EthicsforINSPros RN V7

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Ethics 311
Ethical Guidelines for Insurance Professionals
Review Notes
This material is solely for use in connection with the Ethical Guidelines for Insurance Professionals course. The material is copyrighted and is used with the permission of the copyrightholder
About This Study Aid

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for the examination. Each assignment is outlined according to the Educational
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2010
American Institute For Chartered Property Casualty Underwriters
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1st Edition 1st Printing March 2010
Ethical Behavior: Defining Terms

Required Reading
ASSIGNMENT
Educational Objective1
Distinguish between these terms:
Morals
Laws
Ethics
Key Points:
Morals, laws, and ethics form the foundation of ethical behavior.
A. Morals
1. Moral principles and rules of conduct dictate the appropriate response when decisions must be made between right and
wrong, such as decisions between honesty or dishonesty, paying
or stealing, playing by the rules or cheating, and so forth.
2. These decisions generally are based on what feels like the
right thing to do or on what one was taught todo.
3. Moral values come from a number of sources. They are defined
by society, religion, governmental entities, and individuals.
4. Societal peer pressure ensures that individuals and groups
uphold defined moral values.
5. Governmental entities establish rules and regulations to
encourage moral behavior and discourage immoral actions.
a. The business of insurance is highly regulated.
b. Insurance professionals who fail to act in accordance with
applicable laws or regulations are subject to fines or lost
business opportunities, and can even lose their livelihood.
Study
Tips
Remember to register for your
exam by calling The Institutes
at (800) 644-2101.
B. Laws
1. Laws impose a sense of societal decency and order. They exist
to protect people and property and to establish a code of appropriate behavior.
1.1
1.2 Ethical Guidelines for Insurance ProfessionalsEthics 311
2. The insurance environment is heavily regulated at the local,

state, and national levels.
a. State governments establish requirements for the types and
minimum levels of insurance required.
b. At the state level, insurance commissioners or state insurance departments determine administrative standards,
approve policy wording, approve rate schedules, and outline
licensing requirements.
c. At the national level, certain types of exposures, such as
those involving marine and railroad workers, are regulated
by Congress.
3. An insurance policy itself falls under the concept of contractlaw.
4. Insurance professionals may be affected by laws in a number
ofways.
a. The behavior of claims professionals is regulated by unfair
claims practices statutes.
b. Agents must adhere to licensing requirements.
5. Insurance transactions must first be legal before they can be
considered ethical. Difficulties can arise in circumstances
where compliance with the law may not be in the best interests
of the consumer.
C. Ethics
1. Ethics involve consideration for duty and for what is the right
response when a conflict arises.
2. Ethics are, in essence, codes of expected behavior that apply in
the absence oflaws.
3. Ethics are derived from morals and are applied when a purely
moral response might not be ultimately appropriate. Ethics
entail knowing what to do when a situation presents more than
one right answer.
4. Individual values significantly influence ethical behavior.
5. Business ethics entail making optimal choices in the workplace
and doing what is right in the context of products and services
and relationships with stakeholders.
6. Ethics requires that the insurance professional think through
each conflict situation, bearing in mind the codes of expected
behavior, ethical guidelines, and moral values.
I have reviewed this Educational Objective

I have mastered this Educational Objective
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__
Traits of Professionalism
Required Reading
ASSIGNMENT
Support the position that insurance practitioners should possess and exhibit the characteristics of
professionalism.
Key Points:
Because a high level of trust is needed for insurance transactions with
the public, a successful insurance practitioner must exhibit professionalism.
A. Traits of Professionalism
Several traits characterize professionalism:
1. High ethical standards
a. A professionals work should always reflect integrity in order
to earn and deserve consumer trust.
b. In the insurance industry, a standard of utmost good
faith exists to ensure the ethical nature of the relationship
between insureds and insurers.
c. An insurance practitioner must act with integrity, be honest
and trustworthy, have a sense of equity and fairness, and
accept personal accountability.
To act with integrity, the insurance practitioner must be
open and candid.
Honest and open communication fosters an authentic
relationship between the parties to the insurance contract as well as with third parties who may be affected by
the contract.
Insurance practitioners cannot be fair with insureds
and claimants if they do not know what constitutes
fairness. A sense of equity allows the practitioner to
consider the needs of all stakeholders.
Personal accountability requires insurance practitioners
to consider their conduct and its influence on outcomes.
Study
Tips
Rewriting key concepts in
your own words can improve
retention.
2.1
2. Professional competence
a. The insurance practitioner must be knowledgeable about
insurance products, know how different coverage applies
in particular situations, and understand the implications of
risk and its affect on individuals and society.
b. Beyond mere knowledge about these issues is the ability to
efficiently and effectively apply that knowledge to a given
situation for the benefit of all stakeholders.
c. Professional competence includes the ability to perform the
tasks of an insurance professional in a thoughtful, organized
fashion.
d. Professional competence includes a personal awareness of
the level of competence at which the practitioner is able to
work and acknowledgement of limitations.
3. Sense of altruism
a. Altruism is an unselfish concern for the welfare of others.
b. Although insurers strive for profitability, an insurance practitioner must practice altruism when interacting with and
serving insureds.
c. Altruism serves the needs of the individual as well as of
society by reducing burdens to society and stimulating economic growth.
4. Commitment to continuous education
a. Most insurance professionals hold at least one degree of
higher learning and/or certification from a recognized insurance education provider.
b. They also are often trained in specific job functions:
Underwriters must learn how to apply rates, rating factors, and underwriting requirements, and they must
come to understand insurance as a tool of risk management.
Agents must learn the risk exposures faced by a wide
variety of individuals and businesses in order to select
and acquire appropriate coverage.
Claim adjusters must learn skills such as property valuation, negotiation, and investigation techniques and be
able to apply the law to a given set of facts.
c. To perform at an optimum level, an insurance professional
must continually update his or her knowledge in response
to changes in the legal environment, new regulations, and
new statutes.
d. Formal education that requires testing serves to certify the
extent of knowledge gained from the course of study and
qualifies the knowledge of the insurance practitioner.
Traits of Professionalism 2.3
e. In response to rapid changes in the insurance industry, some

