Morality has been aptly described as a social system of rules created to allow people to adjudicate disputes rationally without resorting to physical force, so that the relationships affected by the dispute can endure, and perhaps, even flourish. Since most disputes are generated over the question of who is entitled to certain goods, the pursuit of goods and the avoidance of harm are at the core of any moral system. Hence we can claim that the creation of some benefit or the avoidance of harm is the goal of any activity. The first prong of the ethical approach then is to determine what counts as goods and harms. The second part of the approach is that such goals should be achieved fairly, that is, without doing an injustice to others.

Thus we can say that ethics deals primarily with enhancing, not diminishing, the quality of life on the one hand, and the issues of fairness and justice on the other. The basic ethical rule can be summarized: pursue your interests fairly and unselfishly. Fair treatment means "the same should be treated the same," consequently a difference in treatment is justified only when there are relevant differences. Selfish behavior is behavior in which the pursuit of self-interest is without regard for the interests of, or at the expense of, others. This rule is required in any society that claims to be rational, to prevent life in that society from being, as characterized by Thomas Hobbes, "nasty, brutish and short."

To illustrate why fairness is the rational way in which to proceed, imagine how irrational it is to treat two identical things differently. For example, if there are two identical paintings and we think one has superb composition, it is illogical to think the other painting, which is identical, does not also have superb composition. Similarly, if two people are identical in all relevant ways and one is entitled to something, so is the other. Children recognize this concept at an early age. For them it is unfair if one of their siblings, who they see as essentially the same as themselves, is given a bigger share of some good. Of course, if it is the sibling�s birthday, that constitutes a relevant difference which underlines the lack of identity. Thus when children begin to use reason, they clearly see the basic principle of fairness � "the same should be treated the same." If we believe that most human beings are alike in most morally relevant respects, then they should be treated the same in most respects.

This notion of fairness and rational thinking underlies the principle of the Golden Rule: "Do unto others as you would have others do unto you." This principle reinforces the notion that others are the same as you in most relevant respects.

Reflecting on the principle of fairness helps us see the unethical nature of selfishness. By "selfishness" we do not mean just the pursuit of self-interest. The pursuit of self-interest is a perfectly natural and acceptable activity. Selfishness is the pursuit of self-interest at the expense of another when one is not entitled to the good pursued. When a person is being selfish, he or she puts their own interest first in a situation where pursuing that interest will hurt another. For example, if there is one piece of cake allotted to each person at a party, and I take two pieces, I have deprived someone of their share of the cake. The question, of course, to be asked is why is one person entitled to more than another. If two people need or want the same thing and only one can have it, how is it to be decided who will get it? In such a case whoever pursues his own interest will do so at the expense of the other. It is for situations like this that society has created rules of fair distribution. If two people have a desire or need for the good, why should it go to one and not to the other? We need rules to decide. These are the ethical rules of society.

Adam Smith, a famous eighteenth century philosopher, ethicist, and economist indicated in his work, The Wealth of Nations, that what motivated a great deal of activity was self-interest. He thought that the free pursuit of self- interest without concern for societal benefits would bring about more social benefit than if government tried to intervene to bring about just results. (This is his famous "doctrine of the invisible hand.") Still, Smith always cautioned that such a pursuit of self-interest must be limited by considerations of justice and fairness. Further, he noted that there are two great motivators of humans � self-interest and a concern for others which he called "sympathy." This concern (sympathy) for the benefit of others allows us to check our self-interest when it is at the expense of others and justice or fairness demands it.

The demands for justice and enhanced quality of life require a set of ethical rules for appropriate behavior that govern any existing society. How are such rules established? Basically, they are established through a process of trial and error, and the assigning of responsibilities, all of which aim at a type of social stability that will allow the individuals of the society to flourish. Societies in the Greaeco-Roman-Judaeo-Christian tradition developed these general principles into more specific rules, such as the Ten Commandments which include prohibitions against murder, stealing, lying, adultery, and so forth. They indicate what counts as proper behavior toward others.

