Ethics in Insurance Sector

Ethics in Insurance Sector

1: Overview on Business Ethics

Business ethics is a form of applied ethics that examines ethical

principles and moral or ethical problems that arise in a business

environment. It applies to all aspects of business conduct and is relevant to

the conduct of individuals and business organizations as a whole. Applied

ethics is a field of ethics that deals with ethical questions in many fields such

as medical, technical, legal and business ethics.

In the increasingly conscience-focused marketplaces of the 21st

century, the demand for more ethical business processes and actions (known

as ethicism) is increasing. Simultaneously, pressure is applied on industry to

improve business ethics through new public initiatives and laws (e.g. higher

UK road tax for higher-emission vehicles). Businesses can often attain short-

term gains by acting in an unethical fashion; however, such behaviours tend

to undermine the economy over time.

Business ethics can be both a normative and a descriptive discipline.

As a corporate practice and a career specialization, the field is primarily

normative. In academia descriptive approaches are also taken. The range and

quantity of business ethical issues reflects the degree to which business is

perceived to be at odds with non-economic social values. Historically,

interest in business ethics accelerated dramatically during the 1980s and

1990s, both within major corporations and within academia. For example,

today most major corporate websites lay emphasis on commitment to

promoting non-economic social values under a variety of headings (e.g.

ethics codes, social responsibility charters). In some cases, corporations have

redefined their core values in the light of business ethical considerations

(e.g. BP's "beyond petroleum" environmental tilt).

Meaning of Ethics:-

Ethics in Latin Language is called “Ethicus” and in Greek, it is called

“Ethicos”. In fact, this word has originated from “ethos’ meaning character

or manners.

Ethics is thus said to be the source of morals; a treatise on this; moral

principles; recognized rules of conduct.

The character of a man is expressed in terms of his conduct

(ref: Diagram 1)

Ethics thus can be considered as the source of character of a person

expressed as right or wrong conduct or action.

Introduction to Business Ethics:-

Ethics is a social science that deals with what is good and right, and

with moral duties and obligations. Ethics is a science of morality that guides

and helps to achieve objectives through legal and moral means. Business

ethics regulates the activities of business firms towards society and other on

social, legal and moral values.

Code of Conduct for Business Practices :-

Charter ofa Man

Conduct of a

Person

Series of Actions

Good or Bad, Right or

Wrong, Moral or Immoral

Moral Standards

Decided by

Leads toTaken

together

Considered as

Known as Moral

Judgment

RequirementsBy which we

can judge again

Meaning of Ethics

In order to adopt fair business practices, trade associations, chambers

of commerce, Council for Fair Business Practices, and others have framed

code of conduct for businessmen. The code of conduct is to be followed by

the members of the association. The code of conduct states what is to be

done and what should not be done by businessmen.

A code of conduct is framed by Council for Fair Business Practices (CFBP)

for its members. The following are the highlights of code of conduct of

CFBP:

1. To charge fair and reasonable prices.

2. To ensure accuracy in weights and measures.

3. To ensure that intermediaries do not manipulate the prices.

4. To fulfill social responsibility towards various sections of the public

such as employees, customers, shareholders, government, suppliers,

competitors, dealings, and the general public.

5. To pay attention to consumer rights.

6. To provide product warranty in clear terms

7. Not to engage in hoarding and profiteering.

8. Not to adulterate the goods.

9. Not to trade in sub- standard products, and also smuggled products.

10.Not to undertake misleading and deceptive advertisements.

The members of the CFBP are expected to follow the code of conduct.

The code is framed in the interest of business community and in the

interest of the society. Adoption of the code of conduct would enhance

the image of the business firms in the society. An award has been

instituted by CFBP to encourage members to adopt fair business

practices. The award is given to the organization, which adopts high level

of ethical practices.

Why Study Business Ethics?

1) Business executives and budding managers study the various ethical

theory, ethical principles and ethics judgements. Students understand the

nature of ethical problems critically analyse it. Use conceptual tools and

also leads the students to respecting opposite views and reflecting upon

them.

2) It will help build and groom a value based organization. Ethical

behaviour is important for business leaders as they influence the ethical

climate for everyone else. In a value based organization there is a high

degree of trust and integrity and it empowers all the stakeholders.

3) It creates awareness about their social responsibility. A business has to

share pat of its prosperity with the community, by offering amenities and

services not otherwise available to the needy of the community.

4) Making them better individuals study of ethics, practice of virtuous acts,

resolving dilemmas at the work place will go a long way in their spiritual

development. Such managers will not be slaves of material possessions,

they would not amass wealth out of selfish motive but as a trustee of the

community to which they belong. Such managers, who practice business

ethics would be led by divine thought within and through their relentless

ethical conduct, lead a life of dharma and realize godliness.

Thus, as mentioned earlier, ethical conduct would be a self- realised

conduct which would give a new vision “drishti” of “aham bramhasmi” –

“I am bramham”

2: Measures to Improve Ethical standards in Business

Majority of the businessmen follow ethical values and principles in

conducting business and dealing with various social groups. However,

efforts made to popularize and spread the message of doing business

ethically because it benefits everyone. Considering the importance, actions

Should be taken at the organizational, government and society’s level to

spread the message and improve the working of business ethically. A brief

explanation about such measures is given below:

1) Measures at the Business/ Organizational Level :-

a) Adoption of code of conduct for dealing with employees,

consumers, shareholders and other social groups

b) To hire the services of expert in business ethics and arrange for his

lectures.

c) To make social audit compulsory to identify the ethical and

unethical conduct of business.

d) To arrange training programmes on ethical standards for executives

and employees.

e) To introduce open and free communication system and bring total

transparency is business working.

f) To penalize those employees who willfully violate rules of ethical

standards.

