Producers Ponder: What Is Ethical?

A third theme was to use "good practices" routinely in procuring insurance. A Georgia producer noted: "Good practices are also both ethical practices and the responsibility of the professional producer."

The final general guidance offered by respondents was that legal requirements were foundations on which to build ethical practices; meeting any legal requirements was not enough. For example, an association executive responded, "Ethical responsibilities of producers greatly exceed any legal responsibilities."

A risk manager for state government identified those minimum legal requirements: "An agent of an insurance company owes no general legal duties to the client except in limited circumstances. A broker represents the client and has an affirmative duty to act and advise according to the standard of a reasonable broker under the circumstances. In either case, the producer should disclose his or her position in the insurance transaction."

A Minnesota producer noted that ethical responsibilities extend beyond the immediate client for whom insurance is sought, to the insurer and to all other clients placed with a particular insurer. For the insured: "First, identify the risks. Second, design the best coverage for those risks. Third, place the business with a sound insurer based on accurate and honest facts. Fourth, obtain the best possible price." In that process, provide the insurer with honest underwriting information provided in accurate applications. Disclose all known hazards.

This producer noted that the transaction also had to be fair to other insureds. "Each insured should pay his or her fair share of loss costs. Deliberately favoring one insured by obtaining a lower premium than the hazards suggest enables that insureds behavior that created or controls the hazard. Other insureds with that same insurer then are forced to pay more than their fair share of losses."

No respondent supported being an "order taker" or was happy in dealing with a set of insurance bid specifications to be met with the lowest price. The Kentucky producer noted that it is necessary to take the client as you find them. "You cant force-feed a reluctant client. Many clients will allow you to do your job correctly, while others want only the lowest price on existing coverage. This last group bites!"

The former risk manager agreed and noted the need to be more involved with less-sophisticated clients: "A professional risk manager should already know most of his or her exposures and options to handle those exposures, while a sole proprietor may be less knowledgeable. The result should be the samea high-quality insurance program that fits the clients needsbut the producers involvement in exposure identification and alternative selection may be less for the sophisticated risk manager."

There is, however, a "bright line" for dealing (or not dealing) with any client. A New York producer said it best: "Walk away from a client who refuses essential coverage without a valid reason." The idea was that a professional should not be involved in completing an insurance transaction that is, on its face, outside of good and ethical practices.

Every respondent gave a list of actual good practices to fortify the general ethical statements they made. These lists were presented as minimum ethical responsibilities with an underlying motivation coming from the courts. For example, a producer with a law degree said: "In reading court decisions, producers are held to almost ridiculous standards of practice. It seems courts and the buying public have created a situation where even the very careful and conscientious ethical producer is walking a legal minefield."

The good practices list, as suggested by the Minnesota producer, mirrors an application of the risk management process beginning with careful exposure identification, analysis, listing alternatives, carrying out the clients decisions and monitoring results. Underlying the process was building a relationship with the client.

"Learn about the business," was a common comment. One Tennessee broker said: "The producer should be well-rounded with an ability to build relationships, have communications abilities and bring technical experience to the table." This producer personally requires a formal meeting with the client "to understand, from the clients viewpoint, what their operations entail." He also collects material printed by the client, such as product brochures, and asks to see the contracts into which the client has entered.

The New York producer also suggests initially analyzing current insurance policies for existing deficiencies and suggesting immediate corrections in coverage prior to providing a formal proposal. During this procedure he also "qualifies" the client as to whether or not the client will accept professional advice and, if so, which insurers will best serve the client.

Written proposals, including any appropriate non-insurance techniques, were recommended. All alternatives should be fully explained. A broker from Missouri suggests that terms and conditions of coverage should be highlighted, uncovered items noted, and where appropriate, important policy definitions noted: "As much as possible, fully explain coverage without recreating the contract."

The president of a commercial lines insurer suggested that coverage differences between existing and proposed coverage should be noted in the proposal. His point was to "help the client think through the best use of his or her insurance buying dollar." For example, would the premium that could be saved from an increased property deductible be better spent on higher umbrella limits?

This executive also suggested making the client aware of the service capabilities of the insurer and how those services can be accessed. He also believed that the client was entitled to know the commission or fee income that would be earned by the producer.

Most respondents noted that the presentation of the alternatives, the rationale behind the alternatives and the price of each is the best time to show the client that the ethical producer is (1) involved, (2) adding value, (3) knowledgeable not only about the clients business and needs but also technical solutions to the clients exposures, and most importantly, (4) an advisor to be trusted to provide reliable sources of information.

All responding suggested mechanical-type responsibilities follow the proposal. Once the client makes their decision, producers should take the necessary steps to obtain the coverage. It is vital to immediately notify the client if some coverage accepted by the client becomes unavailable or is significantly modified from what was proposed.

Once insurance contracts are issued, they must be checked to be sure coverage is as ordered. These policies are then delivered with a brief recap of their terms and conditions and why they were purchased. Many producers suggested periodic pre-renewal meetings to stay current with the client and perhaps identify some missed or new exposures.

In summary, the Kentucky producer provided a combined dictionary definition of procuring insurance professionally: "To obtain insurance with particular care and effort, conforming to accepted professional standards of conduct." Use of the risk management process, modified to reflect the role of an insurance middleman, is the way those responding say a professional producer meets ethical responsibilities.

As to the second question relative to how to communicate responsibilities to the client, the New York producer succinctly distilled the suggestions of the others: "Explain and document everything."

Peter R. Kensicki is a professor of insurance at Eastern Kentucky University in Richmond, Ky., as well as a member of the Ethics Committee of the CPCU Society in Malvern, Pa.

The Next Question Of Ethics:

In this column we addressed the responsibilities of a professional producer in procurement of insurance. That insurance can only be obtained through the decisions of underwriters. What are the ethical responsibilities of underwriters that are expected by producers and their clients?

Please forward your responses to Peter R. Kensicki at ethics@eku.edu or Eastern Kentucky University, 107 Miller Hall, Richmond, KY 40475-3101. All responses will be kept confidential. The responses will be recapped in the next "A Question of Ethics" column here on April 12.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 23, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.