is much more expensive Is that commission a lure?

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Balancing Conflicts of Interest: Questions To Consider 1. What are my legal duties and contractual obligations in this

situation? 2. What benefits and what costs or harms does each course of

action produce for each involved party, and which alternative leads to the best overall result?

3. Does one course of action best respect the moral rights of all the parties? 4. Is one course of action fairer to all the parties than are the others?

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VII. Method to make ethical decision Kidder – 3 principles to consider when trying to make the “right” decision ends-based – what produces the greatest good for the greatest amount of people look at long-term consequences Some emotion in decision process rule-based - Follow only the principle that you want everyone else to follow

There are always rules ..which one applies Emotionless decision making Ignore any unique aspect to situation care-based – Do unto others as you would have them do to you. Make compassionate decision - the type that they want others to make in same situation Golden Rule

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Pure risk management method

Step ONE - IDENTIFY What are the key issues involved? Is it an "ethical issue"? personal values? v. morality or legality?

If it is a “moral” issue … right v. wrong … not necessarily an “ethical” decision per this course

Right v wrong – moral issue 1) Legal test – are you breaking law or regulation or underwriting rule 2) “stench” test…goes against your moral principles

3) “front page” test - if your decision is front page news

4) “Mom” test … what would your mother think of what you did? If not a “moral issue” ….then back to steps in ethical decision process Step one - INDENTIFY …continued …. Is there a key principle involved? honesty? integrity? responsibility? respect?

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Step two - ANALYZE Gather information Who will be affected? Who will benefit? Who will be hurt? Step three - DEVELOP potential - solutions/alternatives/answers Which option benefits most – common good over personal benefit Step Four - MAKE/IMPLEMENT decision Is it defensible?

What if public finds out ...will I still agree with decision? Step Five - MONITOR decisions ...

to see if correct or if changes necessary as situations evolve

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You are quoting on a Commercial Package policy with a wealthy business owner. You have a super product and have put long hours into this project. Another agent is quoting against you. He has a poor reputation in the industry and you have even heard that he has been sanctioned by the Department of Insurance. Do you share this information with the prospect?

Are there ethical principles involved? Who benefits from your decision Stakeholders involved? Who is hurt by your decision? Is your decision legal? What will the public think if your decision becomes known?

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Ethical dilemmas …(1) The Smiths had a loss on their dwelling. The Insurer has offered a settlement that you feel is too low. The Smiths ask you whether the settlement is fair. They haven’t hired a public adjuster or an Attorney. This is your most competitive insurance carrier but your loss history hasn’t been so great recently and it was suggested by company management that your contract might not be renewed unless your loss ratio improves. What VALUES are involved? honesty v. loyalty justice v. mercy (for who …agent or insured!) individual v. community client v. company short-term v. long term

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What should you do … 1) Tell the Smiths that the settlement is fair 2) Tell the Smiths to hire a public adjuster or attorney 3) Call the company adjuster and ask them to reconsider the amount of the claim payment 4) Advise your client that the adjuster and the insurance company may be in violation of an unfair claims settlement practices act provision which option would be ends based? Rule based? People/Care based?

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Ethical Dilemma (2)

A broker is negotiating a manuscript products liability coverage with an insurance company underwriter. He doubts that the underwriter is aware that the Consumer Product Safety Commission is considering investigating the safety of one of his client’s products. An unfavorable finding by the Commission is likely to force the client company to incur large product recall expenses, which will be covered by the policy being negotiated if it is issued. The broker does not mention to the underwriter this possible action by the Commission, and the underwriters does not ask about any such action.

What VALUES are involved? honesty v. loyalty justice v. mercy (for who …agent or insured!) individual v. community short-term v. long term

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What should the agent do … ? IF agent doesn't tell company ...is he/she violating principle of "agent v. company"? Could claim payment affect solvency of carrier? Could it end up being an EO claim?

Ends based Rules based People based

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Ethical dilemma 3 Your agency has facebook account. You are “friends” with many of your customers. You read an account of a big party and drinking and driving incident of a customer who you have the HO policy on. This customer is with one of your best HO carriers and you have an appointment to talk about personal umbrella and auto with them. What VALUES are involved? honesty v. loyalty justice v. mercy (for who …agent or insured!) individual v. community short-term v. long term What is your solution - what would you do? Ends based Rule based Care based

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Ethical dilemma 4 - Certificate of Insurance You are an agency licensed producer and your friend is having work done improving their home with a farmers porch, additional room and a garage and you gave them a name of one of your long time contractor customers that provides you with a lot of referrals to do the work. You were over their house looking at the work in process and you spotted the certificate of insurance on the refrigerator. The certificate looked like a photo copy and did not have the neat appearance like your office generates. Furthermore, it looks like the certificate holder information was typed from another print source. The garage was nearly complete with the roof being installed by your customer and this was not subbed out like is always stated on the applications for insurance. You go back to the office because the appearance of the certificate bothers you and you find out the customer was cancelled for non-pay several months before the job and they must have used an old certificate to create one for your friend. What VALUES are involved? honesty v. loyalty justice v. mercy (for who …agent or insured!) individual v. community short-term v. long term What is your solution - what would you do? Ends based Rule based Care based