2) Measures at the Government Level:-

a) Government policies, procedure and working should be simplified.

b) Excessive or unwanted controls over business working be lifted or

reduced.

c) Strict enforcement of laws relating to protection of interest of

shareholders, consumers, employees and other social groups.

d) There should be political discipline and corrupt politicians must be

punished seriously.

e) The working of Lok- Adalat should be popularized.

f) Quick dispersal of legal cases relating to unethical business

practices.

3) At the Social Level:-

a) Social boycott on the products made by companies involved in

unethical business.

b) Trade Associations and chambers of commerce to prescribe code of

conduct to its members and they must be made to observe it strictly.

c) Social organisations like Consumers Guidance Society of India, and

Council for Fair Business Practices should play active role in spreading

the message of ethical values in business.

Advantages:-

1) It builds a value based organization: Ethical behaviour is important

for business leaders as they imbibe high degree of trust, integrate and

motivate and empower all the stakeholders thereby building a strong

organization which can compete in a globalised economy. For e.g.:

Tata Group of company has a very good reputation of business ethics.

2) It creates awareness about the corporates social responsibility of

business: A business is a part of the society and it shares its

prosperity by offering various facilities and services to its immediate

community. It also funds important projects which are for welfare of

the community. For eg: - building garden, hospitals, schools.

3) Business ethics is a practice: Managers has to study the theory of

business ethics and practice it in their professional life as they

understand the nature of ethical dilemma and analyzing it they are

better equipped to practice business ethics.

4) Practising ethics at work place: It makes the individual associated

with the organisation aware about their divine nature and brings peace

and harmony to all of them.

3: Role and Importance of Business Ethics and Corporate Governance

Role:-

Governments around the world are now well aware of the need for

trust in capital markets. The United States learned the hard way how fragile

trust can be and responded with the Sarbanes-Oxley Act which, among other

things, requires serious financial management of US listed companies to

have ethical codes and for management and auditors to report on the

effectiveness of internal controls over financial reporting. This has resulted

in wholesale review and documentation of policies and procedures.

Little research has been carried out on ethical practice in companies

and the role accountants play. Partly this is because interest in the subject is

relatively new and partly because ethics is one of those soft areas where it is

hard to make objective judgment. One important piece of research was

published by the Institute of Business Ethics in the UK. This found that there

was a strong correlation between companies which have established ethical

codes and a number of measures of corporate financial performance,

suggesting strongly that good ethics is the right thing to do not just because

it is the right thing to do: it also makes for successful business.

Good ethics are vital to good corporate governance. Company boards

too are now becoming much more aware of the need to have the right ethical

culture. The culture of an organization is probably the most important aspect

of system of internal control, and it is the foundation for other internal

controls. Management may set out the policies and procedures which it

wants followed, but it is the corporate culture which determines when they

are followed, amended or ignored.

The accounting profession globally has taken steps enhance the

importance of ethical behavior and decision making. The International

Federation of Accountants (IFAC) has launched a revised code of ethics

based on a set I fundamental principles to be adopted by individual

accountancy bodies. ACCA has already revised its own code of ethics for its

members, to be consistent with the IFAC standard. These codes are about

accountants' professional ethics.

Business ethics is a different, but related, matter Accountants in

business, particularly at board or at top management level, are often

regarded as the keepers of the ethical conscience of their organizations. As

well as following their own professional codes of ethics, accountants set an

ethical example to others.

Theoretically, the US SEC rules which give effect to Sarbanes-Oxley

require companies and their auditors to assess the ethical environment. There

is however no generally-accepted approach to doing this and it is not just

about documentation. Not surprisingly, this important subject tends to be

given less attention than it deserves by companies and their auditors.

Interestingly, over half the respondents to this survey say they have

processes in place for assessing adherence to their company's code of ethics.

This is a higher percentage than we would have expected and it would be

interesting to research further and learn more about what companies are

doing.

The challenge of living up to one's ethical values is evident from the

survey findings. For nearly 40%, company culture is a cause for concern.

Boards set the values and standards for their organizations and we believe

that in future boards will insist on knowing how well their companies are

living up to these. This goes beyond simply complying with rules: the

reputation and the future of the company and individual board members are

at stake.

Importance:-

1) Standard of behavior: When we talk about business ethics,

usually we're ·speaking about standards of behavior in the workplace

as well as with customers and partners. Companies known for ethical

standards usually have an ethical code stating that they treat everyone

with dignity, don't present misleading information, and scrupulously

follow rules and regulations.

2) True North Principles to lead a Business: Having a moral

compass leads to more effective business practices - whether in

building sales, retaining employees, or reducing litigation and

regulation costs. For example, people are usually willing to pay

premium prices to feel good about the products they buy. Also,

companies that follow certain moral codes attract better people - and

these people often are willing to work harder with less compensation.

It goes without saying that ethical companies are less likely to

undergo the costly scrutiny of courts and regulators.

3) Short Term Gain and Long Term Pain V /s Short Term

Pain and Long Term Gain : People normally like to take a

short cut to success not realizing that short term gains lead to long

term pain. Also it's important to understand that people don't engage

in unethical behavior when the incentives are small. They tend to

engage in unethical behavior when the incentives are large. Keep in

mind also that unethical behavior usually breeds more unethical

behavior - because hiding that first misdeed usually requires more

misdeeds - and for some businesses, like Enron, this can lead down a

path ill destruction.

