Ethics: Professional Fundamentals
Page 7 of 8


Trust in Insurance Transactions

Mutual Trust

Insurance transactions require a condition of mutual trust between agent and customer. Such trust is only possible when founded upon the highest ethical standards. Therefore, insurance producers have a social responsibility to adhere to accepted standards of ethical behavior when conducting business.

Ethical standards in the insurance industry are governed by regulations at both the state and federal level. It is essential those insurers adhere to the highest standards of ethical behavior and that they require ethical behavior of their licensed agents. This is especially important in that the agent is the company's principal point of contact with the public.

Customers have a right to expect ethical conduct by insurers and their agents. Consumer confidence in the insurance industry and its professionals is dependent upon the ability of the industry as a whole to meet the public's expectation of ethical behavior. It is the responsibility of every insurance professional to contribute to the establishment of this condition of public trust through the practice of ethical fitness.

Utmost Good Faith


Probably no business in the world is more dependent on the concept of "utmost good faith" than is the insurance business. It is one of the basic concepts on which the insurance industry is based.

Most business arrangements involve the exchange of money by one party for tangible goods or valuable services in the present time frame. There is an equality implied between the money paid and the value received. Such arrangements do not require a great deal of mutual good faith, at least not for very long.

The insurance industry is unique in that it only works if everyone involved generally tells the truth and does what they say they will do. The insurance company receives a relatively small amount of money, in the form of a premium, from the policy owner in the present time frame, and promises to pay a much larger sum to a beneficiary at some unknown time in the future when and if the covered event occurs. This requires a great deal of faith on the part of the policy owner that the insurance company will remain sound, live up to its fiduciary responsibility, and pay the claim when it is due. Also, below a certain level of coverage, the insurance company accepts the risk involved on the basis of information provided on the application, which is another example of utmost good faith.

It is the agent's ethical responsibility to fulfill his or her role in the relationship of utmost good faith that must exist between the policy owner and the insurance company.


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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.