Ethics: Responsibilities, Obligations, and Codes
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Overview of Working Codes of Ethics

Absence of a Unified Code

The insurance industry, unlike the legal and medical professions, lacks a unified and uniform code of ethics. There are several self-policing professional organizations that have very detailed ethical standards; however, membership in these organizations is voluntary and the majority of practicing agents do not belong to these organizations.

As ethical financial professionals, agents might want to come together periodically to review and discuss the landscape of highly ethical behavior for themselves and others desiring to be highly ethical and long lasting within the insurance industry. Each member of this group would identify him or herself as a quality person who aspires to become a highly responsible and ethically grounded financial planner like the others.

The members would be a compliance-oriented group of professionals who embrace full voluntary adherence and compliance to the code of ethics individually and collectively created by their group. They see the value and necessity of continually gaining knowledge regarding ethics especially in the areas of the principles and the rules that apply in practicing the principles.

They support the fact that adherence to ethical standards influences other professionals and shapes public opinion toward them and the industry they represent. They agree that disciplinary review of those not abiding by the rules is important to be communicated and then backed up rigorously. They plan to gain an understanding of ethical theory as well as witness the actual application of the principles and rules underlying the principles that describe the standards as they are applied in specific situations in the field.

While an independent group formed by an individual would be lauded, there are professional industry associations in existence that provide affiliation and a central requirement of ethical conduct by those who are members.

Specific Code's Specifics

Agents need a set of objectives, rules of conduct, and acceptable parameters for behavior as they go about representing a company and assisting clients in their affairs. Ethics codes provide a specific set of written rules and regulations for individuals and a body of people- either loosely or tightly knit together to believe in, adhere to, follow and embrace. They set the tone for what an organization wants to be and what it wants to stand for when it comes to personal behavior and customer treatment.

If one wants to gain a sense of what a group of people, an organization, or an industry finds and promotes as acceptable behavior, he or she need only look to their published code of ethics. Because there is still no single code of ethics governing the insurance industry as a whole, many individual organizations have developed such codes for ethical practices of their members. Many professional societies such as the American Society of Chartered Life Underwriters (CLU) and the Society of Chartered Property and Casualty Underwriters (CPCU) have adopted codes of ethics.

Such code standards have much in common among them. One will also find many variations in labeling, categorizing, and characteristics of code provisions, depending on regulations, requirements, and goals for the code.

Ethical codes from professional societies generally includes principles such as:

  • accurately representing material facts and risks;
  • placing clients' interests above their own;
  • upholding laws and regulations;
  • using the member's full ability to perform duties and functions toward clients and principals;
  • honoring confidentiality in relationships;
  • applying due diligence to determine client needs;
  • undertaking only those assignments that can be performed properly and professionally;
  • abiding by any societal or organizational ethical standards; and
  • accurately representing the nature of the organization

Similarity in Code Provisions

Because those who aspire to be seen as highly ethical and professional typically share good behavior and attributes of well meaning people, it is not surprising that various codes of conduct share common characteristics and directives.

Common provisions among codes of ethics covering financial transactions of all types, including the purchase of insurance, might include:

  • Provisions for the legitimacy of clients and transactions - for example, not knowingly submitting information to an insurer on an application for insurance that is inaccurate or misleading;

  • Provisions for professionalism of agents - possessing an appropriate level of knowledge relating to the business, improving knowledge with continuing education, meeting high standards of professional ethics, meeting financial obligations, properly maintaining financial records, following sound business practices, and meeting all regulatory requirements;

  • Provisions for disclosure of agent information - accurately representing agent education, qualifications or experience, and revealing to the client the names of the business licenses and registrations held by the agent;

  • Provisions for disclosure of financial products information - disclosing to the client all relevant facts, considerations, costs, and risks necessary for an informed decision; and delivering all policies, amendments, and other documents in a timely manner;

  • Provisions for conflicts of interest - disclosing to a prospective buyer of life insurance all conflicts of interest associated with any recommendations and transactions and affording the client an opportunity to halt or reverse the transaction based on the information divulged and;

  • Provisions for behavior - acting in good faith at all times and meeting high standards of professional ethics, handling complaints and disputes in a timely manner, and not engaging in behavior which might detract from the public professional image of insurance agents.

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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and InsuranceEthics101.com, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.