4) Value Based Leadership creates Ethical Practices: Most

of the time people in positions of power tend to become more

egocentric and self-focused. This limits their capacity to understand

the viewpoints of other people, which may provide needed insight.

However, an ethical company that values the contributions of its

employees is more likely to be innovative in the marketplace.

5) Moral values of employees: Milton Friedman once stated that

the employees of a firm have the moral obligation to maximize

shareholder value. Deviating from this directive, he believed, is like a

form of taxation without representation, because shareholder money

gets spent in ways that does not maximize returns. This, I think,

needs to be tempered with a stakeholder theory of the firm, which

deals with how employees interact with suppliers, partners,

customers, and their co-workers - and these are all interactions that

should be encapsulated in a company's code of ethics.

6) Strong and Independent Board: Business ethics are critical

for members of company boards, as these people should provide a

great deal of moral leadership. But in some cases, board members

turn a blind eye to developing problems, and this can make bad

situations worse. Still, board members often find it difficult to fulfill

their ethical duties; Board members who are zealous about fulfilling

their duties often get punished by not being selected for boards at

other companies.

7) Role of Regulation in Business Ethics: Legislating some

ethical behavior can help keep the marketplace free of monopolistic

behavior and safeguard stakeholders such as partners, customers, and

investors. What's more, a transaction between two organizations can

affect other parties - and these externalities, as economists call them,

are sometimes best addressed by regulation.

8) Role of Information Technology & Business Ethics: Some

of the biggest issues with ethics and technology can be found in

security and privacy concerns. Ethical companies do their best to

protect company assets without making people feel stifled - and this

balance is increasingly important for innovation and creativity.

5: Unfair or Unethical Business practices

(I) With Respect to Customer:

1) Pricing: Differential pricing for different class of customers

similarly low price identified as low quality. Special pricing

factoring discount are all forms of unfair business practices.

2) Advertisement: Marking false claims using advertisement

to confuse or confuse the customer with exaggerated claims

and colorful copy.

3) Product Promotion: Using sales promotional techniques

like demo pack, free trial buy two get one free offers, etc. are

used to lure the customer in purchasing the products

Similarly in industrial goods giving bribe to get the order.

4) Customer Service: Appointing female executives to get

new business and then sending recovery agents for

outstanding dues is unfair business practice.

5) Price Fixing: Collaborating with other companies and fixing

prices which are on higher side so that customers does not

have any choice.

(II) Unethical business practice of employees:

(a) Job Switching: When an employee changes job, he

must protect the information of his previous

employer. Similarly a huge amount of money is

invested· in training of employee and he leaves the

organization which has trained him and takes his

expertise with him.

(b) Giving Information which is Confidential

(Insider Information): An employee has

confidential information about financial status,

future projects etc. which he should not disclose to

anyone. Investors buy or sell shares of the company

based on this sensitive information.

(c) Industrial Espionage: This is spying for either

personal or companies benefit.

(d) Occupational Crimes: They are wrong actions of

employees like:

a) Using office telephone or PC for personal use.

b) False claims made by sales executive.

c) Theft or pilferage.

d) Damaging the property of the company.

e) Manufacturing, transporting & selling products

that are prohibited by law e.g. liquors and drugs.

6: Ethical Issues

How Ethics Can Make Corporate Governance More Meaningful?

1) Corporate governance is meant to run companies ethically in a

manner such that all stakeholders, creditors, distributors,

customers, employees, the society at large and governments

are dealt in a fair manner.

2) Good corporate governance should look at all stakeholders and

not just shareholders alone. Otherwise, a chemical company,

for example, can maximize the profit of shareholders, but

completely violate all environment laws and make it

impossible for the people around the area to lead a normal life.

Shipbreaking in Valinokkam, near Arantangi in Tamil Nadu,

leather tanneries in South, Arco and hosiery units in Tirupur,

have brought about too much of environmental degradation

that has unleashed untold miseries to people in and around their

locations.

3) Corporate governance is not something which regulators have

impose on a management, it should come from within. There is

no point in making statutory provisions for enforcing ethical

conduct.

4) There is a lot of provisions in the Companies Act, for example,

(a) disclosing the interest of directors in contracts in which they

are interested; (b) abstaining from exercising voting rights in

matters they are interested; and (c) statutory protection to

auditors who are supposed to go into the details of the financial

management of the company and report the same to the

shareholders of the company. But most of these may be

observed in letter, but not in spirit. Members of the board and

top management should ensure that these are followed both in

letter and spirit.

5) There are a number of grey areas where the law is silent or

where regulatory framework is weak, which are manipulated

by unscrupulous persons like Ketan Parikh and Harshad Mehta.

In the US, for instance, the courts recognise that new forms of

fraud may arise, which may not be covered technically under

any existing law and cannot be interpreted as violating any of

the existing laws. For example, a clever conman can try to sell

a piece of the blue sky. In order to check such crooks, there is

the concept of the "blue sky" law. However, such wide-ranging

processes are not available to courts in developing countries.

6) The Securities and Exchange Board of India (SEBI) has

jurisdiction only in cases of limited and listed companies and

are concerned only with their protection. What about the

shareholders and others of other unlisted Limited companies?

7) The Serious Fraud Investigation Office (SIFO) in the

Department of Company Affairs (DCA). has been

investigating several "Vanishing Companies". By 2003, SEBI

has identified 229 as "vanishing companies" which tapped the

capital market, collected more than Rs. 800 crores from the

public and subsequently became untraceable. However,

thousands of investors have lost their hard-earned' money and

no agency has come to their rescue so far.

What is Ethics?

