Ethics and Business E. Stuart Powell, Jr. CPCU CIC CLU ARM ChFC AMIM AAI ARe CRIS Vice President of Insurance Operations & Technical Affairs Independent Insurance Agents of North Carolina

Background Ethics – comes from the Greek word ethos, which means custom, usage or character of a group of people In ancient times, a person was associated with a group (ethnos) by custom or behavior. Ethnic groups were distinguished from each other by the way they dressed, language, customs and rules of behavior.

Definition of Ethics Ethics is an organized way in which man goes about understanding whether human behavior conforms or fails to conform with a given set of rules or customs for acceptable behavior. “the discipline of dealing with what is good and bad or right and wrong, or with moral duty and obligation” Webster’s Third New International Dictionary

Types of Ethics Theoretical or philosophical ethics Practical or applied ethics

Right and Wrong Are Right and Wrong relative? Is Right always right? Is Wrong always wrong? Right and wrong behavior can be relative to the standard by which behavior is measured.

Scale of Standards of Behavior Legal (lowest) – Criminal – wrongful acts against society – Civil – wrongful acts against another individual – Agency/Principal or Vicarious – responsibility for the wrongful acts of others Governmental – Legislative Statues – written laws – Administrative Regulation – rules required by written laws

Scale of Standards of Behavior Business and Professional – Customs – Practices – Professional standards Moral (highest) – Religious standards – Philosophical standards

Reasons for Wrong Behavior Ignorance – “I didn’t know it was wrong” Know the standard but choose to violate it “Situational Ethics”

Reasons for Wrong Behavior Conflicts of Interest – Someone derives a personal benefit from acting contrary to the interest of others – Disclosure – Altruism – a sign of professionalism “The devil made me do it.”

Ethical Standards Conflicts of Interest – Someone derives a personal benefit from acting contrary to the interest of others – Disclosure – Altruism – a sign of professionalism “The devil made me do it.”

Ethical Standards – Legal Standards Criminal Standards – Often based on religious standards – Prohibitions against destruction or theft of property of others – Prohibitions against bearing false witness

Ethical Standards – Legal Standards Civil Standards – Common Law Standards Torts Contracts – Utmost Good Faith – Voidable Contracts Agency/Principal (Vicarious Liability) – Duties and Obligations of Agents – Duties and Obligations of Principal

Ethical Standards – Regulatory State General Statutes – Twisting – Fraudulent representation – Signing blank policies

Ethical Standards – Regulatory Unfair and Deceptive Trade Practices – Misrepresentation of insurance policies – False information or advertising – Defamation – Boycott, Coercion and Intimidation – False financial statements – Stock options and advisory board contracts

Ethical Standards – Regulatory Unfair and Deceptive Trade Practices (cont.) – Unfair discrimination – Rebates or illegal inducements – Unfair claims settlements – Misuse of borrower’s confidential information – Over-insurance in credit transactions

Ethical Standards – Regulatory Regulation by Department of Insurance – Licensing requirements Prior civil and criminal records Conditions for suspension or revocation Continuing education Agency/Company operational practices Enforcement of statutes and regulations

Ethical Standards – Professional Standards Trade Associations – Code of Conduct/Ethics IIABA Trusted Choice NAIFA – Code of Ethics CPCU CLU

Ethical Standards – Moral Standards Religious Standards – Religions have established rules/codes of behavior – Principles for evaluating behavior that are derived by rational activity – Philosophical standards can parallel religious beliefs or be secular in nature

Unauthorized Entities An unauthorized entity is an insurance company that is not licensed by a state’s insurance regulatory authority. Agents and brokers have responsibility for conducting reasonable research to ensure that they are not writing policies or placing business with unauthorized entities. Lack of careful screening can result in significant financial loss to insurance consumers due to unpaid claims and/or theft of premiums.

Unauthorized Entities Agents may be held liable when representing these unauthorized entities. It is the agents and brokers responsibility to give fair and accurate information regarding the companies they represent. Verify with your insurance department about the authorized status of any company: –In Florida: We urge all agents and brokers to adhere to this admonition.

Unauthorized Entities Florida Agents: For more information on unauthorized entities go to FAIA’s website at and under the Education section you will find a handout that you can download.

FLORIDA ONLY -- CE Rule DFS requires a completed and signed acknowledgement form to enable FAIA to process your continuing education request Access to acknowledgement form is at FAIA’s main page ( – see “Education” – Submit electronically (very short!) Form is required within 3 days after completing the webinar. Failure to submit form could result in NO CE CREDIT and/or disciplinary action by DFS.

Applying Ethical Principles to Case Studies WEBCAST PARTICIPANTS The case studies for today’s class may be downloaded by clicking on the “Materials” tab on the lower left quadrant of your screen and choosing “Ethics Case Studies”.

Applying Ethical Principles to Case Studies Ethical Decision Making – consider these questions when analyzing case studies – Does it violate any criminal standards? – Does it violate any civil standards? – Does it violate any business standards? – Does it violate any professional standards? – Does it violate any personal standards?