Ethical Guidelines for Property/Casualty Insurance Professionals

April 18, 2012Articles

As seen in the Cincinnati Chapter CPCU Society April 2012 Chaptergram.

The property/casualty insurance industry is filled with highly ethical people trying to do the right thing in their business dealings. Despite this, many in the public have the perception that the property/casualty insurance sector is less ethical than other areas of business. To help address this misperception and to support ethical behavior throughout the industry, The Institutes (the American Institute for CPCU and the Insurance Institute of America) issued in 2010 a set of ethical guidelines intended for all insurance professionals. The Ethical Guidelines for Insurance Professionals (the “Guidelines”) are based on the CPCU Code of Professional Conduct (the “CPCU Code”). However, unlike the CPCU Code, the Guidelines do not have specific rules or enforcement procedures. Rather, they consist of just seven canons providing general guidance on ethical conduct and professionalism. The Institutes’ hope in promulgating the Guidelines is that insurance professionals who are not CPCUs, and therefore not bound to follow the CPCU Code, will voluntarily follow the Guidelines and act ethically in their daily business activities.

The Guidelines’ Specific Canons

Canon 1: Insurance professionals should endeavor to place the public interest above their own.

The Guidelines’ first canon expresses the aspirational goal that all insurance professionals will be altruistic in their business dealings, maintaining a paramount commitment to the needs of others. This goal, which underlies all of the other canons, applies even to insurance professionals who do not deal directly with the public. But having a goal of putting the interests of others above one’s own is something that is not always easily accomplished. Human nature being what it is and the pressures and difficult choices faced by insurance professionals can cause an individual to subordinate a client’s interests in favor of the professional’s own financial gain. For instance, an insurance agent may fail to recommend the most suitable product to a client if another less suitable product would pay the agent a higher commission. Also, if an insurance company rewards employees based on certain measured outcomes, it is only natural that an employee may be tempted to manipulate the situation to achieve the outcome sought by the company even if not in the best interest of an individual customer or the public as a whole. Such a situation would create an ethical conflict. Companies, therefore, must be vigilant that their reward structures do not encourage unethical conduct. Of course, whether or not an insurance professional chooses to act unethically is, in the end, an individual choice.

Canon 2: Insurance professionals should seek continually to maintain and improve their professional knowledge, skills and competence.

The Guidelines’ second canon entails a continuing education commitment for insurance professionals. The idea is for insurance professionals to not just obtain a professional qualification such as the CPCU designation, but also to continually work to be up-to-date on pertinent insurance topics. In other words, all insurance professionals should try to maintain their professional knowledge and skill through continued training and learning. Possessing up-to-date knowledge and skills will not guarantee that an insurance professional will always act ethically. Knowledge and skill, however, are needed for the high levels of competence and performance expected of all professionals, and the maintenance of knowledge and skills requires a commitment to continuing education. To the extent that an individual purports to be an insurance professional and has not kept informed on technical matters that are essential to the maintenance of the individual’s professional competence, such an individual engages in unethical conduct in the nature of misrepresentation of the individual’s status as a professional.

Canon 3: Insurance professionals should obey all laws and regulations, and should avoid any conduct or activity that would cause unjust harm to others.

There are two parts to the Guidelines’ third canon. The first part provides that an insurance professional should know, understand and comply with the laws and regulations which govern the professional's insurance activities. As with other businesses, the insurance industry is subject to laws intended to protect consumers from unethical and illegal practices. Given the requirements of Canon 2, ignorance of an applicable law or regulation is no excuse for failing to follow the law or regulation. Accordingly, if an insurance professional is in doubt as to the legality of a particular kind of conduct or activity, they should refrain from engaging in such conduct or activity.

Some people equate ethical behavior with legal behavior, ignoring the fact that even though an action may be legal, it still may be unethical. In contending that the only requirement is to obey the letter of law, one overlooks the spirit of the law. Insurance industry professionals should always act in compliance with both the content and the spirit of applicable laws and regulations. Seeking ways to avoid the impact of a law or regulation, for instance, would indicate that an insurance professional was not intent on complying with the spirit of the law or regulation, which could be legal but unethical.

The second part of the Guidelines’ third canon provides that an insurance professional should avoid any conduct or activity that would cause unjust harm to others. This means that an insurance professional should not perform professional services under terms, conditions or circumstances which would prevent or inherently impair the free and complete exercise of the professional's sound judgment and skill. Moreover, honest and fair dealings are particularly important in the insurance context. Generally, insurance professionals are in a position of strength vis-à-vis members of the public who are usually quite ignorant about insurance matters. In such a situation, it would be simple for unethical abuse to occur. An insurance professional should not deliberately achieve or seek to achieve, at, the expense of the uninformed, financial gains for the professional, or the member's employer, which are unconscionable relative to the services actually rendered by the professional. Before rendering any professional service, an insurance professional also has an ethical duty to disclose, to a prospective client, any actual or potential conflict of interest that is likely to impair the professional's objectivity as an advisor or provider of professional services to the prospective client in question.

Canon 4: Insurance professionals should be diligent in the performance of their occupational duties and should continually strive to improve the functioning of the insurance mechanism.

