Is a Code of Ethics Effective?
Many people believe that codes of ethics, or lists of ethical values to which the organization aspires, are rather superfluous because they represent values to which everyone should naturally aspire. However, the value of a code of ethics to an organization is its priority and focus regarding certain ethical values in that workplace.
For example, it is obvious that it is desirable for all people to be honest. However, if an organization is struggling around continuing occasions of deceit in its industry, placing a priority on honesty is very timely, and honesty should be listed in that organizations code of ethics.
A code of ethics is an organic instrument, so it often changes with the needs of society and the organization.
8. Ethics vs. Values
Ethics is the rightness of what you do.
Values are what you believe in—what you hold important.
Values that represent how an individual should behave are considered to be moral values, such as respect, honesty, fairness, and responsibility. Statements around how these values are applied are sometimes called moral or ethical principles.
Many people do not realize the connection between values and ethics. They live each day without recognizing the cumulative impact of their individual actions. Leading an ethical life requires that we establish our values carefully and then work every day to live up to those values.
Core Ethical Principles
We build more a principled life with the small choices that we make each day. If we are to lead more ethically-based lives, we must all develop the ability to recognize ethical considerations. We must all become better at recognizing these opportunities to elevate our existence.
These core ethical values can serve as a tool to identify ethical considerations. Whenever honesty, integrity, promise-keeping, fidelity, loyalty, fairness, caring, compassion, respect for others, and personal responsibility come into play, it always involves the consideration of ethics.
Ethical decision-making is a process of evaluating and choosing among alternatives. The goal is to eliminate unethical options and select the best ethical alternative. To consistently make ethical decisions, one must accomplish two fundamental things:
- Evaluate alternative courses of conduct on the basis of core ethical principles; and
- Choose the action that best advances those principles.
There are many definitions of ethics, but it is generally accepted that any definition would include the following core ethical values, and the long-term commitment to their implementation:
- Honesty: Is truthful, straightforward, sincere, and candid. It is not deceptive, tricky, or misleading.
- Integrity: Is honorable. It has courage of conviction; it stands up for beliefs and puts principle over expediency. It is not hypocritical, weak, or dishonorable.
- Promise-keeping: Always strives to keep commitments.
- Fidelity/Loyalty: Commits to being reliable and dependable.
- Fairness: Strives to be equitable, open, just, and unprejudiced. It does not discriminate on an improper basis. It is not arbitrary or self-serving.
- Caring/Compassion: Is considerate, kind, sharing, and charitable. It is not selfish, manipulative, or controlling.
- Respects for Others: Respects freedom, dignity, and rights of others.
- Personal Responsibility: Considers consequences and accepts responsibility for actions and inaction. It doesn't shift blame or make excuses.
Rationalization as a Tool
There are a variety of reasons why we do not take the actions necessary to earn the high ethical ratings that we give ourselves. To make ourselves more comfortable with our actions, we often revert to rationalizations. Have you ever heard yourself say any of the following?
- "I'm simply fighting fire with fire."
- "If it is legal, it must be okay."
- "I was just doing it for you."
- "We all do it; it's just how you play the game."
- "If it doesn't hurt anyone, it's okay."
- "It's necessary to get the order."
- "Business is business. I'll be as ethical as the competition allows."
- "I deserve it: I have it coming."
Rationalizations make it easier to live with ourselves when we do the things that we want to do, rather than the things that we know we should be doing.
The Bottom Line
History is made and lives are changed not by those who follow the crowd, but by those who are prepared to take the ultimate risk and stand up for what is right.
It is always a challenge to do the right thing in a competitive environment. But each time we make a decision to stand for what is right, even if it costs us something, we reinforce our own moral character and influence others.
We do not develop that ability overnight. It is developed in small steps as we do the right thing each day. Unfortunately, many of us do not even recognize the opportunities that exist.
There are four basic principles of a highly ethical individual:
- The individual is at ease when interacting with diverse customers.
- The individual is obsessed with fairness. The individual's ground rules emphasize that the other persons interests count as much as his/her own.
- The individual assumes personal responsibility for his/her actions, and he/she is responsible for himself/herself first and then to his/her organization.
- The individual sees his/her activities in terms of purpose. This method of viewing an individual's activities is highly valued by the members of the industry or organization. Purpose ties the individual to the organization, and the organization to the environment.
The following are characteristics of a highly ethical organization or industry:
- There exists a clear vision and picture of integrity throughout the industry.
- The vision is owned and embodied by top management in the industry, over time.
- The reward system is aligned with the vision of integrity.
- Policies and practices of the industry are aligned with the vision; no mixed messages.
- It is understood that every significant decision has ethical value dimensions.
- Everyone in the industry is expected to work through conflicting value perspectives.
The Benefit of Applying Ethics
There are many obvious moral benefits to adhering to ethical standards, but there are other benefits of ensuring that ethics are followed in the industry and in the workplace:
Attention to business ethics has substantially improved society.