Ethics involves learning what is right or wrong, and then doing the right

thing -- but "the right thing" is not nearly as straightforward as conveyed in a

great deal of business ethics literature.

Many ethicists assert there's always a right thing to do based on moral

principle, and others believe the right thing to do depend on the situation --

ultimately it's up to the individual. Many philosophers consider ethics to be

the "science of conduct."

Seniors explain that ethics includes the fundamental ground rules by which

we live our lives. Philosophers have been discussing ethics for at least 2500

years. Many ethicists consider emerging ethical beliefs to be "state of the

art" legal matters, i.e., what becomes an ethical guideline today is often

translated to a law, regulation or rule tomorrow. Values which guide how we

ought to behave are considered moral values, e.g., values such as respect,

honesty, fairness, responsibility, etc. Discussions around how these values

are applied are sometimes called moral or ethical principles.

Business Ethics is now a Management Discipline:

Business ethics has come to be considered a management discipline,

especially since the birth of the social responsibility movement in the 1960s.

In that decade, social awareness movements raised expectations of

businesses to use their massive financial and social influence to address

social problems such as poverty, crime, environmental protection, equal

rights, public health and improving education. An increasing number of

people asserted that because businesses were making a profit from using our

country's resources, these businesses owed it to our country to work to

improve society. Many researchers, business schools and managers have

recognized this broader constituency, and in their planning and operations

have replaced the word "stockholder" with "stakeholder," meaning to

include employees, customers, suppliers and the wider community.

The emergence of business ethics is similar to other management

disciplines. For example, organizations realized that they needed to manage

a more positive image to the public and so the recent discipline of public

relations was born. Organizations realized they needed to better manage

their human resources and so the recent discipline of human resources was

born. As commerce became more complicated and dynamic, organizations

realized they needed more guidance to ensure their dealings supported the

common good and did not harm others -- and so business ethics was born.

Note that 90% of business schools now provide some form of training in

business ethics. Today, ethics in the workplace can be managed through use

of codes of ethics, codes of conduct, roles of ethicists and ethics committees,

policies and procedures, procedures to resolve ethical dilemmas, ethics

training, etc.

INSURANCE - The indication of reforms

IRDA - central to the insurance reform process - is an autonomous,

regulatory authority endeavoring to protect the interests of policy holders;

and regulate, promote & ensure orderly growth of the insurance industry.

The IRDA has been empowered to carry out several functions, including:

* Promoting and regulating professional organizations connected with

insurance & reinsurance

* Improving the efficiency while conducting the insurance business

* Establishing a code of conduct for players in insurance

* Determining the specification of accounts, and the manner in which

funds are invested

* Laying down prudential norms for investment for both life and general

insurance companies

THE SIX STEP INSURANCE PLANNING PROCESS

Insurance Planning is the process of providing advice and assistance to

clients to determine whether and how clients can meet their financial needs

and life’s goal through proper management of financial resources.

♦ Establishing and defining the client – planner relationship: The

Financial advisor should clearly explain or document the services to be

provided and define the responsibilities. The advisor should explain fully

how he will be paid and by whom. The advisor should also disclose any

restrictions on his ability to give unbiased advice and disclose any conflicts

of interests. The advisor should agree on how long the professional

Relationship should last and how decisions will be made.

♦ Gathering client data, including goals: The Financial advisor should ask

for information about the financial situation. The planner should mutually

define the personal and financial goals, understand the time frame for results

and discuss, if relevant, how one feel’s about risk. The Financial Planner

should gather all the necessary documents before giving the advice.

♦ Analyzing and evaluating the financial status: The Financial advisor

should analyze the information to assess the current situation and determine

what one must do to meet the goals, depending on what services have been

asked. For this one could include analyzing the assets, liabilities and cash

flow, current insurance coverage, investments or tax strategies.

♦ Developing and presenting Financial Planning recommendations

and/or alternatives: The Financial Planner should offer Financial Planning

recommendations that address the goals, based on the information provided.

The planner should go over the recommendations with the client to help and

understand them so that one makes informed decisions. The planner should

also listen to the client’s concerns and revise the recommendations as

appropriate.

♦ Implementing the Financial Planning recommendations: The planner

and the client should agree on how the recommendations will be carried out.

The planner may carry out the recommendations or serve as your ‘coach’,

coordinating the whole process along with professionals such as solicitors or

stockbrokers.

♦ Monitoring the Financial Planning recommendations: The planner

should agree on who will monitor the progress towards the client’s goals. If

the planner is in charge of the process, he/she should report personally to

review the situation and adjust the recommendations, if needed.

Ethics in insurance today (present scenario):

According to insurance stakeholders, the issue of compliance with ethics and

best practices should govern market strategies and operations.

Stakeholders have warned that the sector's efforts at achieving a more robust

financial capacity would be rubbished if steps are not taken to address

unethical practices and the prevalence of fake institutions in the industry.

Insurance operators need to devote more of their energies and resources to

ensuring the emergence of a new order in terms of players' attitude to the

issue of ethics.

Insurance, being a business that is based on trust, could only win the

admiration and patronage of the buying public when there is a widely

acknowledged effort by operators to operate by the rules laid down by trade

bodies and the regulatory authorities.

One would agree that the level of capital companies have had to raise within

the last few years is quite challenging. That is why there must be a collective

resolve by underwriters, brokers, loss adjusters, and agents to ensure that the

additional funds injected into the sector are safeguarded and used optimally

through strict adherence to ethics of the profession. Operators are usually

expected to display more commitment to ethical standards in all the

operations. There should not be any room for unprofessional and unethical

practices in the dispensation.

