In recent years, ethics has become a highly visible issue in the world of financial services. One reason is the inside trading scandal of Wall Street that exposed the greed of well-known securities traders. These scandals were followed by several well-established brokerage institutions' disregard for rules and regulations. Both of these situations gave the public ample justification for their skepticism about the acceptability of Wall Street's behavior. The failure of several major commercial banks in states that experienced pronounced economic downturns added to financial services companies' loss of public confidence. The largest wave of public distrust, however, stemmed from the multibillion-dollar savings and loans bankruptcies, where mismanagement, corruption, and misallocation of resources were common news from nearly every area of the country.
Unfortunately, the life insurance business has mirrored the financial problems of the banking institutions with its own series of insolvencies and near-insolvencies of companies that were practically household names. Added to these woes is life insurance agents' tendency to use exaggerated pro forma projections for their products while bashing their competitors. Increased competition among agents and brokers has caused a huge wave of policy replacements, misrepresentations, premium misquotes, etc. In many cases, it is questionable whether the replacement was in the best interest of anyone except the agent. These well-publicized actions have influenced the public's negative perception of all financial institutions as well as insurance companies and agents.
Striving For Professionalism
An in-depth evaluation of the life insurance business yields much more positive evidence. Major life insurance companies are strongly advocating ethical behavior and are spending large sums of money on the professional education of their agents and corporate employees. There is no industry that devotes more attention to professionalism than major life insurers. Many companies do far more than give rhetorical endorsements of the professional designations earned through The American College. They encourage their agents to earn designations, and they reimburse the cost of tuition and fees for Chartered Life Underwriter (CLU) and Chartered Financial Consultant (ChFC) courses. Many also offer financial incentives to agents for successfully completing the courses. Designation programs stress that ethical behavior is a major component of the professional status of the designations.
The CLU Pledge
In 1984, the Code of Ethics became a mandatory part of the professional designations conferred by The American College. Within the Code of Ethics is the CLU Pledge, accompanied by eight canons. The following statement is the formally accepted commitment of every CLU designee:
In all my professional relationships I pledge myself to the following rule of ethical conduct: I shall, in light of all conditions surrounding those I serve, which I shall make every conscientious effort to ascertain and understand, render that service which, in the same circumstances, I would apply to myself. The eight canons of ethical conduct that augment the CLU and ChFC pledge are as follows:
I. Conduct yourself at all times with honor and dignity.
II. Avoid practices that would bring dishonor upon your profession or The American College.
III. Publicize your achievement in ways that enhance the integrity of your profession.
IV. Continue your studies throughout your working life so as to maintain a high level of professional competence.
V. Do your utmost to attain a distinguished record of professional service.
VI. Support the established institutions and organizations concerned with the integrity of your profession.
VII. Participate in your profession by encouraging and providing appropriate assistance to qualified persons pursuing professional studies.
VIII. Comply with all laws and regulations, particularly as they relate to professional and business activities.
A code of ethics made up of a pledge and a set of canons does not in itself, however, make an industry ethical. In fact, cynics are quick to view all such proclamations as hypocritical or nothing more than camouflage for unethical conduct that is not really challenged by industry leaders. While the cynics and other critics of the life insurance industry can undoubtedly find some examples to support their contention, their attitude adds nothing constructive to the ongoing challenge of raising the level of professionalism.
Three Levels Of Ethics
In THE MORAL MANAGER, Clarence Walton describes three levels of ethics. First, descriptive ethics seeks to determine not what ought to be done but what is being done in ways that are acceptable to the community (in other words, telling it like it is). Second, metaethics, which can also be called analytical ethics, deals with such traditional philosophical questions as the meaning of truth or goodness. The theoretical dimension of ethics is at this level. Third, normative ethics is what Walton describes as the principles needed to distinguish right from wrong. The application of ethical principles is in this level. We are writing from the normative perspective of ethics.
Subsets Of Normative Ethics
Walton describes three subsets of normative ethics: managerial, business, and professional ethics. The first deals with the obligations that are imposed on people because of their position in an organization. The second, business ethics, focuses on the marketplace and how the organization behaves towards other organizations and customers. Professional ethics includes the principles that arise from the obligations to clients as established in a code of ethics (such as the CLU and ChFC Pledge).
Getting On The Right Track
Walton cites three approaches to finding the right moral track. The first is the utilitarian approach. Perhaps the best definition of utilitarianism is by philosopher/economist Jeremy Bentham who described it as 'the greatest happiness of the greatest number.' The shortcoming of this approach is that it tends to ignore the importance of individual rights.
