The Essence of Insurance is Ethical Behavior
[The following was adapted from my new book available at Amazon.com as a Kindle book and as a paperback. Details about it and other books by Barry Zalma are available at http://zalma.com/zalma-books/]
What Is Ethics?
Ethics refers to well-founded standards of right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific virtues.
Ethics, for example, refers to those standards that impose the reasonable obligations to refrain from murder, rape, theft, assault, slander, and fraud. Ethical standards also include those that imply virtues of honesty, compassion, and loyalty.
Ethical standards include standards relating to rights, such as the right to life, the right to freedom from injury, and the right to privacy. Such standards are adequate standards of ethics because they are supported by consistent and well-founded reasons.
Ethics also refers to the study and development of one’s standards of conduct. Feelings, laws, and social norms can deviate from what is ethical. It is necessary, especially to people involved in the business of insurance, to constantly examine one’s standards to ensure that they are reasonable and well-founded conduct that ethically treats an insured with the utmost good faith.
Ethics also requires the continuous effort of studying our own moral beliefs and our moral conduct, and striving to ensure that we, and the institutions we help to shape, live up to standards that are reasonable and solidly-based. To those in the business of insurance – compelled to deal fairly and in good faith in all transactions – developing a moral code of conduct that strives to ensure that every person involved in the business of insurance to will shape and live up to standards that are solidly based in the good faith handling of insurance transactions and insurance claims.
There is no single answer to the question of what ethics is. There are multiple concepts defining ethical behavior. Philosophers have struggled with the concept of ethics for more than three eons. No one agrees on which to use. Some apply various concepts depending on the situation. Those in the business of insurance must avoid situational ethics. It should not, and will not, apply in the insurance business whose only ethical mandate should be the covenant of good faith and fair dealing.
What Concept of Ethics Best Fits the Insurer?
Regardless of the concept of ethics that is applied, it must fulfill the following requirements to satisfy the business of insurance.
- The underwriting and claims decisions made must be fair, competent and accurate.
- The analyses must be completed in good faith.
- The analyses must include everything available to the insurer and the insurance professional and their fields of expertise.
- The report prepared by the insurance professional must be competent, accurate and provide an honest rendition of a professional opinion.
The insurance professional should be willing to follow a code of ethics that requires he or she act with integrity and, with regard to relations with insureds or claimants, with the utmost good faith. The insurance professional should be straightforward and honest in all professional and business relationships. The insurance professional should be objective and not allow bias, conflict of interest or undue influence of others to override professional or business judgments or the need to deal fairly and in good faith in all insurance transactions.
The ethical insurance professional should not allow bias, conflict of interest or undue influence of others to override his or her professional or business judgments.
The ethical insurance professional should express professional competence by understanding how to interpret the wording of an insurance policy and apply the wording of the policy to the facts developed by a thorough and good faith investigation. He or she should always use due care and act diligently and in accordance with applicable technical and professional standards to provide a resolution to the insured with absolute good faith and fair dealing.
The ethical insurance professional always respects the confidentiality of information acquired as a result of professional and business relationships except the information that is provided by the insured or potential insured to convince the insurer to issue a policy or to convince the insurer to pay the claim presented fairly and in good faith. To do so the insurance professional must understand and be ready to comply with relevant insurance law and insurance regulations, including the fair claims settlement practices regulations enacted to allow insurance departments to enforce the fair claims settlement practices acts.
A person cannot be an ethical insurance professional that discredits the profession or the business of insurance.
The insurance professional must avoid threats that the business of insurance creates to require an insurance professional to act ethically.
Self-interest threats arise as a result of the financial interests of the insured and the insurer. These include threats that arise when a previous judgment on a specific insurance coverage, insurance claims or insurance underwriting issue needs to be re-evaluated by the insurance professional.
The insurance professional must avoid advocacy to the point that objectivity may be compromised. When the insurance professional, because of familiarity, becomes too sympathetic to the interests of the insurer the professional serves or too sympathetic to the insurer that the covenant of good faith and fair dealing is not met, the insured is not served well and will be harmed.
Intimidation may occur when the insurance professional is deterred from acting objectively by threats, actual or perceived. In my 50-year career I have had my life threatened, have been encouraged to pay a claim by threat of an explosion at my office, and even a threat on my life in open court. All of the threats, if acted upon, would have destroyed my ethical compass. Fortunately, I am still here because the threats were not carried out, or even attempted, although I did not succumb to the threats.
An ethical insurance professional cannot stray from the covenant of good faith and fair dealing because of a threat of physical of financial injury. It is imperative that every insurance professional acts ethically. If a threat is made the ethical insurance professional will report the threat to the appropriate authorities and will not move the professional’s ethical compass because of a threat.
An insurance professional should not be associated with reports, returns, communications or other information where he or she believes that the information contains a materially false or misleading statement; contains statements or information furnished recklessly; or omits or obscures information required to be included where such omission or obscurity would be misleading. It is part of the ethical requirements imposed on a professional insurance claims person to investigate every claim thoroughly. The claims professional, if false information, lies, misrepresentations or concealment of material fact as they apply to the wording of the policy are discovered, they will be reported to management. If such information is discovered the ethical insurance professional will protect the insurer from an unethical insured.
The ethical insurance claims professional will never compromise his or her professional or business judgment because of bias, conflict of interest or the undue influence of others and will resolve all insurance issues objectively.
The insurance professional must refrain from disclosing outside the firm confidential information acquired as a result the duties as an insurance professional. Using confidential information to the insurance professional’s personal advantage or to the advantage of the insurer contrary to the promises made by the insurance policy and required by the covenant of good faith and fair dealing must be recognizes as immoral and unethical conduct.
Working to be certain the insurance professional and staff working with the insurance professional must be required to respect the duty of confidentiality and to keep the information within the firm. The insurance professional always recognizes that the duty continues even after the end of a relationship.
The insurance professional must also understand that disclosure can be appropriate when permitted by law, required by statute, authorized by the insurer, or necessary to protect the insurer or its insured from an attempted fraud.
Documents must be produced in the course of legal proceedings when required by discovery statutes or disclosure to the appropriate public authorities of infringements of the law that come to knowledge of the insurance professional.
Disclosure of a confidence obtained in the decision-making process required to obtain insurance or in the presentation of a claim can be appropriate when there is a professional duty or right to disclose that is not prohibited by law. The insurance professional must consider, when confidences must be released, the ethical insurance professional must consider the potential of harm, whether all the relevant information is known and substantiated to the extent it is practicable and must disclose the confidence if failure to do so would breach the covenant of good faith and fair dealing.
Methods for Insurers and their Personnel to Act with the Utmost Good Faith