Generally, the fear of losing business, rate cutting and offer of illegal

inducements has compromised insurance operators' compliance to the

industry's ethics.

Industry watchers say experience of non compliance with ethics in the

insurance industry is a reflection of the situation in the larger society, adding

that professionalism, honour, service and social responsibility, should be the

key attributes of the sector.

Insurance and Ethics

Insurance, by definition raises ethical questions. Insurance might be viewed

as man’s attempt to control and influence an environment that we all know is

in God’s hands. Man’s attempt to insure anything is, at best, limited.

Insurance is nothing more than a pooling of money to provide limited

reassurance for a limited set of assets or circumstances.

Many people look to insurance to provide them with a complete sense of

security and assurance. When they buy insurance some people think, “Oh,

now I don’t have to worry, everything will be taken care of.” Unfortunately,

over the years, the insurance industry has often nurtured this paternalistic

and incorrect notion.

Because they do not control the world, insurance is only a

partial or stopgap measure to deal with the uncertainties that the world

presents. Insurance does not provide the kind of universal coverage and

assurance that many people look for. Many ethical concerns with insurance

exist because of this gap between consumer expectations and genuine

insurable risk.

For example, people are often disappointed, angry or

disillusioned to find that the insurance they have been paying for does not

cover a particular situation. This can leave consumers feeling that insurance

is a poor economic value or a “rip-off”. In this business managers frequently

hear statements like, “I’ve paid thousands of rupees of premiums, and this

small claim isn’t covered” or “Because I forgot two payments, my coverage

was cancelled. Now my claim won’t be paid after paying premiums for

many years”, or “I didn’t understand what I bought, I thought everything

was covered.” Not meeting a customer’s expectations can feel frustrating

and dissatisfying to them. Because of this difference between what people

expect and what insurance provides, insurance is one of the most highly

regulated industries in our country. Although it is national in scope, it is one

of the few industries of its kind that is primarily regulated at the state level

with 50 different sets of laws and regulations governing insurance.

Historically, insurance has played an important role in the

development of world economies. Unfortunately, there are times when the

industry has not been a good corporate citizen. In some cases, the insurance

industry has a history of discrimination, usurious prices, and dishonest

business practices.

Is insurance a good business after all? Does it raise so many ethical

questions that we should just avoid or eliminate it?

Once looked at carefully, insurance is a wonderful and much

needed product. Insurance, at its core, is a pooling of community risks. It is a

formalized way for people to come together and help each other. For

example, when we pay life insurance premiums, we are putting our money

together, not just to help ourselves but to help other families. When someone

else dies, his family benefits because a payment can be made from this pool

of premiums and the investment income that arises from it. When we die,

our claim is paid to our family, from the same pool. People, in more

informal ways, have done this for centuries. When someone dies, those

remaining help the family. This may appear very basic, but insurance is

much more powerful than just survivor benefits. Insurance allows us to take

risks and therefore fully live our lives. Insurance is required in most

industries and professions. This gives us some assurance of the quality of

goods and services that we use. Commercial insurance for industries and

professions has underwriting standards that require certain practices,

safeguards, licensing, and so on. In this way, insurance provides a form of

safety net for consumers both in terms of the product or service delivered

and remuneration if there is malfeasance.

Very few of us would have surgery, ride in an airplane, get on

an elevator, eat in a Restaurant, and drive cars, if there was no insurance in

place. Even more compelling, in many cases, without insurance we would

not enter into these businesses. Without insurance one mistake could

bankrupt the business and shatter customer confidence. Insurance not only

provides protection to the consumer, but also frees us to conduct business.

Insurance, just like money, is not an evil unto itself. It is a

channel that can be used in very good and helpful ways. Once we accept the

proposition that insurance actually is a good business, the ethical concerns

do not end. In fact, in many ways, they just begin. Every day in running an

insurance business, ethical considerations arise.

A few of the questions insurance corporatists confront daily are:

1. What is a fair price to charge? Should we charge as much as we can, as

little as we can, or something in-between?

2. What is the proper level of customer service? Just enough to get by, more

than the customer has bargained for, or something in-between?

3. What kinds of policies and procedures should govern the running of the

company? Should we follow the letter of the law, the spirit of the law, or

both?

4. Which laws are we talking about, man’s laws, God’s laws, or both? When

can and should we make exceptions to our policies and procedures?

5. How should we contract with other companies? Should we get as much as

possible, give as much as possible, or something in-between?

6. What should our benefits and compensation be for the people working

within the company? Should we pay them as little as possible, as much as

possible, or Something in-between?

7. What should be done when someone is not doing the job? Should we help

them, get rid of them, or keep them no matter what? How can we best

address these ethical dilemmas?

There are no hard and fast answers to any of these questions. Based upon the

situation, any of the answers may be right. It is possible to face the changing

questions, and the changing answers, every day depending upon the

individualistic views and ethical followings.

Institute for Insurance Ethics

Mission and Purpose

The mission of the Institute for Insurance Ethics is to develop programs that

will educate members of the insurance and financial services industry, as

well as the consuming public about the nature of ethics, social responsibility,

and the application of high ethical standards. A primary purpose of the

Institute will be to consider the role of ethics as an alternative to additional

regulation of the insurance and financial services industry. Unlike many

other businesses, insurance is based on mutual trust between insurance

producers and insurance clients. Trust, in turn, is based on the highest ethical

standards.

