Must You Make Coverage Available & Affordable?

Some regulators believe they are charged with forcing personal lines insurance to be both affordable and widely available. This leads to the latest two ethics questions posed to National Underwriter readers:

o Are insurers and producers ethically required to assist in making personal lines insurance affordable to all?

o What are the ethical responsibilities of insurers and producers, if any, to provide coverage to all who approach them?

Generally, respondents believe ethics require maintaining solvency before making personal lines insurance available at prices anyone can afford. Ethics require adherence to laws, and rating laws require rates to be adequate. If affordability means inadequate rates, it is thus unethical to offer those “affordable” rates.

Most feel a greater good is served if rates are adequate, and it's better to offer insurance at some price–even if it's not affordable to all–than to not offer insurance at all.

Most also believe the ethical problems with affordability and availability lie not with the producers and insurers, but with the politicians and the court system.

Finally, most feel insurance need not be offered to all who request it. However, if an applicant seeks insurance and if the applicant is eligible, insurers and producers ethically should obtain the best coverage at the lowest price for them.

Question one above posed few problems for NU readers. Most indicated that, to one degree or another, there is no ethical requirement to make insurance available and affordable to all.

For example, one insurance company reader explained that “insureds effectively set the greatest percentage of premium by their collective losses. No insurer or producer can control that. Further, most states have some form of residual markets available to treat the availability issue. Again, no insurer or producer can control those residual markets. There is just no ethical issue here.”

A home office employee did opine as to a responsibility to help: “We are bound to assist to make personal lines insurance available and affordable, but rates must be adequate. Spreading risk could help stabilize rates.”

From a program manager of an insurance company came a slightly different view: “Unless there is a law mandating insurers and producers to make 'affordable' coverages available, there is no ethical reason why they should. The opposite is true. The law mandates rates be adequate, not unfairly discriminatory and not excess. To do otherwise would be unethical.”

An administrative manager of an insurance company noted that regulators who drive rates to inadequate levels actually reduce availability: “One insurer had a presence in Florida for decades and tried to balance the availability and affordability of personal lines. With the reluctance of the state to grant adequate rates, it decided to discontinue offering homeowners coverage.”

This reader went on to state that “an insurer has a responsibility to all of its insureds to remain financially sound. Regulators have ethical responsibilities, too.” An Indiana correspondent was blunt: “If rates are forced to be woefully inadequate, the regulator will be the king of an empty empire.”

A risk management consultant wrote: “Ethical issues? No. Legal issues? Yes. It's not just rates–even cancellation laws make insurance less available and more expensive. Transferring wealth is a governmental function, not an insurance function. Residual markets are always available.”

A residual market manager also saw no ethical issues: “Availability and affordability are what residual markets are for. To make personal lines more available and affordable, a state or federal contribution may help.”

An Illinois producer said “this has been on my mind for years. I do feel most everyone should have access to insurance. Whether they can afford it or not is another story. The problem is politics.”

This producer went on to say that “Florida is a prime example of politics causing a problem with both affordability and availability. My friends here think it is horrible that their homeowners insurance in Florida is five times the cost as their $1 million homes here.”

The court system also was cited as contributing to the availability and affordability problem. One reader said “it is nonsense to try for availability or affordability in light of outrageous judgments and an excessive number of lawsuits against insurers in such jurisdictions as West Virginia and Madison and St. Clair counties in Illinois.”

This reader added that “I know insurance spreads risk, even among the states, but certain courts and plaintiffs' bar have no sense of fairness. That is why so few insurers are willing to write insurance of any kind in those and a few other jurisdictions. It is not ethical to mistreat all insureds because of a few unethical courts and lawyers, and it leads to higher rates for all.”

As to the ethics of providing insurance to all who approach, the answers generally indicated no ethical duty to do so. The threat of insurer insolvency because of inadequate rates was the major reason most respondents did not believe there was a duty to provide insurance to all comers.

“A producer should try to find coverage at the best possible price when approached by an applicant,” wrote the home office employee. “Also, if a current client is written at substandard rates, the producer has an obligation to place them at standard rates later when the original underwriting problem has passed.”

The administrative manager said “no insurer is bound to provide insurance to all applicants. There are too many variables to require an insurer to do so.”

Adding an example, the program manager noted: “Ethically, if someone meets eligibility requirements (which also must be ethical), the producer needs to help them find insurance. However, there is no ethical requirement to actually provide coverage that they can afford.”

Another respondent agreed: “Producers and insurers have dual ethical obligations. They should provide access to all who approach them, but at rates that generate a sufficient return to maintain business viability. Consumers and regulators may not like high rates, but it is better than no insurance at all.”

A manager at a small insurance company, who is also a licensed agent, offered his dual perspective: “At the end of the day, if I am wearing my agent's hat I will do everything legally possible to find affordable coverage. But some risks are inherently uninsurable.”

“As an employee of an insurer,” he added, “I'm duty bound to my policyholders and stockholders to do everything in my power to earn a profit. In neither case do I leave my ethics at the door.”

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. He may be reached at ethics@eku.edu.