C4-L3-P11

Ethics and the Law

Once an insurance producer understands and embraces a personal and professional code of ethics, he or she must also find ways to avoid the temptation to use illegal, unethical or questionable practices that could provide short-term profit at the expense of compromising his or her integrity.

The responsibility to regulate the insurance industry is shared jointly by the federal government and the various state governments. States carry the major burden of regulating insurance affairs, including the ethical conduct of agents licensed to conduct business within their borders.

Regulation of ethical conduct in some states is called "marketing ethics” or "market conduct."

Regulation of an insurance agent’s ethical conduct is conducted through the State's Department of Insurance, or in Florida, the Department of Financial Services, to oversee the marketing practices of both producers and insurance companies.

Many of the regulations governing ethical conduct are derived from model legislation developed by the National Association of Insurance Commissioners (NAIC), such as the Unfair Trade Practices Act.

Marketing Ethics:

Though state laws regarding sales and marketing practices by insurance producers vary, there is a great deal of uniformity in the principle and intent of these laws. All are designed to protect the interests of consumers by ensuring fair, reasoned and ethical conduct by a producer.

Unauthorized Insurers:

By law, only insurers that have been authorized or licensed by a state may issue policies in that state. Consequently, a producer must make sure that the insurers he or she represents are licensed to do business where solicitation is made. In general, a state’s guaranty fund only covers the liabilities of authorized insurers, so anyone purchasing policies from unauthorized or unlicensed companies would be at risk if those insurers could not meet their claims.

Some states will hold the producer personally liable on any insurance contract he or she places for an unauthorized insurer; the state of Florida is an example.

Misrepresentation:

Any written or oral statement that does not accurately describe a policy’s features, benefits or coverage is considered a misrepresentation. The states have enacted laws that penalize producers who engage in this practice. Keep in mind that it is unlawful to make any misleading representations or comparisons of companies or policies to insured persons to induce them to forfeit, change or surrender that insurance.

As we have stressed throughout this course, producers have an ethical duty to present their policies in a truthful and open manner.

Defamation:

Defamation is any false, maliciously critical or derogatory communication, written or oral, that injures another’s reputation, fame or character. Individuals and companies both can be defamed. Unethical producers practice defamation by spreading rumors or falsehoods about the character of a competing producers or the financial condition of another insurance company.