A number of decades ago, children in our country worked 16-hour days. Workers' limbs were literally torn off, and disabled workers were condemned to poverty and often starvation. Conglomerates controlled some markets to ensure that prices were fixed and small businesses were choked out. Price-fixing crippled normal market forces. Employees were terminated based upon personalities. Influence was applied through intimidation and harassment.
Then society reacted and demanded that businesses place a higher value on fairness and equal rights. Antitrust laws were instituted. Government agencies were established. Unions were organized. Laws and regulations were established. Ethics programs help to maintain a moral course in turbulent times.
Attention to business ethics is critical during times of fundamental change. At such times, there is often no clear moral compass to guide leaders through complex conflicts about what is right or wrong.
Continuing attention to ethics in the workplace sensitizes leaders and staff to acting consistently.
Ethical standards support individual growth.
Attention to ethics in the industry helps an agent to face realities, both good and bad, in the industry and within himself. In this regard, an agent may feel full of confidence and can admit and deal with whatever comes his way.
Ethics programs are a form of insurance; they help to ensure that policies and practices are legal and can stand the test of public or shareholder scrutiny.
There is an increasing number of lawsuits in regard to the effects of products and services on the consumer. Attention to ethics ensures highly ethical policies and procedures in the workplace. Analysts believe that it is far better to incur the cost of mechanisms to ensure ethical practices now, rather than to incur the costs of litigation later.
Ethical standards help to avoid criminal acts of omission and can lower fines.
Ethics standards, such as an insurance agent's code of ethics, tend to detect ethical issues and violations early on, so they can be addressed. In some cases, when an organization is aware of an actual or potential violation and does not report it to the appropriate authorities, it can be considered a criminal act.
Ethical guidelines adopted on an industry-wide basis potentially decrease fines if an organization or individual has clearly made an effort to operate ethically.
Ethical standards help to manage values.
Ethics programs identify preferred values and ensure that the individual's behavior is aligned with those values. This effort includes recording the values, developing policies and procedures to align behavior with preferred standards, and then training personnel about the policies and procedures. Ethical standards are highly useful for managing strategies, such as expanding market shares, reducing costs, and managing diversity.
Ethical standards promote a strong public image.
Attention to ethics is also a strong public relations tool. Admittedly, managing ethics should not be done primarily to enhance public relations. But the fact that an organization regularly gives attention to ethics can portray a strong, positive image to the public.People see those organizations as valuing people more than profit, as striving to operate with the utmost integrity and honor. Aligning behavior with values is critical to effective marketing and public relations programs.
Here's the bottom line: Applying ethical standards legitimizes managerial actions, strengthens the coherence and balance of the industry, improves trust in the relationship between individuals and groups, and supports greater consistency in the standards and qualities of products.
Ethics and its Fundamentals
Ethics is defined as principles of moral conduct. For the insurance industry, as in many others, the basis of a business relationship is the ethical dispensation of the terms of the contract. In view of the special agent-client relationship, the following aspects of ethics are the following:
- Honesty
- Integrity
- Fairness
- Fidelity and loyalty
- Compassion
- Personal responsibility and accountability
Where there are moral considerations for employing the highest ethical standards in business dealings, there are also other considerations that reflect on the well-being and reputation of the agent. A few of them are itemized as follows:
- Social responsibility towards the community at large, including carriers
- Avoidance of public criticism. This has a direct bearing upon the volume and type of business that can be generated.
- Avoidance of government regulations.
- Minimization of errors and omissions exposures.
Legal Responsibility and its Basis
Ethical and professional responsibility is the basis for laws, and this creates the basis for legal responsibilities. Legal duties are based on the following:
- Peer Standards;
- Oral or written agreements; and
- Statutes.
Duties of an Agent to the Insurer
The legal duties of an agent, which are born out of ethical and professional responsibilities to his or her insurance company, follow the four segments as outlined below:
- Act within authority
- Provide full disclosure
- Account for property and money
- Follow instructions
Duties of an Agent to the Client
The following are the duties of an agent to his or her client:
- Provide adequate coverage.
- Provide proper legal notification.
- Place business on the best possible terms for the client.
- Investigate carrier stability.
- Give correct coverage options related to the insurance.
- Other—as determined by the courts
You might have a system of notifying direct-bill clients of cancellation notices for nonpayment of premiums. This is acceptable—but expensive—and may give rise to a potential E&O problem if the agency misses calling a customer. To safely cease this practice once it is established, notify all insureds that you will no longer be following up on cancellation notices for nonpayment of premium.
Agency Ethical Considerations
The following are an agency's ethical considerations:
- Fiduciary duties
- Commingling of funds – trust account
- Payment and acceptance of commissions and fees
- Unfair claims practices
- Conflict of Interest
- Unfair methods of competition and deceptive practices
E. Chapter Recap
This chapter focused on state-specific regulations for insurers and producers. Let's first recap some of the important requirements and processes:
LICENSING REQUIREMENTS
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Licensing Process
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Types of Licenses
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Maintenance and Duration
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STATE AND FEDERAL REGULATIONS
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Superintendent of Financial Services
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AgentRegulation
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| InsurerRegulation |
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Fair Credit Reporting Act
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Chapter Complete