Like with Canon 3, the Guidelines’ fourth canon also has two parts. First, it provides that insurance professionals should proficiently carry out their occupational duties. Fundamentally, insurance is a service business. Insurance industry professionals, therefore, should exercise due care and diligence in servicing customers. They should be careful and precise in everything they say and do, keeping errors to a minimum. Insurance professionals also should make an effort to clearly identify the needs of their customers and to provide understandable and complete disclosure of information needed for decision-making. Of course, an insurance professionals’ duty of diligent performance is not limited to their service of customer needs. Every insurance professional also should be diligent in the performance of the occupational duties and responsibilities they have for their employers, so long as performance of those duties and responsibilities are consistent with what is in the public's best interests.

In addition to providing that insurance professionals should proficiently carry out their occupational duties, the Guidelines’ fourth canon also charges insurance professionals with striving to improve the efficiency of insurance industry functions and operations. In other words, insurance professionals should support efforts to improve all facets of insurance operations, including such things as underwriting, claims settlement, policy development, investment, marketing, pricing, reinsurance, and loss prevention. It is, however, possible to produce improvements in insurer efficiency in a way that is contrary to the public interest. Consequently, to be in accord with Canon 1, any improvement in the overall efficiency with which the insurance mechanism functions also must inure to the benefit of the public.

Canon 5: Insurance professionals should aspire to raise the professional and ethical standards in the insurance business.

The Guidelines’ fifth canon calls on insurance professionals to strive to elevate the professional and ethical standards in the industry. As a starting point, every insurance professional should conduct his or her own business activities in a competent and ethical fashion as will inspire other insurance practitioners to do the same. Further to leading by example, insurance professionals should support and participate in educational activities which will help other insurance practitioners develop professionally. Examples of the types of educational activities insurance professionals should support and participate in include seminars, lectures, research projects, preparation of educational materials for training programs, and writing of professional articles for publications. In addition, insurance professionals should share freely with colleagues the benefits of their professional experience. The public interest is best served when all insurance professionals are well trained and informed. Insurance professionals also should support the development of policies and practices within their own companies and the industry as a whole which will foster competence and ethical conduct on the part of all insurance practitioners.

Canon 6: Insurance professionals should strive to establish and maintain dignified and honorable relationships with those whom they serve, with fellow insurance practitioners and with members of other professions.

The Guidelines’ sixth canon promotes the development of dignified and honorable relationships between insurance professionals and those with whom they interact both inside and outside of the insurance industry. Ultimately, the best way for an insurance professional to establish and maintain honorable relationships with others is to earn their confidence and respect, by demonstrating high levels of professional competence and ethical conduct. There are many ways for an insurance professional to demonstrate professional competence and ethical conduct. For instance, an insurance professional should never knowingly misrepresent or conceal any material constraint on the professional's ability to provide (in the sense of knowledge, experience, skill and other professional qualifications) the service that will effectively meet the insurance needs of the individual or organization the professional is serving. Likewise, an insurance professional also should generally exercise caution and sound judgment in dealing with any confidential or privileged information obtained in the course of his or her business activities.

In delivering high quality insurance services to the public, the insurance industry relies heavily on the expertise and cooperation of fellow insurance practitioners and members of other professions such as lawyers, doctors, and accountants. Consequently, in addition to striving to establish and maintain dignified and honorable relationships with those whom they serve, the Guidelines’ sixth canon provides that insurance professionals should strive to create and sustain such relationships with fellow insurance practitioners and members of other professions.

Canon 7: Insurance professionals should assist in improving the public understanding of insurance and risk management.

The Guidelines’ seventh and final canon encourages insurance professionals to assist in improving the public understanding of insurance and risk management. Improving the public understanding of insurance and risk management is important because it would be extremely beneficial to society if the public was able to recognize its overall risk management needs and the advantages and limitations of meeting those needs with insurance. But fully meeting the public’s insurance needs can only happen if every citizen is familiar with his or her insurance needs and understands the importance of seeking competent and ethical assistance from an insurance professional in analyzing and meeting these needs. The attainment of this goal, therefore, would require the combined efforts of all knowledgeable insurance professionals. Accordingly, every insurance professional should assist in improving the public understands of insurance and risk management, even if the professional’s business activities do not provide frequent opportunities to communicate directly with the public.

The first step in contributing to a better public understanding of insurance and risk management is for every insurance professional to work to maintain and improve his or her knowledge and communication skills. In addition, insurance professionals should keep abreast of legislation, changing economic conditions and other developments which may affect insurance strategies or services. Armed with up-to-date knowledge and developed communication skills, insurance professionals should help in keeping the public properly informed of insurance and risk management developments. In all communications with the public, an insurance professional’s approach should be to educate by providing objective and factual information.

Improving the public understanding of insurance and risk management will not only benefit the public, but it also will benefit the insurance industry. The better the public understands insurance and risk management, the better the public will feel about the insurance industry.

Postscript

Insurance is built on trust, so ethical behavior goes to the core of the business of insurance. Unethical behavior by an insurance professional, whether a fact or only a perception, can be very damaging to the professional personally, the professional’s employer, and the insurance industry as a whole. Ethical behavior simply cannot be divorced from individual, corporate, or insurance industry success. Thus, in the long run, the insurance industry cannot successfully operate without its professionals maintaining ethical standards such as those set forth in The Institutes’ Ethical Guidelines for Insurance Professionals. In sum, ethical conduct is not only good for the public, but it is necessary for the insurance industry.