Vision of the Future

The Institute for Insurance Ethics will be a highly visible advocate for ethics

and ethical behavior in the life insurance and financial services industry. It

will be a strong, clear voice for ethical conduct and social responsibility

within the insurance industry. The leadership shown by the institute will

create ever-growing awareness of ethical issues among insurance and

financial services professionals. Through its growing leadership and

influence, insurance professionals will gain more and more formal training

in ethics and in dealing with ethical situations that they confront. Through

that training and awareness, consumers will continue to gain trust and

confidence in insurance professionals and in the insurance industry.

CODE OF ETHICS

Selling Life Insurance is like selling intangible product. So, the marketing

staff needs to observe a set of norms in his / her professional conduct, which

make him / her worthy of trust and faith.

The Code of Ethics for the life insurance, marketing staff

1. To perform his / her duties in high esteem.

2. To give utmost priority to the client's interest.

3. Not to disclose client's confidential and personal information

4. To ensure prompt and sincere service to the client and his or her family.

5. To use appropriate methods in convincing clients to protect their

insurable interest.

6. To make truthful and accurate presentations.

7. To improve his / her knowledge of life insurance through constant study.

8. To set a plan and work accordingly.

9. To maintain fair relations with colleagues.

10. To strictly follow the concerned laws and regulations.

11. To obtain proposals only on the lives of persons who fits in the physical,

moral and financial standard defined by the Company.

12. To be loyal to the Organization.

The IRDA has formulated a Code of Conduct for the marketing staff which

comprises two broad group heads viz. "Do's" and "Don'ts". They are listed

herewith:

Do's

1. Identification of marketing staff and the insurance agency - certificate of

License to be shown to the prospect on demand.

2. Match the needs of his / her client with various products available with his

insurer.

3. Work out the premium to be charged so that his / her prospect is able to

weigh the economic or financial implication of the proposal on his / her

resources.

4. Bring to the notice of his / her client the implication of various questions

in the proposal form and other documents and advise the client to disclose

all the material information.

5. Disclose to the insurer all relevant information.

6. Inform the prospect about acceptance or rejection of the proposal by the

insurer.

7. Obtain all documents from the prospect for the completion of the case.

8. Assist the policy holder in matters of:

Claim settlement,

Effecting nomination/assignment,

Revival, change of address,

Exercise of various options.

Don'ts - No Marketer shall

1. Solicit or procure insurance business without holding a proper

authorization

2. Induce the prospect to omit to disclose the material information in the

proposal form

3. Induce the prospect to submit wrong information in the proposal form or

in the documents submitted to the insurer for acceptance of the proposal

4. Behave in discourteous manner.

5. Interfere with any proposal introduced by any other insurance marketers.

6. Offer different terms and conditions other than offered by the insurer.

7. Part with or share his incentive with Prospect or with any other person.

8. Receive a share of the policy proceeds from the beneficiary.

9. Compel any person to terminate an insurance contract with any insurer

in order to effect a new proposal within three years from date of such

termination.

10. Apply for fresh license to act as an insurance marketer if his / her earlier

license / authorization have been terminated with in five years from the date

of termination.

11. Remain or become a director of any insurer carrying on insurance

business in India.

Ethics in insurance: Building relationships through trust

The momentum of the private insurance sector leaves no doubt in one’s

mind that it is amongst the foremost growth sectors of our country. A market

share of 26.18 per cent in five years is testimony to this. But even while one

braces himself to avail of the numbers within his/her sight, they need to

realize that the "long-term" will belong to that company which rigidly

benchmarks ethics for itself and for the industry. In a business, where the

customer entrusts the company with his / her financial savings, ethics has a

direct relation to sales. The greater the trust, the more the sales.

There are many ways to build trust through ethics, the most fundamental

being the way the product is designed. It should offer complete clarity and

transparency and the literature supporting the product should not over-

promise the benefits or understate the risks.

For eg: At Birla Sun Life, the use of the sales illustration, the inclusion of

the policy proposal form, and the free look period they offer have served to

win their customers' trust. By giving customers the option to track

investments online and by publishing the performance of the funds against

benchmark indices, specifically prepared for Birla Sun Life by CRISIL, they

prove that they are an open and reliable organization.

Ethics is an attitude that needs to touch every aspect of the customer

relationship. It entails having great reverence for the customer's needs, being

open to suggestions and insights that might enhance his / her comfort levels,

building in riders and flexibility options that address these needs, providing

assistance and clarity in documentation and upgrades, and settling claims on

time. Ethics means being fully accountable, not just to the company and to

its customers, but to the industry they serve. The inspiration for ethics thus

comes from the highest source — from a need to impact the industry.

On the flip side, a lack of ethics can have serious consequences. Litigation

and costs of settlement, business losses, a reduction in ratings, and increased

scrutiny are not half as damaging as the loss to image and reputation. It's a

fact that good ethics makes good business sense. Of course, the mandate for

good ethics always stems from the top. Which explains, why at Birla Sun

Life, they have introduced a system of checks and balances that guards

against concealment and why they follow norms of compliance and adhere

to IRDA regulations so scrupulously that their books and processes are open

to audit at all times.

While top management can lay down a code of ethics and request adherence,

its implementation depends on the individual. As Albert Einstein said,

"Ethics is an exclusive human concern without any superhuman authority to

back it.”. Ethics is that discipline, that momentum that challenges a company

to rise above themselves and raise the bar each time they interact. It is the

means by which they measure themselves, the strength by which they

progress, and the light by which they shall be remembered. It is the way

ahead - for each individual and for his industry.

CASE STUDY:

CODE OF ETHICS AND PROFESSIONAL CONDUCT

ICICI LOMBARD-CHEATS

Rahul Saxena is a policy holder who is an unsatisfied consumer of ICICI

LOMBARD. He shares his personal experience with us.

Member's Rating of this Product:

Member's Recommendation of this

Product:No

Customer Service:

Claims Settlement:

Rates/Premium:

Range of Plans:

Staff Attitude:

Pros: None

Cons:Business

ethics

The Cheating by ICICI

Now if things could not get any worse, I am currently going through what

can only be termed as the blatant cheating of a customer from one of India’s

largest Companies – ICICI. The following is a timeline as to what happened

and continues to happen.

12-11-05: Accident took place. Police report was made. Insurance company

was notified and claim number received.

16-11-05: After checking the list of cashless garages on their company

website, and verifying the same with your customer service representatives

as well as the garage of choice – Autograph Skoda,

Official Skoda dealers, I towed the car to the workshop. All papers as

desired by ICICI were handed over to the garage to produce to the Insurance

agent at the time of the survey. The only reason I picked an authorized

Skoda garage, even after knowing the ridiculous prices they have, was

because ICICI told me they had a cashless facility for that garage.

19-12-05: At 7:30pm, I get a call from Mr. Abhay stating that ICICI cannot

process my cashless claim as a third party has been injured and a case has

been filed. He instructed me that if I want my car I could pick it up after

paying the full amount. I then spoke to Mr. Suresh Shetty, who stated, “the

ICICI legal department had advised them not to pay the claim”. I asked for a

written copy of the clause in the policy where it is stated that the claim for

vehicle repairs cannot be paid unless the case is solved in court. I also spoke

to my long time insurance agent from New India Assurance who confirmed

that there is no such requirement and that ICICI is known to harass its

customers on large claims.

I was put on the line with Mr. Kapil Madgar who stated that he was the

Regional Manager. I asked him to provide me with the clause as mentioned

above. However he rudely told me that he does not know and even though

he was sitting in the office, he did not take the bother to atleast try and assist

me. Till date, Mr. Abhay and Mr. Shetty were well mannered and helpful to

the extent they could be, but I must say that the manner of speaking of Mr.

Kapil leaves a lot to be desired! As it was obvious that I was not going to get

an accurate answer on the phone, I have asked for a written statement by fax

from the company showing me where this clause is mentioned. I was assured

that it would be with me by 10am the next day. Nothing came.

On 20/12/2005, I receive the biggest shock of my life. I get an unsigned fax

from ICICI stating that they will NOT HONOUR my insurance at all stating

the limitation in the policy of “PACEMAKING”. No explanation was given

as to what they mean by pace making, and my agent at New India told me

that this is a motor sport activity and does not apply to my case at all.

All further attempts to get a proper reply from ICICI has fallen on deaf

years, and a fax sent on the 20th to their MD – Mr. Sandeep Bakshi has not

been replied too till date.

There is no-one at ICICI who is willing to take responsibility, all their

written correspondence is unsigned, and there is no-one you can speak to

who will give you a straight answer. This from a company who’s slogan is

“Haam hai na!” I should take them to court for false advertising alone!

I have now approached the WIAA who are supporting me completely. This

battle will now move to the Insurance Regulatory Board. From there I can

move the Consumer Court if I am not happy with the verdict.

However this will now take time and I have no choice but to fund the entire

repair costs myself. But, from all the legal opinions I have taken, I am in

very good standing legally and I should win my case plus penalties and other

expenses paid to me.

I am putting this topic up here now to WARN all other members that ICICI

are COMPLETE CHEATS AND DO NOT GIVE A DAMN ABOUT

THEIR CUSTOMERS. They will try anything in their power to wriggle out

of paying a large claim, which they are rightfully entitled to pay. This tactic

is probably their company policy, hoping that finally the customer will give

up and forget about it.

Well, this is not happening here with me and rest assured this case will be

followed till its rightful conclusion. And hopefully it will serve as a lesson to

ICICI and other insurance companies that the Customer is no longer just

going to lie down and take the CRAP that is meshed out to them.

My Final notes – DO NOT DEAL WITH ICICI, whether it’s their banking,

insurance or loans. They will gladly take your money with a smile, but when

it comes to actual customer service, they are the WORST I have ever had the

displeasure of dealing with.

Conclusion:

The ethical and spiritual path in insurance, and in life, is an individual one.

At times, it can feel like a solitary path. Ethics is not reached by consensus

but by conviction. The ethical path may not be popular but it does stand the

test of time. Ethics is not a hard and fast set of rules but is based upon

guiding principles. Ethics should guide our communities, yet they are deeply

personal. Above all, ethics and the spiritual compass that underlies our

individual ethical code, is not a destination, it is not even a journey, it is the

journey. What is good, right and true usually stands the test of time and may

not always be immediately apparent. The ethical “stake in the ground” will

always be scrutinized and criticized by someone.

Ethics in insurance: Building relationships through trustnews

Nani Javeri*

11 January 2006

The 'long-term' will belong to the company which rigidly benchmarks

ethics for itself and the industry.

Mumbai: The momentum of the private insurance sector leaves no doubt

in my mind that it is amongst the foremost growth sectors of our country. A

market share of 26.18 per cent in five years is testimony to this. But even

while we brace ourselves to avail of the numbers within our sight, we need

to realise that the 'long-term' will belong to that company which rigidly

benchmarks ethics for itself and for the industry. In a business such as ours,

where the customer entrusts us with his / her financial savings, ethics has a

direct relation to sales. The greater the trust, the more the sales.

