Second of two parts
While preparing a proposal for a potential client, you notice that payroll has been consistently understated by the insured in both applications and self-audits. You represent the insurer involved with the current policy but are seeking a quote in this case from a different one.
What are your ethical duties to the current insurer you do business with, the proposed insurer and the client for whom you are seeking a quote?
In Part 1, last week, we saw that everyone responding agreed the ethical duty to the prospective insurer is to give accurate and complete information. Similarly, there was consensus that the insured needs to be counseled about the possible ramifications of underreporting.
Where respondents differ most is on the question of the agent's obligations to the current insurer. While many believe the current insurer should be told the truth, others see no obligation to inform the current insurer. Potential legal trouble heads the list of reasons why for this latter group.
An Arizona commercial underwriter notes that legal obligations to the current insurer may differ if the incumbent producer is an agent or broker. A Minnesota agent warns that the new quoting agent cannot contact the current insurer as it would subject him to a lawsuit from the prospective client.
Confidentiality, closely associated with the legality arguments, was the second most common reason given for no ethical obligation to inform the current insurer.
"Despite my wanting the producer to inform the current insurer, I am not sure the producer can say much without violating confidentiality duties to the prospective insured. Any information, such as payroll, could carry the expectation of confidentiality," says one respondent.
A senior vice president of operations writes: "While there is an obligation to the current insurer, there is also a conflict with the agent's obligation to maintain confidentiality of the client's information. Use of the payroll information, beyond presenting it to another insurer for a quote, might breach that responsibility."
An attorney advises that the action chosen may depend on the agency's contract with the current insurer, which could require the agent report all material information to the company.
"Does that requirement apply to accounts not personally placed with this insurer?" the attorney asks. "I conclude the agent can ethically transmit or not transmit the information to the incumbent—either course of action could be ethical depending on the facts," the lawyer continues.
Other interesting comments include this one from a Florida agent who writes: "I'm not sure it is ethical to butt into another's business, especially when I may not have all the information. But I might inquire to the current insurer about its stance on physical audits and suggest a policy of physical audits every three years or so."
A home-office employee, while agreeing the insured's ethics are wrong, places an ethical onus on the current insurer: "To my mind, the real ethical dilemma here is the use of the self-audit reporting form."
The Arizona underwriter gives the prospective agent a pass for a similar reason: "The incumbent carrier had the capability, through the contract, to get this information through an audit."
A residual market executive wants some response from the prospective agent. "I would want the agent to give our audit department an anonymous call, alerting them of the discrepancy and urging a full-blown audit."
The Next Question Of Ethics
For Dr. Kensicki's next column, he asks readers to comment on the following: In most states an insurance agent has no legal duty to recommend coverage to an applicant for insurance unless the agent in some manner assumes that duty.
But what ethical responsibilities does an agent have with regard to recommending coverage, and do those duties vary if the producer is a broker?
Please forward your responses by June 9 to peter.kensicki@att.net or via mail to his attention at 105 Bittersweet Drive, Richmond, KY 40475. All responses will be kept strictly confidential. Please include your role in the insurance business.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.