One of the key concepts when considering ethics is that of "stakeholders." A stakeholder is anyone who stands to be affected by the outcome of a chosen course of action. While an agent's clients are the most obvious example and the ones regulators have in mind when promulgating ethical educational requirements, there may be a plethora of others. Consider the following case study taken from my Street Level Ethics course, which was developed with the support of the Insurance Institute of America and the American Institute for CPCU.
You're an insurance adjuster, and you can't believe what you're holding in your hand. This should have been the simplest claim in the world. You've seen hundreds of polices from this carrier on this type of account, but this one is inexplicably messed up. The usual endorsements are missing, most notably the one that provides coverage for this particular claim. When you check with the underwriter, he tells you it's the policy the agent asked for. The agent tells you she asked for the same policy she's asked for a thousand times. Somebody made a big mistake, but all you know for sure is that the insured will inherit the pleasure of paying for it. Under normal circumstances, you know the claim would be covered. You also know that following the policy as written means denying it. When you do, the insured will sue somebody for E&O. Some days you just hate this job!
Do you decide not to punish the insured for others' mistakes? Or do you honor your obligation to follow the clear language of the policy?
Well, then. Now we can see a couple of stakeholders beyond the insured. If you're the agent in the above scenario, notice how your actions (or lack thereof) have put both the underwriter and the adjuster on the hot seat. This case provides a clear example of how an agent's actions, even those taken by the most ethical of producers trying to best serve the client, can severely impact other insurance practitioners.
Yet we find from E&O case files and conversations with carriers and adjusters that situations like these are all too common. For example, someone at the carrier or agency may have been a little careless in processing one of the day's gazillion policies. Sure, mistakes are bound to happen, but do you ever consider the ethical implications? If your ethical goal is to provide excellent service to the public, how well do you think the person who made what may have been a minor clerical error served the adjuster? And if the carrier messed this one up, shouldn't you have caught it when the policy was issued, instead of leaving it as a time bomb for the adjuster at claim time?
Now notice how the path of stakeholder destruction doesn't stop with the adjuster–it just begins.
First, if the adjuster decides to follow the clear language of the policy–an honest, ethical choice–doesn't that sell the insured straight down the river? And if we've learned anything from Katrina and similar disasters, igniting an insured's righteous anger can also light the fuse for a string of explosions that will wreak havoc on agents, carriers, adjusters, regulators and, of course, anyone politically connected with FEMA.
Whoa! That's a lot of collateral damage, and all from a simple oversight or misunderstanding. But wait. Others would strongly suggest that since the adjuster obviously knows this is an oversight, he should don the mantle of industry savior and "do the right thing."
And that would be? As far as the underwriter is concerned, the policy was issued correctly. Where does the adjuster get off arbitrarily awarding the carrier more risk? Insurers often complain that some of their claims representatives can't resist playing Santa Claus with their money. Even so, isn't that far better than a furious insured or a loyal agent left with mud on his face (or an errors or omissions claim in his record)?
Ah, grasshopper. Let me introduce you to a few more stakeholders in this transaction: the carrier's stockholders and other insureds. When an adjuster pays a claim that isn't covered, or in a burst of generosity overpays one to make an insured's day (and possibly the agent's), that money has to come from somewhere. While everyone, especially politicians, likes to think such funds are routinely plucked from the gushing larders of the fat-cat carriers, in reality every nickel an insurer touches has to come from someone else's pocket.
So, carriers have to pull this charity donation from some bucket somewhere, which will eventually have to be refilled by additional premiums, lowered dividends or other financial sources. The ultimate penalty would be a carrier suffering financial losses severe enough to cost it stockholders or lower its reserves and capital base, leading to employee layoffs and possibly insolvency. Along that downward spiral the carrier would, of course, exit various marketplaces, thus shrinking the available insurance pool and guaranteeing higher premiums from the remaining carriers. Add the general public to the stakeholder list!
But we're not done yet. Let's go back to the adjuster sticking to the policy language. When the insureds decide to pursue recovery against the agent for selling a defective product, which they assuredly will, allow me to introduce you to another stakeholder: the agent's E&O carrier. (Rather than go through the entire "Carrier goes down tubes-film at 11!" scenario again, please refer back to the previous paragraph.) Now add to that specific E&O carrier's costs the potential impact of such claims on the overall E&O conditions in certain agencies and states. Can you say "rate increase"?
And you thought there wasn't all that much to this "ethics" stuff.
OK, the insurance kingdom won't likely be brought to its knees by a misplaced comma on an HO-3, but the bottom line is that we often overlook how the effects of our individual choices can ripple far beyond our office or clients. Each thread we've considered here can be extended further. For example, consider the financial impact on the lives of family members of individuals directly affected by careless practices. And what of the emotional pain felt by loved ones who have to watch a family member endure some misery that could have been avoided had someone else held up their end of the bargain?
So, the next time you hold one of those "simple" applications or binders in your hand, take a moment to realize what else lies in your palm: literally hundreds of fellow professionals, insureds and just plain folks who have, in some way big or small, a stake in how you perform your professional duties. This is why it's a joke when folks push the idea that ethics is merely a matter of doing no wrong. No, ethics is far more important than that. Those who wish to lay claim to exhibiting ethical principles in their behavior must take their sense of responsibility to a higher level. As I've suggested in past ethics articles, the real challenge is making decisions based upon which of many options is the "most right."
Perhaps that ancient knight who had spent centuries faithfully guarding the Holy Grail spoke for stakeholders everywhere with his brief yet powerful instructions to Indiana Jones: "Choose wisely."
Chris Amrhein is an insurance educator and speaker with more than 30 years in the industry. He is also chief fun officer of www.insuranceisfun.com, where his newest book of insurance musings, "Yes, Virginia, There Is Insurance," is now available. Readers may contact Chris at chris@insuranceisfun.com.

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Policy Issues: Ethics: A matter of being careful, as well as doing right

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