Relationship between ethics and the law in insurance sector

Insurance, Ethics and Corporate Social Responsibility | Scandinavian Insurance Quarterly

relationship between ethics and the law in insurance sector

A first way of developing the field of insurance ethics is to look at the in the intricate “chicken and egg” relationship between liability insurance and tort law. BUSINESS ETHICS DEBATED AND DEFINED .. 3 .. NATIONAL ASSOCIATION OF LIFE AND FINANCIAL UNDERWRITERS . State regulations governing the insurance industry are intended mainly to protect the. Discuss whether the underlying business model of the insurance industry is an The first such association of traders and shippers began at Samuel Lloyd's For that reason, the National Flood Insurance Act of established a way to.

It's a positive change. Now that we've listed weaknesses in relying on a static personal ethic, let's look at weaknesses on relying on law alone: Law may be too narrow to apply to all ethical questions.

To reach a legal decision, all significant terms must be defined. Then, the case is argued based on whether the conduct causing the legal question can be upheld to be right or condemned as wrong based on the law's application to the conduct as strictly defined.

Real life situations may be amorphous and not easily defined, making it difficult to apply the law directly. Law may not reflect current conditions. Every law in place today was enacted yesterday, or before. New technologies, new workforce realities, new products and so on may not have been considered when the law on the books was written. There may be applicable principals behind the existing law that apply to today's circumstances, but only a judgment from a court of law may be able to ferret out just what is that application.

Knowledge of law alone stymies response adaptability and flexibility. We may memorize who has "insurable interest" under the laws of our state, but this does not equip us to understand how much coverage a business or family needs, which product is most suitable or the best way to structure a policy to help meet financial needs over time.

Law informs, but does not alone rule the creativity and experience needed to design effective insurance plans for clients. Too much focus on law may paralyze and limit choice. Liability law can hamstring us if we allow it to. It's scary to think about the many risk exposures we take on every time we sell a product or have a meeting with a client. If we concentrate too much on risks and consequences of potential lawsuits, we'll end up dropping out of the business altogether. The proper place of law is to inform and warn us against wrongdoing.

Knowing we may be subject to lawsuit if we do not keep copies of disclosures or carefully communicate product features spurs us on to more careful business practices.

But, if fear of lawsuit is all we concentrate on, we'll spend all our time documenting, rather than meeting with clients, procuring product, and implementing insurance plans. Summary As a licensed professional, it is important for the agent to know that meeting the ethical and legal requirement of each insurance transaction is the most significant way to positively impact the community.

Meeting a high standard of ethical conduct that is approved of by the licensing regulators, the insurance company, and clients is the surest path toward career satisfaction and reward for the agent.

At the conclusion of the chapter, you will understand your duties and obligations to your clients, and what personal and legal consequences come as a result of a breach of responsibility.

You will also understand your obligations to the insurer you represent, and to the agency for which you work. Further, you will be familiar with the role of the NAIC in regulating insurance ethics, with the state laws governing insurance, and with a lengthy list of unfair trade practices as defined by law.

In some states, the insurance agent is also considered to have fiduciary duties to the client. Other states do not automatically bestow this status on the agent in his or her relationship to the client. However, a court of law may find the agent has a fiduciary status if the agent has established a "special relationship" with the client.

All states hold the view that an agent has a fiduciary responsibility to the client when handling the money and property of a client on behalf of the client. Even when an agent does not have the status of fiduciary in the eyes of the law, the agent always has duties to the client in an insurance transaction.

If the agent does not fulfill these duties, the agent may be in violation of both ethical standards and the law. The agent is the intermediary between the company he or she represents and the client.

relationship between ethics and the law in insurance sector

Anyone in the market for insurance has some idea of what insurance companies do, although the idea may not be totally accurate. We all pick up all sorts of casual information, from scanning a magazine and half-reading an advertisement while waiting in a dentist's office to half-listening to someone talk about a topic on television, to stories we hear from relatives and friends.

Our ideas are in part formed from an emotional response to an event; a person whose medical bills were fully paid by an insurer after an accident will have a different view of health insurance than a person whose claims were investigated and either denied or paid with a reduced benefit.

Improving Ethics in the Insurance Industry

So, one of the first items a client should be educated on by an insurance agent is the particular company's record for financial stability and attention to valid claims. A brief brochure that can be left with the client serves the purpose well; also, an agent can introduce information about the company into the conversation, thus establishing a basis for trust.

For example, an agent discussing a homeowner's policy might say, "Blank company is a leader in the field.

relationship between ethics and the law in insurance sector

And they appreciate someone who sets up a climate of trust in which they can ask questions about what they don't understand. That is another reason an insurance agent must understand the nature of his or her responsibility to clients.

relationship between ethics and the law in insurance sector

Insurance is about money, about value, about worth. Scordis took the concept of prudence out of the academic world of ethics and applied it, through examples and analysis, to identify five characteristics of prudent risk modeling.