It is easy to see how those specific commandments rest on the more general prohibitions against selfishness and unfairness. For example, stealing is wrong because it is fundamentally unfair or selfish. If a person has acquired property through a process the society deems fair only to have it taken by another who is not entitled to it (has not right to it) because they have not acquired in through an approved process, such stealing violates fairness and involves selfishness.

One of the processes for distribution of goods that our society has set up is the process of market acquisition. Smith said human beings have a natural propensity to barter and to trade, which is driven by the desire to be better off because of the trade. The free exchange of goods in a market requires the informed consent of both parties. Neither party would give consent if their information on the proposed trade indicated they would not benefit. For example, if we view a life insurance sale as a market transition, we can see that certain types of fraud that misrepresent the product or withhold significant information, do not allow informed consent, so they constitute misappropriation of the buyer�s goods. Such a sale involves a type of stealing that is unfair and unjust.

To be fair or just requires society to work out procedures for the distribution of the benefits and burdens of the world. Entitlement to the benefits are rights, and burdens are obligations or responsibilities. What is due another as a right is generally determined by the relationship to the person with the obligation. For example, if I have a right to liberty, that means all those who have a relationship with me which could impede my liberty, have an obligation to respect my autonomy. Further, if I have a right to an education, certain individuals have an obligation to provide it. Some relationships exist simply because we share the same world. Other relationships exist because we have entered into a type of relationship with another that involves a commitment to them. In societies there are various relationships, some natural and some conventional (literally based on agreements), that help in the smooth functioning of those societies. Many of those conventional relationships are based on promises made, or implicit or explicit contracts to which people are committed. For example, if I become a parent, I have implicitly committed � and my society expects me � to meet certain obligations to care for and educate my child. As another example, societies set up various jobs (the division of labor); people who, more or less freely, take on one or more of those jobs, commit to do what the job requires. Commitment to jobs and relationships automatically carries responsibilities.

Assuming most of the social rules or jobs we take on are beneficial to society, we want to take a look at the various relationships that are the result of a division of labor in society. This will help us to see what responsibilities fall on those who take up certain positions within society. In this chapter we will apply the ethics of relationships to the insurance industry, and specify the rights and responsibilities of the various individuals and constituencies in the world of insurance. We will look at some particular practices that are ethically suspect and try to show why they are inappropriate, and if they are problematic, show the reasons both for and against them.

Insurance is first of all a cooperative enterprise hence a social system created to minimize the risk of financial loss from specific unforeseen future events. It minimizes the risk of financial loss both to oneself and to others, depending on the beneficiary. To enter into a private insurance contract is, in effect, to enter into a group of one�s own free will in order to collectively help one another minimize the risks involved. (This applies to private insurance, public insurance is a compulsory group.) The collective nature of insurance immediately raises ethical questions about the fairness or unfairness of discriminating for some and against others who wish to join a group. For example, if a group of healthy people join together to insure their lives, the cost of insurance would be much cheaper if they could exclude people with unhealthy characteristics, histories and/or life styles. Applying our ethical concepts, one could ask if it is "fair" for such a group to be exclusionary. If someone significantly more unhealthy than the others wants to pay, what is the fair price for entrance? In this case, ethics and morality are at work. There is a dispute about whether someone should be allowed to join a group. The joining would be at the expense of the others. Under what conditions would causing that harm to others be justified by the benefit of including the unhealthy person? What reasons can be given in answer to such questions? The reasons that can be given constitute the fundamental ethical concepts.

When we consider life insurance in particular, as opposed to property and casualty insurance, a relevant difference arises. Life insurance is primarily designed to provide support for dependents. Property and casualty insurance is meant to minimize the risk to oneself rather than benefit survivors. So life insurance, at least when it was first developed, was other regarding.