state insurance departments have mandated continuing
education as a prerequisite for licensing and license renewals.
5. Participation in an association or a society
a. Professional associations or societies, such as claims associations and agents groups, allow professionals to establish
standards for ethical behavior specific to their specialty.
b. Many of the professional associations in the United States
include local, state, and national participation.
Local participation is relatively inexpensive and involves
minimal travel expense, providing a convenient means
of disseminating information to a large number of
people.
State-level activities often mirror the regulatory environment of insurance at the state level and allow insurance
practitioners to become informed about legislative activities that could affect their work and their stakeholders.
National organizations provide high visibility, representation at the national or international level, and
consistency throughout the entire organization.
c. Professional associations provide an avenue for publication
of articles that report on current issues and provide analysis
within the insurance and risk management perspective.
d. By defining and supporting the activities of their members,
associations and societies assist them in upholding the highest standards of professional conduct.
e. Tied to the distinct identity of the group is the professional
code of the association or society that addresses the ethical
standards and ideals that the group requires of its members.
6. Ability to think and act independently
a. Participation in a group activity does not relieve insurance
practitioners of their duty to consider issues independently
and exhibit individual judgment.
b. When faced with a difficult situation or choice, the insurance practitioner will often consult with peers or mentors
to reach an appropriate decision. The consultation with
others does not remove the responsibility to analyze and act
independently.
c. A professional should be alert for temptations, such as
commissions, in order to avoid acting in ways that do not
benefit the insured or claimant.
7. Public recognition as a professional

a. The perception of professionalism is important for insurance practitioners in both the public view and in the view
of peers and stakeholders.
b. Professionals are recognized in many ways. One way is
through awards and acknowledgement by professional organizations or peer groups.
If an award is based solely on monetary accomplishments, it does not recognize professionalism; rather it
recognizes the practitioners ability to produce.
Individuals and organizations in general often do not
recognize and value production success as much as professional expertise.
B. Aspiring to Be a Professional
1. Continuous pursuit of knowledge, utmost good faith in all dealings, and adherence to standards and regulations all contribute
to professionalism.
a. This requires hard work and lifelong commitment.
b. It requires an insurance practitioner to participate in professional organizations, attend educational programs, and learn
about new products.
2. Aspiring to be a professional often requires personal sacrifice.
a. The long hours spent in training and education programs
require time away from family or recreational pursuits.
b. There is often a financial cost as well in the fees for education programs and exams.

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__
Traits of Professionalism 2.5
Key Word or Phrase
Contingent commission
A commission that an insurer pays, usually annually, to an independent agency that is based on the premium volume and profitability
level of the agencys business with that insurer.
Key
Words
Insurance Professionals and High Ethical