The second approach, deontology, refers to duty or obligation and focuses on the results that an action is likely to produce. Philosopher Immanuel Kant says that the essence of morality is strict respect for certain duties, and that these duties supersede any other goals.
The third approach is a compromise between utilitarianism and deontology, which Walton calls deonutility. He describes this as blending respect for rights with responsibility for consequences. Deontologists and utilitarians agree that decision makers should act on the premise that good principles bring good results, that particular cases determine the selection of the preferred principles after all relevant ones have been considered, and that the moral person sees principles and consequences as inseparable in the pursuit of justice. Thus, the commonalities between the two approaches are considerably greater than the differences between them.
Taking Responsibility
Dr. Robbin Derry, former Chairholder of Ethics and the Professions at The American College, maintains that although a life insurance agent's ethical requirements are numerous, they are not complicated. The challenge, therefore, is not in deciding what is right but in placing the responsibility for these ethical requirements on the proper shoulders. Derry sees the challenge as determining who is to carry out these ethical actions. Derry sees the challenge as determining who is to carry out these ethical actions. Her concern is that too often an agent merely reads ethical guidelines and sets them aside with the assumption that other people will see that the guidelines are followed. Derry believes that it is everybody's responsibility to persuade those around him or her to think more about ethical issues. Encouraging practitioners to think about ethics is a positive beginning. The step that must follow, however, is to look at the systems around us and determine whether they support ethical behavior and if not, to initiate the appropriate changes so that they do.
Derry recognizes two main relationships in the life insurance industry. One is the relationship between companies and their agents; the second is the relationship between agents and their clients. Each relationship, according to Derry, involves extensive communication, rewards, and patterns of interaction that need to be carefully examined in order to understand where deceptive or misleading behavior is being condoned, either through negligence or explicit rewards. While both agents and corporate mangers bear responsibility for ethical behavior in their interactions, the major responsibility for establishing an ethical relationship lies with the agent or broker. In short, Derry contends that ethical responsibility rests primarily with the party who holds the greater power and expertise.
Key Issues
In the fall of 1990, two Drake University professors surveyed CLUs and ChFCs. The first survey was to determine perceptions about the key ethical issues and dilemmas facing the life insurance industry.
The second was designed to determine the factors that help or hinder agents' efforts to respond ethically to various dilemmas encountered in their work.
The key ethical issues for the industry can be summarized as follows:
- failure to identify the customers' needs and recommend products and services that meet those needs
- false or misleading representation of products or services in marketing, advertising, or sales efforts
- conflicts between opportunities for personal gain and proper performance of one's responsibilities
Challenges To Ethics
The second survey indicated that the greatest challenges to ethical behavior are generally tied to competition, which causes management to focus on the bottom line rather than on business ethics. Respondents also viewed competition on the agents' business environment as a major obstacle to ethical behavior. In particular, the survey revealed that agents face a significant challenge to act ethically on their work if their company culture encourages compromising ethics to achieve organizational goals. There are two situations in particular that hinder agents who seek higher levels of ethical behavior. One is an environment on which employee performance is measured on the basis of results without equal consideration of how ethical the means are of achieving those results. The other is when performance is based on quotas, such as amounts of insurance sold, cases underwritten, or claims processed.
Although the studies above indicate that ethical issues abound for agents and companies in life insurance and related financial services, Derry found an interesting phenomenon when she talked to corporate executives or general agents-the denial of their personal ethical responsibility. These people admitted that there are ethical problems in the industry but not problems for them personally because they have higher ethical standards in their own company or agency than the industry does. Derry says that this denial shows that people often have difficulty examining their own ethical conflicts. They must be encouraged, therefore, to take responsibility for situations in which they can exercise control.
Fostering Ethical Behavior
On the practical side, then, what can a company, agency, or agent do to foster an atmosphere of ethical behavior? Our answer can be found in the preceding summary of survey results.
Continuing Education
Our first source of ethical conflict-an inability to identify needs and make recommendations to meet those needs-can probably be called an educational issue. Since 1927, The American College and The American Society of CLU & ChFC have worked closely with the insurance industry and its affiliated associates to develop courses, materials, and standards with high educational objectives. A recent example of this close relationship is the establishment of the PACE (Professional Achievement in Continuing Education) program in 1989. PACE sets specific, annual continuing-education requirements for participants-requirements that have been mirrored by many state insurance departments.
All of us recognize the implications of the phrase 'Knowledge is power.' In the case of an insurance agent or financial planner, knowledge is the key to providing the best possible assistance to the client-knowledge that can help the agent objectively sift through the myriad financial problems presented by the client and trace the correct path for him or her to follow. Without this knowledge, the agent is truly lost-probably just as lost as the client.