Life insurance was originally designed to respond to an ethical belief that people have a moral responsibility for the support and maintenance of their children during the children�s dependent years. Given that fact, life insurance is a rare financial instrument whereby the benefit goes to a person other than the one who makes the investment and the sacrifice. In its earliest form, before the use of life insurance as an investment or a viatical tool, or a source of long-term care, it required the setting aside of one�s self-interest for the sake of others. That is the very essence of unselfish behavior, and selfishness is paradigmatic of unethical behavior. Consequently, a life insurance salesperson becomes a promoter of this type of altruistic behavior.

However, while the original concept of insurance is remarkably simple a group of people joining to pool their resources to protect themselves from risk � the products and their distribution have gotten quite complex over the years. Questions of what is fair and right and beneficial to whom, all important ethical issues, have gotten similarly complex. We will now take a look at some of the ethical issues and responsibilities that face the various actors in the drama of the life insurance industry.

Recently there has been intense interest in the ethics of market behavior, essentially focused on the misrepresentation of the values of certain products, or on the unnecessary replacement of policies to further the interests of the agent thereby helping the agent meet quotas to further the profits of the company. But this is only one type of ethical difficulty present in the field of life insurance. Other problems involve the ethics of underwriting or conflicts between the demands of the company and the demands of the client. Some of the issues are merely matters of selfishness or greed on the part of the agent, while others involve conflicts of obligations where the agent is in a no-win situation.

There are at least three groups of people (four if we distinguish between the insured and the insured�s beneficiaries) involved in the ethics of insurance: the insurer (the company), the insured (the client or beneficiary), and the agent. Each of these has a relationship to the other and, as we have seen, relationships carry ethical responsibilities. Some of these relationships occur as a given in life, some are taken on freely and are the result of implied or explicit commitments. The remainder of the chapter will investigate those relationships and the moral responsibilities that arise from them.

The three relationships we will examine are: 1) the agent/client relationship 2) the agent/insurer relationship (company), and 3) this insured/insurer relationship.

Before examining the three relationships, we need to expand upon what we have said so far about the ethics of relationships. Every human being is involved in an indefinite, if not infinite, number of relationships of varying degrees of proximity. We can view each person as somehow in relation to the whole universe and, in a sense, we could say everyone and everything is interdependent. There are numerous discussions of our relationships to the universe, to the world, to ecological systems, to other animals, and to all other humans in a brotherhood or sisterhood of persons. But the obligations and responsibilities that arise from those relationships are quite amorphous and undefined. We can certainly claim that people ought to respect whatever exists and treat all things with care, and we can argue for a general rule that stipulates no one should do harm to anything. By narrowing our concentration, we can move from a focus on all beings; to all living beings; to all animals; to all sentient animals; to the human race; to the citizens of our country; to the members of our immediate community; to our schools, neighborhoods, churches, clients, and families. In doing so, our responsibilities and obligations progressively become more narrowly defined and delineated. More narrow responsibilities are the result of more specific commitments. For example, as we have seen, when I take a job I commit to do those things required by that specific job. When I become a friend, I commit to do the things required by that particular friendship. When I commit to be a parent, which I do when I have a child�which doesn�t take an explicit commitment or marriage�I commit to do the things necessary to bring that child up well. Finally, when I commit to be an insurance agent, I commit to meet certain responsibilities toward my clients and the company. Focusing on these responsibilities is to adopt an approach to ethics that has been called role morality. Role morality means that one�s situation in life, which results from commitments to others, brings with it specific duties.

At this point let�s turn our attention to the three specific relationships that exist in the insurance industry (agent/client, agent/insurer, and insured/insurer) and examine the specific ethical responsibilities of the partners in each relationship.