Standards
Required Reading
ASSIGNMENT
Summarize why it is important that insurance professionals maintain high ethical standards.
Key Points:
Because the insurance transaction is based on honesty and trust,
insurance professionals must maintain high ethical standards. The
ethical standards to which insurance professionals must adhere are
rooted in three general areas:
Study
Tips
Pace your study. Dont cram.
A. Regulatory Requirements
1. For an act to be ethical, it must be legal.
2. An insurance professional must understand applicable regulations and maintain knowledge of current regulatory issues
through a lifelong pursuit of continuing education, to know
what is legal.
3. An insurance professionals maintenance of high ethical
standards requires compliance with all regulations. Such
compliance can be complicated, particularly when insurance
operations involve multiple states with multiple regulatory
bodies.
a. Every state has a department of insurance and an insurance commissioner or regulator who is either elected or
appointed.
b. The National Association of Insurance Commissioners
(NAIC) protects the public interest by encouraging consistency among the states regulations.
c. States regulatory needs vary due to the economic activity in
the state, past catastrophic occurrences, or the basis oflaw.
4. Because the insurance product is a financial instrument, the
industry is considered to be part of the financial services sector.
a. Insurance being regulated at the state level, while banks
and other financial institutions are regulated at the federal
level, can generate regulatory complexities.
3.1
b. When a bank and an insurance agency merge, insurance

professionals may be required to meet both the state insurance regulations and federal banking regulations that are
required of the organization.
c. Organizations in the financial services sector have a
fiduciary duty because they handle funds on behalf of consumers.
d. An additional burden has been placed on the financial services sector by the United States Department of Homeland
Security, which has designated financial services institutions as critical to Americas safety.
This point of view led to the placement of the Federal
Emergency Management Agency (FEMA) under the
auspices of Homeland Security.
Because the National Flood Insurance Program (NFIP)
is part of FEMA, insurance professionals involved in
writing, selling, or providing flood coverage must comply
with Homeland Security and FEMA requirements.
B. Social Responsibility
1. Many insurance products have evolved from the identification
of a social need and the industrys societal responsibility to
meet thatneed.
a. The notion of workers compensation (WC) insurance as
a benefit provided by and paid for entirely by employers
arose in response to the volume of work-related injuries
that began occurring during the Industrial Revolution and
continued into the early part of the twentieth century.
b. The concept of fire insurance was created when groups of
homeowners first banded together to assist each other when
a fire occurred in a members residence.
2. An insurance professional must adhere to high ethical standards when considering whether coverage is appropriate for an
exposure, whether a fair premium is charged for the coverage,
and whether the purchaser has confidence in the product.
3. While consideration for social responsibility gave rise to the
insurance industry, in the modern world, attention to social
responsibility has risen to the status of a business success indicator.
a. Insurance professionals activities should not harm the
environment, and they should cooperate with the public
and with governing bodies in finding the means to improve
the environment.
b. Meeting their social responsibility may also serve other
needs of insurance professionals.
Insurance Professionals and High Ethical Standards 3.3
c. Insurance rating systems also encourage social responsibility. The opportunity for preferred rates motivates
individuals and organizations to become more responsible
in their actions.
d. Insurance company investments also serve to demonstrate
insurers awareness of their social responsibility.
By investing money in municipal bonds for the building
of roads or other public projects, for example, insurance
professionals play a key role in improving the lives of
others.
Insurers can also foster innovation and new industry
through investment in corporate equities and bonds.
4. By developing more diverse insurance products and then
making these products available to customers at a reasonable
price, insurers enable more consumers to purchase the products, enhancing economic confidence and setting the scene for
even more innovation to improve the world.
C. Economic Outcomes
1. Insurers collect premiums in exchange for the promise that
they will pay for covered losses. This creates a relationship of
trust and establishes an insurance professionals fiduciaryduty.
2. In general, individuals and organizations that demonstrate high
ethical standards are more successful in the longterm.
a. They avoid legal issues because their activities comply with
applicable laws and regulations.
b. They avoid allegations of negligence that could lead to an
action intort.
c. They honor their contracts and perform as agreed.
d. The organization is free to focus their attention on their
core business goals.
3. Both highly skilled employees and consumers are attracted to
ethical organizations.
4. The net result of maintaining high ethical standards from an
economical standpoint is a reduction in operational expenses
and reduction of costs relative to fines or legal defense.

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__
Ethical Responsibility to Groups

Required Reading
ASSIGNMENT
Give examples of an insurance professionals ethical responsibility to these groups:
Insurers
Policyholders
The public
Key Points:
Ethical responsibilities arise from duties owed to stakeholders. Insurance professionals must be cognizant of the ethical responsibilities
owed to three disparate groups:
A. Insurers
1. Insurers must provide customer service and protection from
harm while earning a fair profit. They do that by assisting consumers in managing their risk exposures.
2. Insurance professionals have a responsibility to support the
goals of the insurers they represent.
a. For example, the claim adjuster must consider and evaluate the plaintiffs pain and suffering, weighed against an
insurers fair offer in settlement of theloss.
b. Agents must not only sell policies but assess the profitability
of prospective policies and consider prospective policyholders prior loss histories as well as their level of commitment
to safety and loss control.
3. Insurance professionals must weigh and fully consider competing interests to ensure that decisions are ethical.
4. Insurers have direct contact with the public at two primary
contact points:
a. When the insurance coverage is purchased
Agents and underwriters have an obligation to review the
policyholders risk exposure carefully to place appropriate
coverage.
Study
Tips
Many of the exam questions
are based on the Key Words
and Phrasesremember to
review them thoroughly.
4.1
b. When a loss event occurs and results in a claim

