Author: Chris Boggs

Ethics are society's opinions of acceptable and unacceptable behavior or actions. No one, in themselves, is ethical or unethical, they only act ethically or unethically based on their personal standards or fear. The VU detailed these facts in the article, “You Are NOT Ethical: A New Look at the Ethics Requirement by a Moral Non-Conformist."

Stay focused on the concept that ethics are a function of the society being studied. Within the insurance transaction, the client, the carrier and the agent and/or broker are the parties that constitute the relevant “society" under study. Each party within this society has an opinion or expectation of what actions are considered “ethical" and “unethical" in this societal relationship.

Any discussion of an alternative to Ethics as a continuing education (CE) requirement must be viewed from the perspective of the members of this insurance transaction society. What do each member of this society expect? What is ethical and unethical behavior within this relational/professional society?

Before exploring the alternative to ethics as a required CE topic, let's dig deeper into this society and what each expects. With this basic understanding, the “ethics alternative" becomes evident.

Provider-Side Ethical Expectations

“Uberrimae fidei" best describes the relational expectations of the agent, broker and carrier – the provider side. Each expects the other to act in “utmost good faith." Utmost good faith requires that all material information be provided and that each party lives up to the requirements of the contract.

Members on the provider side (carriers, brokers and agents) are required to provide all material information to all interested parties. Misrepresentation or concealment of material information is viewed as unethical.

Remember, though, the concept of material information is two-sided. Not only is the insured and agent/broker required to provide material information to the carrier; but the carrier, agent and broker are also required to provide material information to the client.  

Material information going “up" the chain to the carrier are facts that affect underwriting decisions. Information is considered material when/if the carrier would:

• Not have provided the coverage;
• Used different terms and conditions; or
• Charged a different premium

if the correct information was known. This information comes from the insured (hopefully all questions are asked) through the agent to the carrier (unless a broker is involved).

Conversely, material information going “down" the chain to the client concerns the coverages, terms and conditions applied by the carrier. Any key fact(s) that cause the insured to make a buying decision they would not have made had the true facts about the coverages, terms or conditions been known or explained is/are considered material.

Anything less than utmost good faith by any party is considered “unethical" in this “society." When material information is passed up and down the chain, the members of this “society" view the actions of all parties as “ethical."

Notice that no part of an “ethical" relationship between or among parties on the provider side (agents, brokers, carriers) relates to coverage. However, when the client is involved, coverage becomes a key “ethical" issue. This is the first key to understanding why “Ethics" as a CE requirement is of little benefit.

Client-Side Ethical Expectations

Among the members of the “insurance transaction society," the client is in the weakest position. Although the client controls the purse, it is wholly dependent on the knowledge of and fair treatment by the other insurance-savvy members of this society.

Buyers do not understand and are not expected to understand insurance. They likely don't understand the concepts, and the contractual language is certainly foreign to them. And if these shortcomings are not enough, statutes often affect how coverage applies. What a helpless feeling this must be for the client.

When a person is immersed in insurance every day, he/she tends to forget that those outside this world do not have the same knowledge or experience. Agents seem to forget that clients don't understand insurance and are required to depend on the agent's expertise regarding coverages, concepts and statutes.

Insureds rightfully expect the agent to recognize insurable exposures and make recommendations regarding proper methods for insuring these exposures. The client may not purchase the recommended coverage, but the insured's decision does not negate the agent's duty and the insured's proper expectation. Further, the insured should fully expect its agent to confirm the issued policy accurately reflects the coverage requested and anticipated.

Coverage knowledge is, or should be, the key in and to the client/agent relationship. Thus, a, if not the, key requirement of “ethical" behavior in the client-side of this society is coverage knowledge. Anything less than a strong command of coverages, concepts and insurance-related statutes is “unethical."

Why Ethics Classes Are Useless

Stated simply, an ethics class does not teach the agent to recognize material facts; neither does it improve the agent's knowledge of coverages, concepts or statutes. In short, an ethics class does not teach the agent what he/she needs to know to act “ethically" with all parties in the insurance transaction society.

Ethics as a CE requirement must disappear and be replaced with an alternative.

What is the (or “an") Alternative?

If and because ethics classes are an utter waste of time, is there an alternative? Oh yes, there is absolutely an alternative, but most students will push against it – very hard. Many agents may stop talking to me. But such is the danger of pointing out hard realities.