In the agent/client relationship it is important to note that the responsibilities change toward the client during the course of the relationship. For example, the client is technically only a prospective client before the policy goes into effect. In the early stages of contact between agent and client, the client is a customer and the agent is a salesperson. In that context the ethics of marketing holds. In a marketing situation the agent is obliged to adhere to the requirements of honest marketing, such as necessary disclosure and the avoidance of undue pressure which could limit the client�s freedom to buy or not to buy. Once the insurance goes into effect the customer is then an "insured" and a client, and new obligations emerge. The agent�s responsibilities now include servicing, helping with claims, and updating of policies.

The differences can be obviated by the adoption of a general principle to cover all phases of the relationship. Most people would agree that the agent should follow the Golden Rule and treat clients as the agent would like to be treated. The professional pledge to which all CLU and ChFC designees commit specifically applies that Golden Rule when it states: "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." This rule exists and needs to be followed because insurance agents, like everyone else, are subject to the conflict between self-interest and the interests of others.

Agents should make recommendations based on their client�s needs, but obviously they need to sell policies to make a living and their company needs to sell policies to stay in business. Consequently, from time to time, there can be pressure based on the agent�s personal financial situation or from the agent�s company and manager to sell the client what he or she does not need. According to The Market Conduct Handbook for Agents, "The insurer may say it wants the field force to provide a careful needs analysis but, in fact, the reward system for the agent is based on sales�not service. If an agent discovers that less service and needs analysis can result in quicker sales, then the agent faces the ethical conflict of whether to make more sales and more money at the expense of the clients� needs." Of course, for the agent to act in his own self-interest at the expense of another is the very core of selfishness; it is an attitude universally condemned.

Other than the avoidance of selfishness, and the refusal to sell what does not need to be sold, what other responsibilities does an agent have to a client by virtue of his or her role as an agent? That agent certainly has an obligation to ascertain a client�s needs for life insurance. It is unethical to sell a client an unnecessary insurance policy. The attempt to sell a client an unnecessary policy would tend to involve lying and/or deception, practices universally considered unethical.

There might be times when such a sale does not involve deception but is the result of the agent�s ignorance about the product. The agent might not have known what the client needed and subsequently recommended an unsuitable product. If the agent does not know but could reasonably be expected to know, that agent has an obligation to divulge the ignorance and to learn more. If the agent thinks he knows but does not, we might hold the agent responsible for his ignorance. Whatever the resolution of these issues, we can see that the obligation to do an analysis of needs puts the further requirement of product knowledge on the shoulders of the agent.

In addition to adherence to the Golden Rule in selling and looking out for the client�s best interests, other obligations are inherent in the agent/client relationship.

Confidentiality. In the course of writing a policy and doing a needs evaluation the agent acquires a great deal of private information about the client. It is an obligation of the agent to keep such information confidential, which means it should only be shared with those who have a legitimate right to such information after the client has authorized a release.

Obligations Associated with Delivering the Policy. "The agent is responsible for delivering the insurance policy to the insured and (many times) also collects any premium which may be due at the time of policy delivery. Since some coverages do not take effect until the policy is delivered, timely delivery is crucial." Obviously the agent should take the time to explain all the policy provisions, including riders and exclusions, to see one more time if the policy meets the needs of the client, and to explain how the agency handles ongoing service. Finally, the agent needs to explain any changes that have been made to the policy that were not in the original application.

Claims Handling. When the situation arises for the owner or beneficiary to make a claim, the agent has a responsibility to help in various ways: explaining what the beneficiary is obliged to do in order to collect on a claim; helping the beneficiary expedite the claim settlement; mediating between the beneficiary and the insurer; and, explaining the final settlement if the settlement is not what the owner or beneficiary expected.

Other Servicing. The agent should review the client�s policies to see if they are up to date with reference to beneficiaries, and more importantly, to see if they provide the coverages currently needed.

Ethics of Market Conduct. Thus far we have looked at what the agent should do. All the above aside, most attention to ethics in the insurance industry is paid to market misconduct and the most notorious examples of unethical behavior on the part of agents comes under the heading of unfair trade.

One unfair trade practice is misrepresentation including misrepresenting the benefits or terms of a policy; misrepresenting dividends as guaranteed when they are not; misrepresenting the financial condition of the insurer; misrepresenting a life insurance policy as other than what it is; or finally, misrepresenting oneself perhaps claiming to be a financial planner when one is not.

Coercion that restricts free choice of products is also unethical. For example, if a bank were to coerce one of its clients into buying the mortgage insurance it is selling rather than a competitor�s insurance as a condition of granting a loan is clearly unethical. This obviously violates the conditions of a free market exchange and informed consent as discussed.

Other well-known types of unethical behavior are twisting and churning. Twisting occurs when a policyowner is induced to discontinue and replace a policy through agent or insurer distortion or misrepresentation of the facts. When a policy is replaced unnecessarily it is known as churning. These practices are obviously unethical to the extent they exemplify the agent pursuing self-interest at the expense of the client. If the replacement were really beneficial to the client, it would be the ethically correct thing to do.

There is also the practice of rebating, which is usually considered unethical although there is some argument. "Rebating is defined as any inducement in the sale of insurance that is not specified in the insurance contract." An offer to share a commission with an applicant is an example of such an inducement, and is illegal in most states except California and Florida. Rebating is generally considered wrong because it gives one agent an unfair advantage over other agents, or is seen as unfair to those clients who are not given a rebate. Defenders of rebating argue that it is not unfair, but rather should be viewed simply as a competitive market ploy. (A more complete account of the pros and cons of rebating can be found in chapter 26.)

"It is also generally unethical, as well as illegal, for an agent to charge fees in addition to a policy premium for services that are not �truly� extra." Currently there is a good deal of argument concerning the proper way to compensate agents. Because of recent abuses in the replacement of policies in order to take advantage of front-end-loaded commissions, the question is raised about the appropriateness of front-end-loaded commission-based selling as opposed to levelized commissions or fee-based selling.

It goes without saying that the agent owes the client the truth. Knowing that, we see that it is unethical to do what is called company bashing. It is clearly unethical to tell lies or to misrepresent the strengths and weaknesses of the competition whether it is another agent or another company. Yet there are numerous examples of agents who suggest that another agent or company is disreputable. Certainly if a product is not meeting a client�s needs, or if clients are being misguided by another agent, the first agent has an obligation to disclose that fact, but it should be based on facts, not the needs and desires of the agent to replace the company business of another agent.

Discrimination against clients for reasons other than sound actuarial principles is unethical. Discrimination�which used to be a neutral term to describe the process of choosing to include or exclude people on the basis of some relevant characteristic(s)�has become a pejorative term. Unethical discrimination is exclusion committed on the basis of some unjustified bias or hatred toward a person or group. Hence discrimination committed on the basis of such considerations as race, sex, religion, nationality, or ethnic group is unethical when those considerations are irrelevant and when they are done from motivations such as sexism, racism, or antireligious bias. There are, of course, insurance companies that are tied to a particular religious or national group. Their exclusion of nonmembers is not unethical. But if a company is not an exclusive company from its inception, then such exclusionary policies are unethical. There are however legitimate reasons in underwriting for exclusion. A famous case of whether the discrimination was permissible concerned granting of premiums to young women drivers that were lower than the premiums applied to men. Actuarially, as a group, young women had safer driving records than their male counterparts. Was this sexist? Because it was not based on denigrating women, and in fact favored them, it was not deemed discriminatory in the unethical sense.

It is unethical for the agent to discriminate against a client based on considerations such as race for this violates one of the first principles of a market economy: that in any exchange only relevant economic factors should apply. Questions that should be asked are: Is the person worth the risk? Does the person have the ability to pay?

These, in brief, are the ethical responsibilities an agent has toward his or her client. We now need to consider the responsibilities the client has toward his agent or the company.