Agents and underwriters must balance the customers need
for a fair price and comprehensive coverage with the duty
they owe the insurer to market adequate coverage at a fair
profit.
B. Policyholders
1. Policyholders as parties to the insurance contract
a. Policyholders have specific rights and duties as parties under
the insurance contract.
b. Insurance professionals demonstrate high ethical standards
by helping policyholders understand the coverage provided
and their responsibilities under the terms of the contracts.
2. Policyholders as consumers of insurance products
a. Unless products and services are responsive to consumers needs, they will not prove effective and will harm any
relationship the insurance professional has developed with
the consumer.
b. By demonstrating high ethical standards, insurance professionals can win the trust and approval of skeptical
consumers.
3. Policyholders as first-party beneficiaries
a. Policyholders must trust that the coverage purchased is
sufficient to indemnify them for losses, that the coverage
is comprehensive and will respond if adverse events occur,
and that the insurer will honor their claims fairly and
promptly.
b. Policyholders must trust that insurance professionals and
the insurers they represent will not misuse the premium
money, that they will honor the terms of their contracts,
and that they will operate their businesses in a profitable
manner so as not to face financial ruin or otherwise be
unable to pay claims.
4. Policyholders legally liable to third-party claimants
a. Policyholders rely on insurers to defend them when third
parties suethem.
b. Insurance professionals acting according to high ethical
standards will do whatever is necessary to protect their
policyholders fromloss.
C. The Public
1. The public as a whole is as dependent on insurers to pay claims
as is each individual policyholder.
2. Indemnification of losses helps maintain order in society,
reducing dependence on charitable organizations.
Ethical Responsibility to Groups 4.3
3. Insurers fulfillment of their contractual obligations creates an

orderly method for compensating injured parties that benefits
the public as a whole.
4. Insurance professionals must analyze risk and develop coverage
that is in societys best interests.
a. This responsibility begins with the development of policy
wording to prevent moral hazard and morale hazard.
b. Insurance professionals must develop products that will
prevent financial gain fromloss.
5. All insurance professionals have a responsibility to the public.
a. For claim adjusters, this responsibility includes fair and
prompt settlement of damages as a result of a policyholders
legal liability.
b. Agents are responsible for adequate evaluation of each
risk exposure to ensure that a policyholder has appropriate
coverage.
c. Safety and loss control professionals have a responsibility to
protect the public by providing risk mitigation services to
their policyholders to reduce and prevent injury to members
of society.
6. Commerce and industry would be paralyzed without insurance
protection for their investors.
a. Proving legal liability would have no consequences without
insurance because organizations and individuals often could
not pay for losses without insurance.
b. Insurers invest in businesses and serve as important sources
of capital through purchase of corporate equities or bonds.

__
__
Key Words and Phrases:
Moral hazard
A condition that increases the likelihood that a person will intentionally cause or exaggerate a loss.
Morale hazard (attitudinal hazard)

A condition of carelessness or indifference that increases the frequency or severity of loss.
Key
Words
Ethical Dilemmas
Required Reading
ASSIGNMENT
Given an ethical dilemma, identify:
The stakeholders
The motivation for the actions taken
The relevant ethical issues
Key Points:
To resolve an ethical dilemma involving more than one ethically
proper answer, the insurance professional must identify the stakeholders, determine the motivation for the actions taken, and analyze all
the relevant ethical issues.
A. Stakeholders
1. The first step in resolving an ethical dilemma involves identification of the stakeholders. The question to ask is, Who are
the stakeholders, and what are their rights?
a. The insurance professional should first consider those
directly involved in the situation that produced the
dilemma.
b. The insurance professional also should consider persons
directly affected by the alleged improper behavior, as well as
those who would not have been affected if the ethical lapse
had not occurred.
c. Innocent bystanders also may have unwittingly become
involved in the dilemma.
2. Once the stakeholders have been identified, accurate information about them must be obtained, requiring scrutiny of the
source of the information for reliability and relevancy.
3. The insurance professional must determine who is responsible
for the resolution of the dilemma.
a. The person ultimately responsible for resolving an ethical
dilemma may not be the insurance professional.
Study
Tips
Are you interested in joining a
formal class on this material?
Go to our Web site,
www.TheInstitutes.org, for a
complete listing of public
classes.
5.1
b. The insurance professional should ask the questions, Who

