A Question Of Ethics? Should You Buy Coverage From Your Own Carrier?

Earlier this year, I reported that the president of a major carrier casually noted that he did not buy personal lines coverage from his own company for fear of raising ethical conflicts. Our regular ethics columnist,Peter R. Kensicki–queried NU readers on what they thought, prompting one of our biggest responses. Click on to read what your colleagues make of this conundrum, and feel free to weigh in with additional comments.

Mr. Kensicki–professor of insurance at Eastern Kentucky University in Richmond , Ky., as well as a member of the Ethics Committee of the CPCU Society–wrote the following column about his findings in the March 23 edition of National Underwriter:

The president of a major insurance company was quoted in NU as saying: I dont have insurance with my company from a conflict perspective. I just think its not right for me to be insured by my own company. The questions we posed to readers were: (1) Is this ethical concern warranted, and (2) How can any ethical concerns be addressed?

Not one respondent felt it was outright unethical to buy insurance from a carrier you work for, or from one you represent as an agent or broker. However, there was a strong 70-30 split as to the advisability of doing so.

The majority believes it is not a good idea to buy from ones own company, while a significant minority sees absolutely nothing wrong with the practice. A few cited situations where ethics may be involved.

The majority view will be presented first.

A different CEO of an insurance carrier is not in favor of his company insuring him or any of its employees. Why would you ever have your carrier exposed to a loss on your own property? Its not ethics, its common sense. This executive notes that his firm does not even knowingly use the services of its insureds. Why increase our liability exposure for our own incurred injury.

All responding adjusters and adjusting executives agree that while ethical, it is a bad idea. One questioned if all employees would be treated the same after a loss. He also noted that the adjuster assigned to an employee loss may be uncomfortable adjusting a colleagues (or a superiors) loss.

From the standpoint of the employee with the loss, the concern was what reasonable action could be taken against the company if the employee was unhappy with the settlement offer. If the employee is unhappy, how do they raise the issue?

A senior claims executive noted: We in the claims department are put in an uncomfortable position when we have to handle claims of corporate officers or board members. In each instance, potential conflicts needed to be addressed.

When these situations arise, this executive places himself in the middle between the adjuster and the claimant officer. This is not the ideal way to communicate claims information, but I cant imagine asking one of my adjusters to deny the claim of the company presidentwhich weve had to do! I also do not want my subordinates to experience the pressure such discussions can entail, or having to choose between either keeping his or her job or handling a claim to conclusion properly.

Another adjuster saw implications beyond loss adjustment: I applaud the decision to not be insured with your own company. How could a CEO sign off on any reduction of rates or broadening of coverage that might benefit their own coverage without being in a compromised position? It would be untenable. This adjuster saw no negative message implied from not insuring with the carrier you lead–perhaps showing a lack of confidence in your own company: I see just good common sense. We could use more of it.

Underwriters were also generally opposed to the idea of buying insurance where you work. I know many employees of insurance companies who wont buy from their own carrier. It avoids potential conflicts and keeps information private, said one underwriter.

Another underwriter noted that one reason not to buy from your own company may be that the employer does not offer the appropriate coverage for a particular employee. Maybe your company does not offer a special program for high-valued homes and associated contents. It would make sense to shop elsewhere.

This same underwriter, however, did cite pressure when underwriting an employee. Employees did get judgmental breaks. We just sucked it up and moved on. Also noted in this response was the potential for an unethical purchase if premium breaks–not offered to similar, non-employee insureds–were given to employees, or if no commission was charged.

A quartet of non-CEO executives were opposed to the idea. Its not unethical, but unwise wrote one. Another commented: There are good arguments on both sides, but as long as employees get the same treatment as other insuredsno premium breaks or favorable claims treatment, it is ethical.

The third had a claim under an employers policy that soured the work experience. I asked that the claim settlement proceed as normal and hoped they would do nothing to interfere with a criminal prosecution. My company screwed up the adjustment, and it resulted in the responsible party getting a lesser criminal penalty. It left me particularly hostile to my insurer-employer and, in part, led me to leave that employment after decades of service.

The fourth worked for a carrier that prohibited employees from insuring with the company because of potential problems if a claim arose. Just my luck, I got hit in a parking lot by one of our insureds and had problems with the claim, anyway.

An actuary also recommended against buying from an employer based on a personal situation. Its a horrible idea to buy from your own company. My experience was an accident where my company insured both me and the other driver. The adjustment was botched and bad faith was a real possibility. No employee should ever be in that position with an employer.

A CEO of a residual pooling facility offered four good reasons not to buy from an employer.

First, there will be a perception of special claims treatment for an employee whether there was special treatment or not.

Second, it would not be a good idea to have to sue your employer over a claim.

Third, any accidental mistakes made in rating creating an incorrect discount will create problemsespecially if the mistakes are caught during an underwriting audit.

Fourth, privacy must be considered.

An agent association employee recommends that those in similar situations not insure with a company supporting their group. I had Marx Brothers-type claim service from an insurer who strongly supported our association. There was no way to complain. I moved my insurance at renewal and learned my lesson.

Agents commenting were split on the issue. Those opposed expressed comments similar to those from insurance company employees. For example: I want to be able to sue and not beg. For the same reason, I wont insure any close friends or relatives. I can help them better if Im not involved as an agent for the insurer.

Another agent, and former adjuster, replied: Its common practice to insure with an employer or a represented company, but there is one overriding reason not to–privacy of medical records and personal information.

On the other hand, most agents favored the idea of buying from an employer or represented company. It would be like the CEO of General Motors driving a Ford. Your company deserves your loyalty. As an independent agent, should I buy from an exclusive agency company? Not on your life! Ill get the best service from the companies I represent.

Another representative answer from an agent was: Not buying from your own company sends the wrong message. Buying from another company is inconceivable. Another wrote: I cant imagine buying from a competitor. I do not want or expect favorable treatment. If I had to look for a good reason not to buy from my own company, it would be privacy reasons.

The bottom line is that most respondents believe buying insurance from a company you work for or represent–while not unethicalmay be unwise. (See the accompanying infographic for the primary conflict concerns expressed by readers.)

The suggested solution was the universal cure for any exposureavoidance. Just dont buy insurance from your employer or a company you represent.

However, there are also risks to consider from the other point of view. Those favoring purchase from an employer or represented company cited these reasons:

Not doing so creates a horrible image for the employers product and services.

Not helping the competition to succeed.

An expectation of better service.

This group strongly suggested that the insured employee or producer not exert any pressure for favorable treatment.

The bottom line from respondents to our latest Question Of Ethics was that most believe buying insurance from an employer or company you represent–while ethicalmay be unwise for the following reasons: