Note: The information in this section is part of required ethics education but will NOT appear on the state exam. This content helps you understand ethical principles and practices for your career as an insurance professional.
Overview: Ethics in Insurance
Ethics can be studied on two levels: philosophically (helping you gain personal and professional satisfaction) and practically (helping you avoid controversy and increase efficiency). The core idea is simple: "Regard for others."
Ethics Defined (Albert Schweitzer)
"Ethics is the name we give to our concern for good behavior. We feel an obligation to consider not only our own personal well-being but also that of others and of human society as a whole."
Distilled into three words: "Regard for others"
Start Here: 5 Key Ethical Concepts
4 Primary Responsibilities: To the Insurer, Policyowners, Public, and State
Sell to Needs: Match products to what clients actually need, not what makes the most commission
Service the Sale: Ethical service doesn't end at the sale - it continues throughout the relationship
Avoid Deception: Full disclosure, honest presentations, no misleading comparisons
8 Core Values: Honesty, Integrity, Promise-keeping, Fidelity, Fairness, Caring, Respect, Responsibility
The 4 Primary Ethical Responsibilities
An insurance agent has four primary ethical responsibilities. Each creates obligations that guide professional conduct.
1. Responsibilities to the Insurer
The duties to the insurer are established by the concept of agency, represented by the agency contract. Within that contract, you owe:
- •Honesty - Never lie to or deceive the insurer
- •Good Faith - Act in the insurer's best interest
- •Loyalty - Exclusive loyalty if you're a captive agent
- •Full Disclosure - Reveal all material facts to the insurer
Real-World Scenario: Agent Reflects Company Image
The Setup: Agent Tom is a captive agent for ABC Insurance. He handles all sales in his community.
What Happens: Tom is rude to clients, makes false promises about coverage, and doesn't return calls. Clients in town start saying "ABC Insurance is terrible!"
The Impact: Tom's unethical behavior damages ABC Insurance's reputation in the entire community. The agent IS the company in the public's eyes.
2. Responsibilities to Policyowners
You meet your ethical responsibilities to policyowners by filling needs and providing quality service. You owe them:
- •Sell to Needs - Recommend what they need, not what pays the most commission
- •Service the Sale - Ongoing service throughout the relationship
- •Full Disclosure - Explain policy terms, benefits, and limitations honestly
- •Confidentiality - Protect personal and financial information
- •Timely Submission - Submit applications promptly
- •Prompt Delivery - Deliver policies without delay
Real-World Scenario: Selling to Needs vs. Commissions
The Setup: Young couple Mike and Sarah just bought their first home. They need basic homeowners insurance. Agent Lisa knows a comprehensive policy with all endorsements pays her 3x the commission.
Ethical Choice: Lisa recommends the basic HO-3 policy that fits their needs and budget, not the expensive policy with coverage they don't need.
The Result: Mike and Sarah trust Lisa and become long-term clients. They refer friends and family. Ethical selling builds lasting relationships.
3. Responsibilities to the Public
The insurance agent has more control over the public's attitude toward insurance than representatives for most other consumer products. Why? Because the agent:
- •Initiates contact with prospects
- •Determines the prospect's needs
- •Recommends products
- •Makes the sales presentation
- •Develops long-term relationships
Two main ethical responsibilities to the public:
- 1.Inform the public about insurance with the highest level of professional integrity
- 2.Maintain a strong, positive image of the industry through professionalism
The Big Picture
Since the public understands very little about insurance, their perception of the entire industry is based on how well or poorly YOU do YOUR job. One bad agent can make people distrust all insurance professionals.
4. Responsibilities to the State
States carry the burden of regulating insurance, including the ethical conduct of licensed agents. Your responsibilities include:
- •Following all laws and regulations
- •Avoiding unfair trade practices
- •Making no misrepresentations to insureds or insurers
- •Being knowledgeable about products you sell
- •Refraining from improper solicitations
Key Point
It is impossible for laws to include every possible unethical action. Therefore, an action can be unethical even if it's not illegal. Your ethical responsibility goes beyond just following the law.
Quick Reference: The 4 Responsibilities
1
Insurer
Honesty, Good Faith, Loyalty
2
Policyowners
Sell to Needs, Service, Disclosure
3
Public
Integrity, Positive Image
4
State
Laws, No Misrepresentation
Ethical Practices
Avoiding Conflicts of Interest
Captive Agents: An agent with an exclusive contract cannot serve two principals (insurers) at the same time. They owe singular loyalty to their insurer.
Independent Agents: Face conflict when representing both the insurer and the client. Guidelines:
- •Represent the insurer during application, underwriting, recordkeeping, and claims
- •Represent the client during the process of selecting the best insurance plan
Disclosure Required: Inform the insurer about any other related services you provide and receive payment for (e.g., tax preparation, consulting).