is responsible for the decision? and Who will be responsible for the outcome?
B. Motivation for Actions Taken
Ethical dilemmas arise from strongly held, and often conflicting,
ethical concerns:
1. Truth versus loyalty
a. Truth is considered an objective concept involving what
actually exists or is known.
b. Loyalty is subjective. It is fidelity to a person, thing, or
concept and exists independently of concerns related to
morality.
c. An ethical dilemma arises between truth and loyalty when
the facts may be harmful to someone or something in which
a person has placed faith and fidelity.
2. Individual versus community
a. The ethical dilemma of individual versus community is the
conflict between what is good for an individual versus what
is good for the group to which the individual belongs.
b. Resolution of this conflict may require denial of something
that an insurance professional personally wants or needs.
3. Long-term versus short-term
a. Long-term versus short-term dilemmas also tend to be personal but can be much broader than personal concerns.
b. Even apparently simple decisions can have far-reaching
consequences when the dilemma is fully examined and the
effect of the decision is evaluated.
c. For example, an insurance agency manager must choose
between allocating resources toward her staffs educational
pursuits to obtain long-term productivity improvement and
investing in an upgrade of the technology and computer
systems to communicate with the markets more effectively.
4. Justice versus mercy
a. Insurance professionals may have to choose between the
law and compassion.
b. The insurance contract itself is a legal document with a
specific body of law (contract law) dictating interpretation
and performance issues.
c. Following the law can lead to adverse consequences, particularly when individual harm may occur that could have
been avoided.
Ethical Dilemmas 5.3
C. Relevant Ethical Issues

1. Analysis of the interests at stake and the actions taken, as well
as the presence of any laws, regulations, and guidelines governing the situation, should serve as initial steps in determining
the relevant issues.
2. After discerning the facts, the insurance professional should
consider any subjective issues involving feelings and impressions:
a. What feelings does the situation cause?
b. How will the stakeholders respond?
c. What are the decision makers feelings?
d. How will outsiders view the issues?

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Ethical Theories and Decision-Making Tools

Required Reading
ASSIGNMENT
Apply these theories to an ethical dilemma using the decision-making tools:
Rules-based
Situation-based
People-based
Key Points:
Insurance professionals must exercise independent judgment and
reasoning in addressing ethical dilemmas while relying on accepted
ethical approaches and applicable codes of ethics. Decision-making
theories guide the decision process from three perspectives:
A. Rules-Based Decision Making
1. The insurance industry is based on law, beginning with the
insurance contract, or policy, itself.
a. Contract law governs the formation and performance of the
insurance contract.
b. Tort law applies to determining a wrongdoers responsibility
when an accident or other harmful event occurs.
c. State and federal laws in the form of regulations must be
followed when an insurer sets rates or reports financial
information.
d. Licensing laws dictate the minimum requirements for
applying for, attaining, and renewing licenses.
2. When using rules-based decision making, the insurance professional must consider whether any laws, regulations, or
standards apply in a given situation. The insurance professional
is duty-bound to follow the applicable rule if it prescribes mandatory conduct.
3. Rules-based decision making is based on the perceived duty
owed and on what should be done. It does not consider
individual situations and makes no accommodations for unexpected or unexplained events.
4. Rules-based thinking is relatively easy and quick to apply.
Study
Tips
After you complete the last
assignment in the Review
Notes, you should be ready
for the exam. For complete
information regarding exam
dates and fees, visit our
Web page,
www.TheInstitutes.org/forms,
where you can access and
print exam registration
information.
6.1
5. Problems can occur when a decision maker selects an inapplicable rule or when the rules conflict.
B. Situation-Based Decision Making
1. Also known as ends-based, situation-based decision making
analyzes the potential outcomes of possible decisions given the
circumstances.
2. It considers who will benefit from, and who will be damaged
or hurt by, a decision, and the extent of the ramifications of
potential outcomes.
3. Situation-based decision making also requires placing group
needs over individual needs. The insurance professional should
evaluate possible results and determine the best outcome for
the broadest group.
4. Because the situation-based decision-making process requires
a certain degree of speculation, outcomes for similar circumstances may vary depending on the assumptions made by the
decision-maker.
C. People-Based Decision Making
1. People-based decision making is founded in the principles of
philosophical and religious schools of thought and rules for
living that embody the Golden Rule: Do unto others as you
would have them do untoyou.
2. This approach requires the person making the decision to consider the personal circumstances of any decision and calls for a
degree of empathy, including the ability to consider a decision
and its outcome from someone elses perspective.
D. Other Tools for Ethical Decision Making
1. Codes of ethics
a. Insurance organizations have developed codes of ethics,
sometimes referred to as codes of conduct or codes of
market conduct, to help resolve conflicts.
b. These codes support compliance with laws and regulations
and provide guidance in ambiguous areas when decisions
are not clear.
c. A code of ethics generally includes a statement of the organizations values.
d. By articulating values and providing examples or suggestions for conflict resolution, ethics codes help promote
consistent management standards and practices.
e. A code of ethics can increase public trust and enhance an
organizations reputation and that of all of its stakeholders.
f. From legal and economic perspectives, a code of ethics can
offer protection against lawsuits.
Ethical Theories and Decision-Making Tools 6.3
2. Flow charts and checklists

a. The first step is to identify the conflict or ethical problem.
To do this, insurance professionals must be aware of their
environment and possible unethical situations that may
arise.
b. An insurance professional also must search for any applicable code, standard, or regulation that may apply in the
situation.
c. The insurance professional who has completed the background work must then identify the appropriate decision
maker.
d. The decision maker must consider the personal impact of
the decision.
e. The insurance professional must make a decision within a
reasonabletime.

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__
Key Words and Phrases:

Contract law
The branch of civil law that deals with contracts and settles contract
disputes.
Tort law
The branch of civil law that deals with civil wrongs other than
breaches of contract.
Comparative negligence
A common-law principle that requires both parties to a loss to share
the financial burden of the bodily injury or property damage according to their respective degrees of fault.
Subrogation
The process by which an insurer can, after it has paid a loss under
the policy, recover the amount paid from any party (other than the
insured) who caused the loss or is otherwise legally liable for the loss.
Key
Words
Barriers to Ethical Decision Making

Required Reading
ASSIGNMENT
Summarize the barriers to making ethical decisions.
Key Points:
The insurance professional must identify barriers to ethical decision
making when faced with an ethical dilemma. After identifying barriers, the insurance professional can analyze their influence on the
decision-making process. By doing so, the insurance professional then
can support the organizations goals of profit and social welfare maximization.
Study
Tips
Set aside a specific time
each day to study.
A. Physical Barriers
Actual physical barriers can prevent an insurance professional
from reaching an ethical decision.
1. During the information-gathering phase of the decision-making process, the insurance professionals investigation may be
hampered because of destruction of key documents, unavailability of witnesses, or even threats to personal safety.
2. A decision-makers needs, such as the need for employment,
also must be considered and may serve as a barrier to ethical
decision making if an ethical position might threaten ones
employment.
a. Jobs have been lost and careers derailed by ethical professionals who have come forward with truth when faced with
ethical conflicts.
b. Negative reactions to ethical behavior led to the creation
of federal whistle-blower statutes to protect individuals who
report unethical activities.
B. Procedural Barriers
Procedural barriers arise when insufficient guidance is available
regarding ethical behavior, when organizations have not articulated their values clearly, or when internal and external pressures
prevent insurance professionals from following codes of conduct.
7.1
1. Insurance organizations have developed codes of ethics and

market conduct to assist insurance professionals. These codes
can include many components:
a. A statement of the organizations values, which insurance
professionals should uphold in the fulfillment of their job
duties
b. A description of how the values of the organization correlate with the responsibilities of each of the stakeholders in
the organization
c. Confirmation that all regulatory rules and statutes should be
followed explicitly
d. Acknowledgement of the importance of each employee in
achieving the organizations goals and objectives
e. Descriptions of conflicts to be avoided, such as ownership
or personal interest in a company that is a service provider
to the organization, or rules governing hiring or supervising
immediate family members
f. A process for reporting perceived conflicts that will maintain the anonymity of the reporting party, such as an ethics
hotline or an appointed third party
2. Ethics codes are important for insurance professionals in overcoming procedural barriers for several reasons:
a. Introduction and reinforcement of organizational values by
creating a climate of integrity and excellence
b. Support of compliance with regulations by letting stakeholders know that the organization requires lawful behavior
c. Guidance for insurance professionals in the gray areas by
providing examples of unethical conduct and examples of
appropriate responses to inappropriate behavior
d. Communication of expectations to stakeholders with
respect to the influence of high ethical standards on activities and relationships
e. Reduction of the possibility for inconsistent management
standards by setting a base for oversight and leadership
goals that are to be upheld by all those in supervisory or
management positions
f. Building of public trust and enhancement of the reputation
of the organization and its stakeholders
g. Offering of protection against lawsuits by setting the standard for behavior and compliance
h. Enhancement of morale, employee loyalty, and recruitment
of top talent who want to be associated with an organization that espouses high ethical standards
Barriers to Ethical Decision Making 7.3
i. Promotion of constructive social change by raising awareness of ethical issues and articulating means for dealing
with ethical dilemmas
j. Promotion of market efficiency by rewarding the most ethical producers for adhering to the code in the performance
of their duties
3. An insurance professional who fails to follow an organizations
ethical code may consequently act unethically.
4. Weak attitudes toward ethical practices can prevent creation of
a code of ethics and/or undermine its support.
C. Administrative Barriers
1. Administrative barriers occur under different conditions:
a. When tools or processes for making ethical decisions are
not known
b. When the processes are cumbersome or complicated
c. When insurance professionals fail to take the appropriate
steps or actions necessary as outlined in a code of ethics
2. The Sarbanes-Oxley federal law requires that publicly traded
companies establish codes of ethics, create anonymous hotlines
for reporting unethical behavior, and identify principal ethics
officers.
a. Most privately held companies and other organizations,
such as not-for-profit and charitable groups, also adhere to
these requirements.
b. This compliance may have little or no impact on organizational culture.
3. If an organization harbors a culture of greed or noncompliance
with regulations, administration of a code of ethics will be difficult, if not impossible, because of the pressures of that culture.
a. A profitable organization can foster a culture of greed, creating an atmosphere that prevents anyone from questioning
the organizations business practices.
b. If executive management does not support an ethics code,
an employee reporting unethical behavior may find the
reported information is ignored.
4. Some stakeholders believe that loyalty to the organizations
processes and procedures is more important than correcting
ethical behavior, especially when knowledge of the unethical
behavior becomes public and the organization suffers financial
setbacks because of the report.
5. After a code of ethics is created, it is important for the insurance organization to constantly emphasize the beliefs outlined
in the code and update the code as situations and market conditions dictate. If the organization does not do so, the code may
be circumvented, or possibly deemed outdated or archaic.
6. Other administrative barriers also pose problems.
a. Employees may focus their attention on production and
revenue generation rather than following procedures that
support the highest ethical standards.
b. Suspicion that a companys anonymous hotline is not,
in fact, anonymous could cause an employee considering
reporting unethical behavior to fear becoming a victim of
retaliation at a laterdate.

__
__
Ethical Guidelines for Insurance

Professionals
Required Reading
ASSIGNMENT
Given an ethical dilemma, apply Ethical Guidelines for Insurance Professionals to arrive at a resolution.
Key Points:
Ethical Guidelines for Insurance Professionals consists of seven individual Canons that each prescribe a specific goal for all insurance
professionals to strive to achieve:
A. Canon 1Altruism
1. Canon 1concernsthe public interest and the supporting roles
of altruism and ethical obligations asthe backboneof thecode.
2. Nothing in Canon 1 or the entire code sets or suggests standards for legal relationships orlegal duties.
3. The essence of Canon 1 is altruism, or unselfish concern for
the welfare of others (selflessness).
a. In the context of ethics, it is the doctrine that the general welfare of society is the proper goal of an individuals
actions, as opposed to egoism.
b. One application of this canon would be to conflict-ofinterest situations that can harm both the organization for
which an insurance professional works and the public at
large, particularly other insureds.
Study
Tips
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Institute Exams to learn more
detailed study tips. Download
a copy from our Web site or
call Customer Service to
request one.
B. Canon 2Continuing Professional Development

1. While Canon 2 sets a goal that includes improving professional
knowledge, skills, and competence, all insurance professionals
must, at a minimum, maintain competence in their areas of
responsibility.
2. Insurance professionals should remain informed on technical
matters that are essential to the maintenance of their professional competence in insurance, risk management, or related
fields.
3. Knowledge and skills are requisites to the high levels of competence and performance expected of all professionals.
8.1
C. Canon 3Legal Conduct

1. Everybody should, at a minimum, obey laws and regulations.
2. Dishonesty, deceit, or fraud can violate this canon, regardless of
whether the actions themselves are illegal.
3. Misrepresentation or concealment of a fact or information that
might influence an insurance or risk management transaction,
as well as engaging in unfair competition or gaining inappropriate compensation, can violate this canon.
D. Canon 4Diligent Performance
1. The first part of Canon 4 involves behavior on the job. The
second part involves an insurance professionals effect on the
risk management and insurance environment.
2. The work of some insurance professionals directly affects the
insurance environment. The day-to-day activities of other
insurance professionals have little direct effect on the insurance mechanism as a whole but should still be performed with
diligence.
3. Insurance professionals should help preserve and improve
insurers financial strength, assist in providing an adequate
supply of insurance to meet public demands and needs, and
reduce the cost of insurance and encourage loss control and
research that will lead to improvement in the insurance industry.
E. Canon 5Maintaining and Raising Professional Standards
1. Canon 5 concerns attracting competent people to the insurance industry and encouraging their growth, as well as fostering
competence and ethical conduct.
2. Minimally, all insurance professionals should conduct their
business activities in a manner that will inspire other practitioners to do likewise.
3. Insurance professionals should set examples through their
professional conduct and should support and participate in
educational activities that assist others in their professional
development.
F. Canon 6Professional Relationships
1. Canon 6 involves insurance professionals relationships with
three groups of people:
a. Their customers (those whom they serve)
b. Fellow insurance practitioners
c. Members of other professions
2. Insurance professionals should strive to establish and maintain
relationships that are both dignified and honorable.
Ethical Guidelines for Insurance Professionals 8.3
3. Most insurance transactions require that a strong element of