A client's request for guidance is a natural consequence of his or her lack of insurance or financial expertise. An agent's inability to answer that call for guidance may be a natural consequence of having never been forced to account for this inability. This raises two additional issues: (1) the ethical dilemma of the agent who feels that he or she must provide an answer-any answer-or lose the case, and (2) the ethical dilemma of the agent, the agent's supervisor, and the company's senior management when they assure the consumer that he or she is getting the best possible advice and recommendations-even if they doubt it.
Both of these ethical issues can be resolved for all concerned-the agent, supervisor, company, and client-by ensuring that comprehensive continuing education is offered to all agents, with incentives given to agents who take advantage of these educational opportunities. Establishing continuing education as an agency objective is in the best interests of the public we serve. It is both a practical endeavor and a reflection of the agency philosophy to provide the greatest good for the client, the agent, and society.
Putting An End To Misrepresentation
Our second source of ethical conflict-misrepresentation-can best be defined as an issue of competitiveness. Here, too, we all share the responsibility of not giving in to the temptation to join the misrepresentation 'arms race'-issuing misleading sales illustrations; making derogatory statements about other agents, products, or companies; or stating that our particular product contains benefits or features that is does not.
Such activity usually stems from a profound sense that our company, our product, and our sales skills are superior to anyone else's company, products, or skills. Pride in one's work is natural and a motivational ego boost. But although pride is simply an outgrowth of our desire to succeed, it becomes self-defeating-and perhaps unethical-when it reaches extreme levels.
We've all been told repeatedly that as agents we are the company-indeed, we are the insurance industry-to the general public. But what do members of the public think of us when we stand before them and belittle another person, product, service, or company? What is the public's opinion of us when we tell a prospective client that the sales illustration by a competitive agent is all wrong and, by the way, that our sales illustration is better?
Our misrepresentation race has to end in much the same manner as the nuclear arms race ended: by deciding that our mutual interests are better served by a self-imposed cease-and-desist order than by self-destruction.
Enhancing The Quality Of Life
Last, let's look within ourselves to discover the seeds of our third ethical dilemma-the conflict between opportunity and performance.
American history is replete with stories of the work ethic and how it has transformed this country into one of the world's superpowers. Many who came before us made the most of their opportunities and talents. Austrian philosopher Viktor Frankl states that it is opportunity, performance, and work that create the quality of one's life. If any of these factors are bad, than life itself is misspent.
As agents, we face the conflict of opportunity and performance daily. What should we do? Should we cut corners? Look the other way? Leave the room when we know an applicant isn't telling the truth on an application? Smile knowingly at the other person when an ethical conflict emerges?
Let's go back to Viktor Frankl for the answer. Arrested and thrown in a Nazi concentration camp, he maintained his belief in himself and humankind. He roused his fellow prisoners' spirits when there seemed to be no reason for hope. It was only when he heard through the camp grapevine that the Nazis had destroyed his writings, essays, and philosophical works that his spirit fell; his work had been his life. As he reflected, if the Nazis had killed him, it would have been only one more death, but their destroying his work deprived the world of the benefit of that work.
In the final analysis, all of this goes beyond the questions of ethical behavior. Whatever contributions we make through our work to ensure a high quality of life for others will reward us. Whatever we do through our work to deprive others of a high quality of life will also yield a return, but not a reward. In personal terms, we pay for our unethical behavior through damage to our inner selves.
So take advantage of the opportunities offered to you. Expand your knowledge through continuing education. Develop pride in your work. And above all, refine your personal sense of ethics. It will contribute greatly to the meaning of your life.
Notes
1. Clarence C. Walton, The Moral Manager (Cambridge, MA: Ballinger Publishing Company, a subsidiary of Harper & Row, 1988), pp. 105-106.
2. Walton, pp. 107-112.
3. Robbin Derry, 'Standards We Must Not Stretch,' Best's Review (Oldwick, NJ: A.M. Best Company, September 1990).
4. Robert W. Cooper and Garry L. Frank, 'Ethics in the Life Insurance Industry,' Journal of the American Society of CLU & ChFC, Vol. 45, No. 5, September 1991, pp. 54-66.
5. Viktor E. Frankl, The Will to Meaning (New York: New American Library, 1970), pp. 37-38.
Reprinted with permission from ESSAYS ON ETHICS, Volume II, for discussion during Ethics Awareness Month, March 1994, Sponsored by The American College, American Institute for CPCU, American Society of CLU and ChFC, and CPCU Society. Dr. Weese is president of The American College, Bryn Mawr, PA. Mr. Jensen is director of continuing education development at The American College.