Although the business world and society at-large have always been concerned about financial ethics, the issue has come to the forefront of discussion in the post-Enron world. The insurance industry has certainly not escaped scrutiny, and a watchful eye has been on claim practices in both everyday settlements and in disaster response.
This recent heightened sensitivity to financial misdealings rightly should be seen as an opportunity for all adjusters to reconsider what their ethical obligations are and to whom they are owed. Although bad faith and dishonest practices certainly exist in the claim profession (as in every sector of the business world), many times adjusters with good intentions can go astray by losing their sense of balance and overemphasizing one duty or obligation at the expense of another.
The classic dilemma in Greek mythology was that of the tandem perils of Scylla and Charybdis. Scylla, a fearsome six-headed, serpentine-necked monster, was cursed by an enchantress and stuck fast to a rock in the perilous straits between Italy and Sicily. In close proximity in the channel lay Charybdis, another horrible creature whose cavernous jaws created deadly whirlpools that sucked down any seafaring vessel that sailed within its path. Often thought to be the origin of the phrase "between a rock and a hard place," these mythical creatures came to symbolize the classic dilemma — one in which either choice would result in certain injury. In the real world of adjusting, competing parties can present analogous difficulties to those who have not fine-tuned their ethical senses. Fortunately, there are some guidelines that ethicists both inside and outside the insurance industry have provided that can make the sailing a bit smoother.
Duties of the Adjuster
In the financial world, general ethical responsibilities are usually referred to as fiduciary duties. As The American Heritage Dictionary defines it, a person with a fiduciary duty is one "who stands in a special relationship of trust, confidence, or responsibility in his obligations to others." Most in the insurance industry agree that the adjuster has principally two fiduciary duties: to contribute to the company's profit goals through the responsible payment of losses and loss expenses, and to respond to the demands of the insurance contract as well as applicable state and federal laws in a prompt, fair, and equitable manner.
Remembering these bedrock rules is crucial for ethical adjusting. For just as no liability exists for an insured when there was no duty owed, there can be no breach of ethics for an adjuster who performs according to his proper role and function. Once these duties are properly understood and contextualized, demands to the contrary can be properly assessed and resisted.
The Generous Adjuster
Most people are brought up to recognize the moral and ethical good of generosity. The principle is central to every major world religion and a driving force behind multitudes of social programs for the poor and unfortunate. Properly understood, it also is a characteristic of every good adjuster. Of course, an adjuster cannot be generous according to any personal agenda or according to the often unreasonable demands of claimants and insureds. Generosity may only legitimately derive from the aforementioned fiduciary duties of the adjuster.
As one modern ethicist has described, generosity is simply "the willingness to expend one's resources to help others." As can be seen in this definition, generosity is inextricably tied to an authentic possession. As one political pundit has rightly noted, it is actually unethical to be generous with other people's money.
When an adjuster is considering his or her own personal finances, giving away significant amounts of money can be both laudable and a wonderful moral example. On the job, however, an adjuster cannot overpay claims or pay claims that are not owed even when there is dire need. Whether pressured by a fear of confrontation, false guilt, or a heartfelt desire to help the needy, an adjuster has not been empowered or authorized to act as a charity worker, and cannot do so without committing financial dishonesty. As the saintly and altruistic Augustine of Hippo expressed it, "no one can say that it was a duty for a wrong to be done." Of course, Augustine would wholeheartedly agree that charitable giving was a fitting and proper activity. However, his principles of ethics on issues of duty and fairness elucidate why such actions are not a legitimate undertaking for an adjuster in his professional role.
Despite some restrictions imposed by fiduciary responsibilities, adjusters have things that are authentically possessed and can appropriately be given. These can include empathy, professionalism, prompt service, and courtesy. Adjusters can even make suggestions for how to obtain funds from other insurance policies, charitable organizations, or governmental programs when appropriate. Claim professionals also can encourage and participate in legitimate company programs that benefit the community (which can be both an ethical business practice and a valuable marketing tool). But an adjuster can never act to the detriment of insureds, the company, or stockholders by paying funds that are not reasonably owed. Such payments effectively constitute spending other people's money against their wishes.