trust be part of both the image and the reality of an insurance
or risk management professional.
4. Insurance professionals should remain informed about the legal
limitations imposed on the scope of their professional duties.
a. They must not disclose confidential information unless such
disclosure is required.
b. They must not knowingly misrepresent or conceal any limitations on their ability to provide the quantity or quality of
professional services that the circumstances require.
G. Canon 7Public Education
1. Insurance professionals are ethically obligated to support efforts
to convey information to the public.
2. The publics insurance needs can be met fully only if all citizens
recognize their insurance needs and appreciate the importance
of seeking competent and ethical assistance in analyzing and
meetingthem.

__
__
Key Word or Phrase
Fiduciary
A person or entity that holds a position of trust, manages another persons or entitys affairs or funds, and has a duty to that person or entity
to act in a trustworthy manner.
Key
Words
Ethics Case Studies

Required Reading
ASSIGNMENT
Apply ethical theories and decision-making tools, including the Ethical Guidelines for Insurance Professionals, to
resolve these kinds of ethical dilemmas:
Conflict of Interest
Privacy
General business
Key Points:
To successfully complete the first case study, students should be
familiar with the Code of Professional EthicsEthical Guidelines for
Insurance Professionals, identify each canon that might apply, and
consider the situation within the context of each applicable canon.
To successfully complete the second case study, students should use an
ethical dilemma decision-making flow chart.
To successfully complete the third case study, students should follow
these steps:
1. Identify the problem
2. Gather information
3. Look for an applicable code or standard
4. Determine who is responsible for resolving the conflict
5. Consider whether there is a duty or loyalty to uphold
6. Evaluate the dilemma from various perspectives
7. Decide on a course of action or inaction
8. Monitor the outcome of the decision or actions
9. Learn from the experience

Study
Tips
Have you contacted The
Institutes to schedule
an exam?
__
__
9.1

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Ethical Guidelines for Insurance Professionals

About This Study Aid

Ethical Behavior: Defining Terms

1.2 Ethical Guidelines for Insurance ProfessionalsEthics 311

2. The insurance environment is heavily regulated at the local,

I have reviewed this Educational Objective

2.2 Ethical Guidelines for Insurance ProfessionalsEthics 311

Traits of Professionalism 2.3

e. In response to rapid changes in the insurance industry, some

2.4 Ethical Guidelines for Insurance ProfessionalsEthics 311

7. Public recognition as a professional

I have reviewed this Educational Objective

Traits of Professionalism 2.5

Key Word or Phrase

Insurance Professionals and High Ethical

3.2 Ethical Guidelines for Insurance ProfessionalsEthics 311

b. When a bank and an insurance agency merge, insurance

Insurance Professionals and High Ethical Standards 3.3

I have reviewed this Educational Objective

Ethical Responsibility to Groups

4.2 Ethical Guidelines for Insurance ProfessionalsEthics 311

b. When a loss event occurs and results in a claim

Ethical Responsibility to Groups 4.3

3. Insurers fulfillment of their contractual obligations creates an

I have reviewed this Educational Objective

4.4 Ethical Guidelines for Insurance ProfessionalsEthics 311

Key Words and Phrases:

Morale hazard (attitudinal hazard)

5.2 Ethical Guidelines for Insurance ProfessionalsEthics 311

b. The insurance professional should ask the questions, Who

Ethical Dilemmas 5.3

C. Relevant Ethical Issues

I have reviewed this Educational Objective

Ethical Theories and Decision-Making Tools

6.2 Ethical Guidelines for Insurance ProfessionalsEthics 311

Ethical Theories and Decision-Making Tools 6.3

2. Flow charts and checklists

I have reviewed this Educational Objective

6.4 Ethical Guidelines for Insurance ProfessionalsEthics 311

Key Words and Phrases:

Barriers to Ethical Decision Making

7.2 Ethical Guidelines for Insurance ProfessionalsEthics 311

1. Insurance organizations have developed codes of ethics and

Barriers to Ethical Decision Making 7.3

7.4 Ethical Guidelines for Insurance ProfessionalsEthics 311

I have reviewed this Educational Objective

Ethical Guidelines for Insurance

B. Canon 2Continuing Professional Development

8.2 Ethical Guidelines for Insurance ProfessionalsEthics 311

C. Canon 3Legal Conduct

Ethical Guidelines for Insurance Professionals 8.3

3. Most insurance transactions require that a strong element of

I have reviewed this Educational Objective

8.4 Ethical Guidelines for Insurance ProfessionalsEthics 311

Key Word or Phrase

Ethics Case Studies

I have reviewed this Educational Objective

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