There are many ways to build trust through ethics, the most fundamental

being the way the product is designed. It should offer complete clarity and

transparency and the literature supporting the product should not over-

promise the benefits or understate the risks. At Birla Sun Life, the use of

the sales illustration, the inclusion of the policy proposal form, and the free

look period we offer have served to win our customers' trust. By giving

customers the option to track investments online and by publishing the

performance of the funds against benchmark indices,

specifically prepared for us by CRISIL, we prove that we

are an open and reliable organisation.

Ethics is an attitude that needs to touch every aspect of the customer

relationship. It entails having great reverence for the customer's needs,

being open to suggestions and insights that might enhance his / her comfort

levels, building in riders and flexibility options that address these needs,

providing assistance and clarity in documentation and upgrades, and

settling claims on time. Ethics means being fully accountable, not just to

the company and to its customers, but to the industry we serve. The

inspiration for ethics thus comes from the highest source - from a need to

impact the industry.

On the flip side, a lack of ethics can have serious consequences. Litigation

and costs of settlement, business losses, a reduction in ratings, and

increased scrutiny are not half as damaging as the loss to image and

reputation. It's a fact that good ethics makes good business sense. Of

course, the mandate for good ethics always stems from the top. Which

explains, why at Birla Sun Life, we have introduced a system of checks and

balances that guards against concealment and why we follow norms of

compliance and adhere to IRDA regulations so scrupulously that our books

and processes are open to audit at all times.

While top management can lay down a code of ethics and request

adherence, its implementation depends on the individual. As Albert

Einstein said, "Ethics is an exclusive human concern without any

superhuman authority to back it." To this I add: Ethics is that discipline,

that momentum that challenges us to rise above ourselves and raise the bar

each time we interact. It is the means by which we measure ourselves, the

strength by which we progress, and the light by which we shall be

remembered. It is the way ahead - for each of us and for our industry.

*The author is CEO, Birla Sun Life Insurance Company Limited

Insurance contracts are often seen as a form of gambling. That is because

they appear as a type of wager that takes place over the lifetime of the

policy. Basically the insurance company is willing to bet that you and your

property will not suffer the loss insured against. In exchange for making this

bet, and taking on the risk, they receive your premium. If they win the bet,

they keep the premium; if they lose, they make the payout. In this sense,

they are often compared to a type of long term financial casino.

The difference between your premium amount, and the amount the insurance

company will have to pay out if the loss occurs, is simply the odds the

insurance company is getting for taking on the bet. It's just like going to the

horse races and betting on a horse that pays out 10 to 1.

This view of insurance has led to a number of people and religious

communities disapproving of insurance because of its similarities to

gambling. Among those groups that avoid insurance are the Amish and

Muslim communities. What these people do instead is create a system of

what is known as social insurance. What this means is that if there is a

disaster and someone suffers a heavy loss, then the whole community will

step forward and help them to deal with their loss and rebuild. While this

system is very simple, it has the potential to be just as effective a safety net

as insurance. However, it requires that the community actually does step

forward and help those who suffer from disasters. This means that it is more

successful in small closed and closely knit communities than in large

modern societies.

Social insurance systems therefore are not always effective. Often the

community that is supposed to adopt it is not suitable. Also, in very large

disasters the system can break down as a small community will not be able

to rebuild itself completely without outside assistance. This is why larger

modern insurance systems can be more robust. However, in extremely large

disasters, modern insurance systems can also run into difficulties. This is

witnessed by the fact that it is impossible to insure against certain risks such

as floods and earthquakes. This is because the damage would be simply on

too large a scale for the insurance companies to cope with.

There are other ways in which insurance doesn't follow the gambling model.

For instance insurance companies seek to reduce the risk of the loss

occurring constantly, for instance by requiring the installation of fire alarms,

or by reducing the loss if the insured against event does occur, for example

by providing rehabilitation to accident victims. Therefore insurance is like a

gamble in the reward and risk elements, but other elements are different.

Joseph Kenny is the webmaster of the insurance

site http://www.insure121.com/ where you will find information, news and

links to the leading providers of car insurance in the UK.

Article Source: http://EzineArticles.com/?expert=Joseph_Kenny

Insurance Ethics isn't much different than the Ethics requirement for any

other Fiduciary position.  Since Agents and Adjusters are tied to state

regulation, the people and the Insurers could lose their license and

Certificate of Authority to transact business in that state.  

There is a law called Public Law 15, the McCarran Ferguson Act, that

allows for each state to regulate their states' business, and the Federals will

not intervene as long as the states handle it properly.  Inside these laws are

the Unfair Trade Practices.  If an Agent or Insurer violates any of the Unfair

Trade Practices, the state can assess fines and/or imprisonment.  Some

examples would be Misrepresentation, Concealments, Twisting, Rebating,

Defamation, Giving away Free Insurance, Commingling, Embezzlement,

etc.  

Because the Insurance industry is tied to Ethics, the Insurers often keep strict

reins on any person who might mislead the public in any way.  

Fraud is the willfull intention to deceive and every family in America spends

around $1,200 more per year just because of Fraud.  Every person spends

$250 more per year due to Auto Insurance Fraud.  

Our Nation spent $1.7 TRILLION dollars on health care in 2003.  It is

estimated that 20-35% of that was fraudulent. It's everyone's fault, the

hospitals, Doctors, Pharmeceuticals, Insurers, Agents, Lawyers, and the

CLIENTS themselves for being frivolous.  

Every Insurer has outstanding people, but are also cursed by the shysters and

crooks.  No one is immune.  If an Agent decides to lie to a client in order to

promote his own commission, then that Agent should have his license

revoked and face justice.  But, since 61% of taxpayers say it's okay to cheat

on your taxes, I would say that we will always face that problem.  Trying to

police Ethics is a full time job, and every day is a new battle.