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Ethical dilemma 5 - The Auto Claim You work in the claims department for an insurance company handling automobile physical damage claims. An insured totaled their car and the car has a blue book value of $6,300, and a current local selling value of $6,200 from newspaper ads but you tell them you will pay $5,000 as you are banking on the fact they do not have computer access and will not be able to do the same research as you have available. Your supervisor has also mentioned in your reviews that they thought you have been overvaluing losses and the company is in dire need of reducing unnecessary payouts. What VALUES are involved? honesty v. loyalty justice v. mercy (for who …agent or insured!) individual v. community short-term v. long term What is your solution?

Ends Based

Rule Based

Care Based The Auto claim continued …

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You are the insurance agent in this case and you realize as well the vehicle is worth more than $5,000. This insured is a very good friend and the agency has asked you in the past not to get involved in the claims process. What VALUES are involved? honesty v. loyalty justice v. mercy (for who …agent or insured!) individual v. community short-term v. long term What is your solution – what would do you do? Ends Based Rule Based Care Based

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Ethical dilemma 6- The New Homeowner

A blue collar worker you have insured for many years for only automobile insurance comes to you when buying their first home. They tell you that they trust what you say but also mention funds are limited and ask for your advice and guidance on the best bang for their buck. You have a company that is requiring more new business and is giving the agency incentives so every new business is given this condition as a priority concern. The difference in pricing is substantial between the incentive carrier and one of the carriers that you already have a considerable amount of business placed with. What do you do? What VALUES are involved? honesty v. loyalty justice v. mercy (for who… agent or insured!) individual v. community short-term v. long term What is your solution – what would you do? Ends Based Rule Based Care Based

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Ethical dilemma 7 - The BOP Dilemma

You just penned a contract to represent a large national carrier. You started remarketing your insured carrier are substantially lower than your other carriers. You promised the new large national carrier a fairly large amount of new business but did not realize there would be this much of a difference in premium and if you change all the accounts to this new lower premium the agency will lose considerable commission revenue. What VALUES are involved? honesty v. loyalty justice v. mercy (for who…agent or insured!) individual v. community short-term v. long term What do you do - what is your solution Ends Based Rule Based Care Based

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Hurricane Katrina Matthew was the VP of claims for a large insurance company which underwrote large industrial organizations, many of them involved with environmentally dangerous chemicals. He employed both male and female claims professionals. Insurance products and the risks faced by his clients were gender neutral to him. He knew plenty of women who were excellent adjusters and lawyers, and it never occurred to him to discriminate. Then, Hurricane Katrina hit and large areas of New Orleans were flooded. The waters became a toxic soup, covering everything with dangerous chemicals of yet unidentified origins. Using all the standard precautions and business processes, he developed a plan for handling the influx of claims from this disaster. Only in one area did he depart from orthodox procedures: he assigned adjusters to the area who were either males or females over the childbearing age. The reason for this decision is that the best literature of the day suggested that mothers exposed to dangerous chemicals that were produced at his insureds’ plants experienced a higher-than-usual incidence of spontaneous abortions, birth defects, and neurological disorders in the children they bore. The studies he had seen focused on women, he had not seen any studies on the chemicals’ effects on men or the children they subsequently fathered. After publishing the plan and soliciting volunteers to go into the area, a bright, young female adjuster, Susan, applied for one of the positions. There was only one problem, she was married and in her early 30’s.

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Matthew interviewed Susan and as diplomatically as possible, tried to get information from her without seeming to pry. IN the course of the conversation he learned that she did, in fact, plan to have children and was adamant in her demand to be assigned to the Katrina claims. It would give her much needed experience to further her career and she was prepared to take legal action, if refused.

What is the dilemma for Matthew? What VALUES are involved? honesty v. loyalty justice v. mercy (for who…agent or insured!) individual v. community short-term v. long term What do you do …what is your solution?

Ends Based

Rule Based Care Based

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VIII. Identifying good ethical behavior What is ethical about …. 1) making promises you can keep 2) Do what you say … or admit when it can’t be done 3) Being honest with: insured company 4) Disclosing bad news in a timely manner 5) Admit when NOT know the answer

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Potential reasons for "unethical behavior" Personal needs first - self -interest Short-term benefits at expense of long term goals Fear of punishment ... Self-protection. Employer requires unethical behavior Everyone else does it ...ethical behavior could be embarrassing Poor training in job Misunderstanding in management goals

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Ethics can be a usual business Practice … Others (business partners/clients) will: Trust Communicate more openly Greater customer loyalty Creating more sales and higher profits! Employees who are customer focused and ethical make decisions that are: customer focused legal fair to insurance company