Client Responsibilities. The agent/client relationship is not a one-way street. Thus far we have talked mainly of the agent�s responsibilities to the client. The client has ethical responsibilities to the agent as well. Again the principle is simple: the client should do nothing that is deceitful, unfair, or harmful to the agent or the company. The insured owes the company the truth. The chief examples of a client�s unethical behavior include fraudulent claims, lying to the agent and withholding information on an application.

There is a widespread practice involving fraudulent claims particularly in the disability income area where back injuries are faked in order to collect compensation. The fact that such practices exist does not make them ethically acceptable. They are fraudulent and unfair because their cost is borne by those who pay premiums and/or by those who receive less return on their investments. Another type of unethical practice is lying or withholding information on an application. There are a number of stories told in which a client, while smoking a cigarette, has told the agent he is a nonsmoker. What should an agent do? There are agents who write the policy the way the applicant wants. The honest agent will not do this, but the client puts that agent in an uncomfortable situation by asking him to violate his obligation to the company. In this case we are focusing on the ethics of the client. It is unethical to put an agent into that kind of situation and it is unethical to lie. Once again, as in the fraudulent claims case, the fact that many people lie on their applications does not make it right.

Let�s look at the subtle kind of unethical behavior engaged in by the client when he puts the agent into a conflict of interest situation. Consider the following scenario:

The case is interesting because selfishness on the agent�s part is not involved, rather there is a conflict of loyalty. Sam, as a member of the agent�s family, puts a claim on the agent in the name of family loyalty and, in this situtation, the family�s interest conflicts with the company�s interest.

There are other cases in which the self-interest of an agent is involved. For example, when an agent knows the applicant is a smoker, or has cancer, and also knows that if he does not write the policy, someone else will. So the agent is losing a client and the commission that goes with it. What is the ethical thing to do in that case? What does the agent owe the company? Because honesty in filling out the application will cost the agent the commission, there is great temptation to submit false data on the application. There is also a conflict between the agent�s, client�s, and company�s interest (the interests of the shareholders and other policyowners of the company). Clearly misrepresenting the fact of smoking on an application is unfair as well as dishonest because it lets the current applicant play on an uneven field.

What these examples show is that clients have at least three obligations: 1) to tell the truth on an application, 2) to file honest claims, and 3) to not put the agent into an unnecessary conflict-of-interest situation. Acquiescence by the agent is essentially collusion against the insurer and the other policyowners.

We turn now to the relationship of the agent to the insurer (company).

If the agent is bound to look out for the best interest of the principal, part of defining the responsibilities of the agent to the company will require a look at the interests of the company. In insurance there are three types of companies: mutual, publicly owned for profit, and state run. The mutual company is theoretically a group of individual insureds with a mutual interest who pool their resources in order to protect themselves from undue risk. The publicly owned for profit company is a business set up with a pool of resources that allows one to purchase protection from risk at a price. State funded insurance programs may or may not be considered insurance companies depending on one�s definition of risk management. Nevertheless, the purpose of the state-run program is to provide public services for private individuals who, in some cases, do not enter the program voluntarily but are required to belong. The focus here will be on the mutual and for profit companies.

It has been said (by such as Milton Friedman) that the primary and only responsibility of for profit businesses is to maximize profit for the shareholders. Hence as an agent for the company, the agent must act on behalf of the company, and act in ways that will make money for the company, not cost the company money.

There is a popular hypothetical case in which a husband cancels a life insurance policy covering himself. His wife had encouraged him to purchase the policy, and he had reluctantly agreed. The cancellation took place late on a Friday. The agent did the paper work and gave the client a cancellation slip, but did not send the requisite paperwork to the company because the mail had already been collected for the weekend. The husband was killed in a hunting accident on Saturday and his wife called the agent on Sunday because she was unable to find the policy, all she had found was the cancellation memorandum. This scenario raises many questions. What should the agent do? What obligations does the agent have to the company? What obligations does the agent have to the wife?