When tragic circumstances in claims create a desire to pay above what is owed, it is also helpful to remember how others are harmed by neglecting the terms of the insurance agreement. Overpaid claims can result in excessive and unfair premiums to insureds. A stockholder who took out an investment with an expectation of honest dealings can be deprived of rightful investment growth. Fellow employees and vendors who derive benefit from a healthy company can miss out on the dividends that come from financial stability. And lastly, society as a whole can suffer when other deserving claimants and insureds are left without compensation because of insolvent insurance companies. Recognizing all the different parties that are directly or indirectly involved in every claim can give an adjuster further confidence in the ethics behind denying or paying claims according to the policy contract and applicable state and federal laws.
The Frugal Adjuster
Perhaps the more common danger in the insurance claim industry is that of the underpayment of claims. The temptation can be to focus excessively on saving money and make the leap from equitable frugality to dishonest parsimony. There is little need for elaboration on why underpaying claims is ethically wrong. The insurance contract is a promise, and when adjusters fail to pay fairly and promptly according to the contract, it is akin to dishonesty and theft.
Even for those not driven by ethical ideals, it is relatively easy to understand the business risk of such unfair claim settlement practices. Simply put, modern insurance regulation and society's heightened litigiousness have created an environment where such practices are "penny wise and pound foolish." The list of potential penalties and pitfalls is daunting:
- Extra-contractual and punitive judgments for which no premium was paid (i.e., bad-faith actions).
- Increased litigation costs from dissatisfied claimants and insureds.
- Fines and other discipline by the state department of insurance.
- Loss of adjuster or insurer license.
- Bad reputation among agents or the general public with a resulting reduction of policies.
These sorts of reasons are why many management teams are recognizing the relative value of low average net claim payments (ANCP). Every claim manager with basic business sense understands the problem with a high ANCP. However, an ANCP that is significantly below an industry average could also be a sign of trouble ahead and a reason for a closer examination of an adjuster's or department's claim practices.
Character Adjusting
Of all the world's philosophers and sages, Confucius may be the most well known for his recognitions of the stressors of fulfilling the high calling of business ethics. He was under no illusion that following one's duty would be an easy affair, one without challenges or even significant risks. For Confucius, it was precisely the difficulty that made the experience so valuable: "The gem cannot be polished without friction, nor a person perfected without trials." It was the person who did what was right when it was difficult or detrimental who was truly found to be the ethical and admirable person.
It is in the day-to-day experiences of adjuster life that ethical growth takes place. Whether in the form of an insured or claimant who criticizes for paying "only" according to the policy contract or a manager who objects to an equitable settlement, every adjuster is presented with opportunities for personal growth with every contested claim. In striving to follow their fiduciary duties properly, the adjuster also can help illuminate the same ethical opportunities for others involved in the process.
The claim professional who knows the wording and intent of the policy and of applicable laws will have the necessary knowledge to adhere to ethical claim handling. All adjusters should be careful both to know and understand their state's unfair claim settlement practices laws and their potential consequences. Of course, knowledge is the starting point for ethical action and adjusters must be prepared for the trials that may be ahead. Authentic ethical decisions for an adjuster can potentially result in heated condemnations from insureds and claimants, friction with co-workers or supervisors, decreased audit scores, and even the need to change companies. This is clearly part of the challenge that Confucius would have had every worker undertake.
Fortunately, such negative effects tend to be the exception rather than the rule. Confucius found many loyal disciples during his career and has come to be known as one of the most esteemed sages in world history. Many of his disciples rose to high government positions and found that their ethical and fair dealings brought trust and respect from both their superiors and their peers. Although ethical behavior should be its own reward, usually it is also a solid basis for amicable claim settlements and a successful career as well.
Adjusting is perhaps one of life's best examples of the phrase, "you can't please everyone." Every claim professional knows the conflict that is inherent in the business. For the adjuster who has a firm grasp of proper role and duty, however, an ethical passage can be marked out for a principled career that benefits self, company, and society at-large. In the ongoing practice of paying and denying claims according to duty and fairness, adjusters can reap rewards with those of other professions who face difficulties and improve themselves in the challenge.
Barrett A. Evans, AIC, is a claim unit manager for Insurance House, and has both a Master of Counseling and a Master of Divinity degree. He may be reached at e-mail bevans@insurancehouse.com.
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