Want to hear it? Here it goes.

The three-part alternative plan is:

1. Increase education requirements;
2. Make CE approval more difficult; and
3. Require the student prove content mastery.

I told you this alternative would not be popular. I can hear some of you now, “Ok, Boggs, this sounds very self-serving for you and problematic (and expensive) for me."

Think about it, what is the underlying goal behind required ethics classes? Primarily to assure that the agent works in the insured's best interest. The relationship between the agent and the carrier is a contractual one and the departments of insurance don't overly concern themselves with this side.

Knowing what constitutes legal, ethical and moral in NO way guarantees that the agent has done what is best for the client from a coverage perspective. Sitting through an ethics class indicates only that the agent may have considered the law and how the client and/or carrier “feels" about what the agent did. But it does nothing to increase coverage knowledge.

An agent might have the highest and best intentions for the client; but because he/she lacks the necessary coverage knowledge a rotten coverage package results. What is ethical about that? In fact, from the client's perspective, this is unethical behavior.

To truly act in the insured's best interest and meet the highest standards of socially accepted ethical behavior requires great coverage and concept knowledge. Training must focus on exposure analysis, coverage options and program development.

CE is here to stay; but this fact doesn't require the industry keep doing what it has done in the past. This simply means the industry must question its current CE and ethics requirements.

Increase education requirements. Is 12 hours per year or 24 every two years enough to fully understand this highly technical business? Anyone who believes it is does not fully understand the depth of the various insurance contracts. Because agents are not required to have a specialized degree (like doctors, lawyers or engineers) to practice insurance, most, if not all, learning is on-the-job and sometimes accidental. Lacking a base knowledge that results from hundreds or even thousands of hours of pre-study, agents undertake very little training over their careers when compared to the damage they can do when they do a poor job.

Consider this, if the agent does a poor job in exposure analysis and developing coverage, an insureds life can be financially ruined. Yet, over a 30-year career, the average agent is only required to complete 360 hours of CE. This equates to about a semester-and-a-half in college. Not even a full academic year over 30 years. Something must change.

Make CE approval more difficult. To assure classes are the highest quality, a national standards board must be established. Such a board can set the minimum standards for all CE classes and work with the states to assign a grade to all classes. Any class falling below the national standard will not be approved nor keep its current approval.

When insurance CE is compared with other industries, one amazing difference stands out – insurance is the only industry that gains education approval from the industry's regulators. The legal, medical and engineering professions depend on an independent national body to approve education.

Require the student to prove content mastery. Testing must be implemented. Simply sitting through a class does nothing to prove the agent learned anything. To backtrack to a previous point, agents are not subject to intense education prior to entering an agency; because the total time dedicated to insurance education is rather limited for the average agent – proof of content mastery is a reasonable requirement.

Strengthened education requirements result in improved exposure analysis and coverage recommendations. Well-trained agents better protect insureds, and in the insurance transaction society, this is ethical behavior. Learning about ethics does not truly benefit the buyer as much as a good insurance program.

How This All Ties Together

Practicing “utmost good faith," learning effective exposure analysis and becoming proficient at developing a good insurance program does not require an ethics class. Intense training produces better results for all parties in this “society." Understanding what qualifies as material information and how to read a coverage form is far more beneficial to the client than knowing the difference between theoretical and applied ethics.

Scrap the ethics requirement and focus more on the education provided. But this is just one opinion; many educators have an opinion on the ethics requirement.

A Compromise – Maybe

Is compromise ethical? While this is a poor attempt at humor in the face of a discussion on the question of ethics education, it is relevant to this conversation.

For those absolutely sold on the idea that ethics can be taught, this is a compromise offering. Rather than scrapping ethics completely, require that every coverage class discuss the “ethics" of that coverage as part of the improved education program previously described.

As examples:

• Business income training: Businesses exist to make money; if a major loss occurs, no money is coming in the door. Teach the agent how to write and explain business income; and as part of the training, teach them the ethics of the coverage – particularly that the client and its employees have continued income and employment.
• Business and Personal Auto: Although auto liability coverage is required in nearly every state (only one remains with no statutory requirement), the purchase of liability coverage is actually an ethical act. Regardless what every auto insurance commercial on TV tries to tell insureds, the purchase of auto liability coverage is so the at fault party has a source of financing to pay for the injury or damage they cause. Rather than just teaching agents about the coverage, they learn the ethics behind taking financial responsibility. Not only will the agent better understand the coverage, but such training allows the agent to explain to the client the real reason coverage is needed. When this is done, auto education is no longer about minimum limits and the lowest possible price. Agents learn and can teach that auto insurance is not about being “legal," it's about being responsible.
• All liability coverages: Just like the auto discussion, the reason any liability coverage is purchased is to garner a source of funds to pay what is owed for injury or damage caused by the at-fault party. The industry should not simply teach GL coverages (or any liability coverage) but should teach the ethics of responsibility to and for the customer in providing such protection.
• Miscellaneous property coverages: When agents learn proper exposure analysis, they see the need for key endorsements. Rather than just teaching ordinance or law, teach the ethics of helping the insured avoid a large out-of-pocket expense. This same thought applies to many property endorsements very rarely considered such as Leasehold Interest, Utility Services, Spoilage, etc.

Obviously, this is not a complete list, but the point is clear – teach ethics with the coverages being taught. Knowing how, why and coverage benefits produces better results for the insured than does a stand-alone ethics class.

What Others Had to Say

The effectiveness of ethics as a CE requirement has been debated since the first ethics class was taught. Several insurance educators from around the country were polled regarding the usefulness and benefit of an ethics requirement; their responses follow.

“The ethics requirement is really a victory of form over substance since an ethical person doesn't need the training because he or she knows what is right and wrong. Conversely, the unethical person can attend a class a week for two years but won't behave any differently. I think it is an over-reaction by regulators to put this rule in place so they can say to their constituents, “Lookie what we did. We are making sure your agents are ethical!" I have all sorts of examples of agents who I'm sure have taken classes but they still ended up in jail or lost their license, in most cases because they take a client's money and don't send it to the insurer. That's been going on forever and I suspect it will continue in spite of our best efforts."

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“I've always said you can't teach someone to be ethical. [My state] has their 5-hour class that includes laws and rules that affect agents and agencies. I would predict that very few agents know what's required of them by statute, much less what the penalties are for violating statute."

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“My personal feeling is that Best Practices of Insurance Operations is a realistic substitute for Ethics. Doctors subscribe to the adage "First do no harm." Agents should know and understand that certain practices are potentially harmful to policyholders. And certain practices are beneficial to policyholders. You cannot regulate their souls, but you can regulate their behavior."

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“Several years before [my state] mandated Ethics into the CE requirements, the [state] CE board began to discuss its merits. We were told it was coming as the NAIC was beginning to make it an issue. We all agreed that teaching someone to be ethical was not really possible. We all understood that the requirement was a “feel good" reaction to the Enron scandal.

I agree, it's futile to teach the “lie, cheat and steal" stuff. A crook is a crook and they know they are a crook."

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“I agree it is a waste of time, however, the legal requirements of an agent should be covered as I do see agents violating laws all the time, particularly the line between a gift and entertainment."

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The main reasons I don't like the ethics requirement:

1. It creates a presumption that this is an inherently dishonest industry;
2. For the most part, it only applies to licensed agents, not unlicensed people, especially those employed by carriers;
3. There is a far greater need for ethics training for consumers than industry personnel;
4. You can't legislate ethical behavior; and
5. I've found that DOIs will approve about anything with the word “ethics" attached to it.

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Speaking with others in my office the consensus is the Ethics courses taught currently are lacking in substance and pretty much a waste of time. Some thought it could be made to be a good course with better material. And maybe an alternative could be to discuss various rules and regulations.

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I've always believed that, as part of being a “professional" we have an inherent obligation to maintain a particular level of expertise. When this responsibility is mandated, it automatically abrogates our personal responsibility.

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“I have never believed, beyond increasing a level of “awareness" of ethical dilemmas, that having people sit through a class is going to modify their behavior. If they want to do the public a service, there should be a class on how protecting yourself from E&O claims is also good customer service and consumer protection and how the two coordinate with each other. Whenever I teach E&O classes I always state that an agency should never put a process in place solely for the purpose of E&O avoidance. It should also meet the criteria of being a good business practice and good customer service. 

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I actually disagree with your statement, I think agents need to learn Ethics because many don't have any idea what Ethics are, my state requires 3 hours every other year, that isn't much. 

Real life ethics is what should be taught, agents should be forced to learn about ethics and why it's so important. 

Last Updated: May 24, 2019