Commitment to Knowledge and Skills
The policyowner trusts that you have the knowledge and skills to give proper advice. This means you must:
- •Obtain necessary knowledge and skills to evaluate client needs
- •Keep your knowledge base current through continuing education
- •Stay informed of latest developments affecting clients' interests
- •If not qualified, refer to another professional who is
Confidentiality
In the course of qualifying prospects, completing questionnaires, and analyzing needs, you become privy to personal and financial information. Ethics require that you:
- •Respect the sensitive nature of client information
- •Keep all personal information confidential
- •Never release information without proper client approval
During the Underwriting Process
Promptness
- • Submit applications as soon as possible
- • Check applications for accuracy before submitting
- • Notify applicant if underwriting takes longer than expected
Policy Delivery
- • Deliver policy promptly and review features
- • If policy is rated or rejected, personally review why
- • Notify applicant promptly of any adverse decisions
Unethical Practices to Avoid
Deceptive Use of Advertising Material
The potential for deceptive advertising is significant because:
- •Average buyers know very little about insurance
- •By the time consumers find a policy doesn't meet needs, it may be too late
The NAIC Unfair Trade Practices Act forbids:
- •Misrepresenting benefits, terms, conditions, or features
- •Misrepresenting the insurer's financial condition
- •Using policy names that don't represent true character
Deceptive Sales Presentations
Deceptive sales presentations have generated more complaints of unethical agent behavior than any other activity. A presentation is deceptive if it:
Gives the Wrong Impression
About any aspect of the policy or plan
Lacks Full Disclosure
Doesn't explain limitations, exclusions, or conditions
Misleading Comparisons
Incomplete or inconclusive product comparisons
Even Unintentional
Deception doesn't have to be intentional to be unethical
Examples of Deceptive Presentations
- • Comparing term and whole life policies based ONLY on premium rates
- • Calling a policy a "tax shelter" without mentioning premiums aren't deductible
- • Recommending health policy without explaining cancellation conditions
Misuse of Policy Illustrations
Policy illustrations have been misused to "predict" future performance based on assumptions that may not come true. Problems include:
- •Showing "vanishing premiums" based on nonguaranteed numbers
- •Projecting huge cash values without explaining assumptions
- •Making the illustration the focus rather than the actual policy
- •Not distinguishing between guaranteed and nonguaranteed values
Ethical Practice: Show illustrations based on a variety of assumptions, not just optimistic scenarios. Clearly distinguish guaranteed from nonguaranteed values.
Attitude Toward Competition
Agents should:
- •Avoid criticizing other agents - detrimental to everyone in the business
- •Avoid criticizing competitors' policies - incomplete comparisons are misleading
- •If asked to evaluate a company's reputation, refer to rating systems (AM Best, S&P, Weiss)
Warning: An incomplete comparison is misleading and harmful to the public, and can result in license revocation.
Real-World Scenario: Handling a Competitor Question
The Setup: A prospect says, "I've been with XYZ Insurance for 10 years. My neighbor says they're terrible and going bankrupt. Should I switch to you?"
Wrong Response: "Oh yes, XYZ is awful! Their claims service is terrible and they're definitely in financial trouble. Come to us instead!"
Ethical Response: "I can't speak to rumors about other companies. If you're concerned about an insurer's financial strength, I'd recommend checking their ratings through AM Best or Standard & Poor's. I'd be happy to show you what our company offers and let you compare."
Core Ethical Values
Ethics vs. Values: Ethics is the rightness of what you do. Values are what you believe in, what you hold important. Leading an ethical life requires establishing values carefully and working every day to live up to them.
1. Honesty
Truthful, straightforward, sincere, candid. Not deceptive, tricky, or misleading.
2. Integrity
Honorable, has courage of conviction, stands up for beliefs. Puts principle over expediency.
3. Promise-Keeping
Always strives to keep commitments made to clients, insurers, and others.
4. Fidelity/Loyalty
Commits to being reliable and dependable to those you serve.
5. Fairness
Equitable, open, just, unprejudiced. Not arbitrary, discriminatory, or self-serving.
6. Caring/Compassion
Considerate, kind, sharing, charitable. Not selfish, manipulative, or controlling.
7. Respect for Others
Respects freedom, dignity, and rights of all individuals.
8. Personal Responsibility
Considers consequences, accepts responsibility. Doesn't shift blame or make excuses.
Common Rationalizations to Avoid
Rationalizations make it easier to do what we want rather than what we should. Watch out for these:
"If it's legal, it must be okay."
"Everyone does it; it's how you play the game."
"If it doesn't hurt anyone, it's okay."
"It's necessary to get the sale."
"I'm just fighting fire with fire."
"I deserve it; I have it coming."
4 Principles of a Highly Ethical Individual
At ease with diverse customers - Can interact comfortably with anyone
Obsessed with fairness - The other person's interests count as much as their own
Assumes personal responsibility - Responsible for self first, then to the organization
Sees activities in terms of purpose - Connected to the organization and its mission
Cheat Sheet: Ethics Quick Reference
Print this page for quick reference4 Responsibilities
Insurer, Policyowners, Public, State
To Policyowners
Sell to needs, service, disclosure, confidentiality
To Insurer
Honesty, good faith, loyalty, full disclosure
8 Core Values
Honesty, Integrity, Promise-keeping, Fidelity, Fairness, Caring, Respect, Responsibility
Avoid
Deceptive presentations, misleading comparisons, criticizing competitors
Key Principle
"Regard for others" - consider others' well-being, not just your own
Benefits of Applying Ethics
Individual Growth
Helps you face realities, builds confidence, and promotes personal satisfaction
Insurance Against Legal Issues
Ensures policies and practices can withstand public scrutiny and reduces litigation risk
Avoid Criminal Acts
Detects ethical violations early so they can be addressed before becoming criminal
Strong Public Image
Organizations that value ethics are seen as valuing people over profit
The Bottom Line: Applying ethical standards legitimizes managerial actions, strengthens industry coherence, improves trust in relationships, and supports greater consistency in product quality.
Quick Reference Summary
Ethics Definition
"Regard for others" - Dr. Schweitzer
4 Responsibilities
Insurer, Policyowners, Public, State
Sell to Needs
Match products to what clients need, not what pays most
Service the Sale
Ongoing service throughout the relationship
Confidentiality
Protect client information, never release without approval
Full Disclosure
Explain all terms, benefits, and limitations honestly
Avoid Deception
No misleading presentations or comparisons
Don't Criticize Competitors
Refer to rating agencies instead
8 Core Values
Honesty, Integrity, Promise-keeping, Loyalty, Fairness, Caring, Respect, Responsibility