A prudent risk modeller, he argued, recognizes that people behave according to the particular ways in which economic incentives affect them, which means that identical assets, in terms of cash flow, may in fact have different values—depending on who holds them. A prudent risk modeller recognizes that all existing measures do a poor job in capturing interactions among risks, a critical component of risk models. A prudent risk modeller uses risk metrics that resonate with the way people think and feel about risk.

A prudent risk modeller allows the questions posed by management to determine the scope of the model so that the model becomes a tool for helping managers understand uncertainty. Finally, a prudent risk modeller makes clear the consequences of decisions when the results of the model deviate from reality. Thus Scordis offers an important set of ethical guidelines for risk modeling in an uncertain era. In addition to actuaries, lawyers represent a second key profession in the insurance world.

Without liability insurance, tort law in that area would be something completely different. Lahnstein encouraged liability insurers to rethink and be more aware of their own role and responsibility in actively shaping tort law. For example, Lahnstein argued that insurance could likewise play a role in the development of tort law in emerging markets like Russia, China, India and Brazil, and that this was a benefit and should be encouraged.

We could then ask if what the specific ethical responsibilities of insurers and other parties should be in relation to such risk pools. As mentioned in the introduction, sharing responsibility for wise handling of risky technologies for instance, or poverty or sustainable development or crime prevention could be examples where wise and proactive insurance thinking could make a difference. A second group of papers can be read as illustrations of such an approach. Alexandros-Andreas Kyrtsis, from the University of Athens, discussed the roles and responsibilities of insurers in relation to large scale technological projects, using the explosion of the Deepwater Horizon oil drilling platform in the Gulf of Mexico.

He argued that the accident in Apriland resulting massive oil spill, was not due to any natural phenomena, but to unsound technological decisions and ethically questionable managerial practices.

Politicians and state authorities had apparently failed to prevent such misconduct. But what about the insurance industry, who also had to suffer significant losses from these disasters? Kyrtsis argued that the lesson we can learn from the Deepwater Horizon explosion is that, although both insurers and involved businesses realized the risks to which they were exposed, they did not proceed to appropriate measures.

This should be a cautionary reminder. However, there is no reason for despair. It seems that many people in risky industries, and in the insurance industry, realize that sticking to old practices of just calculating the probability of damage, and thus just reckoning the amount of money they would have to pay for repairing it, is neither good for them, nor for society or the environment.

Harm can never be totally washed away with money. This is why experts increasingly adopt the view that both authorities and insurers should be preoccupied with bringing people in organizations to their senses by making them realize the ethical responsibility they bear when they make technical and managerial decisions. Especially insurers should connect their policies with looking more closely at the internal ethics of organizations, and thus monitor the conduct of managers and engineers long before something nasty happens.

Ethics in the Insurance Industry

His argument was that insurance can be an institutional driver towards ethics of sound technological and operational risk management. Unethical behavior in sensitive operational settings originates from a lack of sufficient esteem for staff responsible for procedural efficiency.

Insurance policies for such massive and risky projects should entail screening and monitoring of likely sources of such difficulties. Conditions are ripe for such innovations in the insurance industry. Kyrtsis suggested that the stories we get from the insurers and managers, who had to reflect on the cause of disasters, show that there is enough awareness for this necessity.

It remains to make them talk openly about their concerns and transform their thoughts into appropriate business practices.

Ralf Radermacher from the Micro-insurance Academy in New Delhi and Johannes Brinkmann from the BI Norwegian School of Management used the interesting topic of microinsurance as a context to address ethical questions regarding insurance. The societal responsibility of insurance becomes easier to explain and understand in smaller, simpler, less developed communities. Various medical procedures are considered cosmetic or unnecessary depending on where you live, so how do you know your insurance provider will cover a specific operation or procedure?

Insurance, Ethics and Corporate Social Responsibility

Likewise, nobody likes finding out their company is using their money for intentions that go against personal belief. Many companies use under-writers, secondary companies and other means to spend money, create the illusion of competition or simply serve their own interests.

Regulations Can better regulations help enforce ethical standards? Escrow, however, is a prime example of something that works and is ethically sound. Their role is to simply determine if the cost is covered under the policy. The future While many insurance companies are starting to drift with the current flow towards ethical consciousness, there is still a long way to go and a lot of room for improvement.

Increased awareness toward ethical practices must take firm roots in the industry, and only then will insurance companies be fully viewed in ethical lights. He is devoted to representing individuals who suffered injury or death caused by the negligence or wrongful conducts of others. He also finds time to motivate and inspire through his writings. TriplePundit has published articles from over contributors.