If we concentrate on the obligation to the company we can state that though sympathy favors ripping up the return receipt and the paperwork, that is not fair to the company. The agent�s first loyalty is to the company. As harsh as it sounds, it is nonetheless true that giving the money to the wife is tantamount to giving stockholder�s money to her. Of course considerations of good public relations and a compassionate image might persuade the company to pay the benefit if they knew the truth. But that raises the question of what obligations companies have to clients or former clients.

Some people would argue that the agent should withhold the information from the company while others would argue that as an agent, committed to looking out for the best interests of the company, he would be obliged to inform the company of the cancellation. The law clearly maintains the latter position. The courts hold that a company is aware of all information known by any of its agents. When polled on this issue, agents are likely to be split in their response as to which course of action is ethical.

Not all situations are as difficult to resolve as the one above. In most situations the obligations are clear. The agent�s contract or agency agreement spells out many of the agent�s (or broker�s) responsibilities to the company.

Agent Support and Training. Companies have two obligations with respect to training their agents. First, they owe it to their agents to insure that they have the competence to do adequate analyses of the various needs of their clients. Secondly, they owe it to their agents to teach them what behavior is ethically acceptable and what is not. One might expect young recruits to be able to distinguish between the acceptable and the unacceptable, but a young, inexperienced person might be more easily swayed into thinking that a somewhat shady practice is standard operating procedure. I have experienced a company (not an insurance company) that taught its young salespeople to slip a contract and a pen into the hands of a prospective client on the premise that only 5% of people would have enough fortitude to hand back a contract without signing it if the sales presentation were handled correctly. That is a real hard sell technique. What is valued by such a hard-sell artist is not whether the client�s needs have been met but whether the sale is made. The sales manager who trains his recruits that such behavior is intolerable meets his ethical obligation; the hard-sell artist does not.

Provide Clear Sales Materials. In addition to offering the agent training, the company should provide the agent with good tools�sales material that is clear and nondeceptive.

Fair Commission Structures. One cannot pick up literature about how to influence ethical behavior without sooner or later encountering the question of the effects of commission structures on ethical behavior. The move to levelized commissions and/or fee for services is a direct result of the attempt to dissuade purely commission-driven sales. We can see why when we look at the next obligation, the obligation to reward ethical behavior.

Reward Ethical Behavior. Abraham Lincoln once threw a man out of his office, angrily refusing a substantial bribe. "Every man has his price," Lincoln explained, "and he was getting close to mine." Human beings are self-interested and subject to temptations. Consequently they can be motivated by the rewards their companies choose to put in place. If the only behavior rewarded is productivity, not honesty, the company is not meeting its responsibility to encourage ethical behavior. Richard O. Lundquist of the Equitable Life Assurance Society once said, "Most companies give numerous awards for achievement and accomplishment for sales, for growth, for longevity and loyalty; but there are no medals in the business world for honesty, compassion, or truthfulness." Numerous studies have shown the significant correlation between behavior and rewards. Common sense tells us that what the boss rewards is what the boss expects. To the extent that a company needs to promote ethical behavior, it has a responsibility to set up systems that reward that behavior. Many of the unethical practices of the past can be traced to undue pressure from the home office to do business without regard for how that business was done.

The company�s responsibilities are based on the various functions it fulfills. The company develops and markets the product. After the product is applied for, the company must underwrite the product. This underwriting makes the company the custodian of a great deal of sensitive private information about the insured. Finally the company promises to meet the insured�s legitimate claims. Each of these relationships carries ethical responsibility.

Product Creation. As with all products, insurance policies should be quality products that are dependable and not harmful. More than most products, the insurance policy is an ethical instrument because it is a promise, a promise to pay compensation given the occurrence of a specific harmful event. This places a moral burden on the company to be fiscally sound so it is able to meet its payment obligations. The product should not be excessively risky and should be fairly priced. The product is generally too complicated for the average lay person to adequately determine its value hence the company is responsible for giving fair value to the client.

Marketing. It should be clear that there are many ethical constraints on the marketing of the product. The utilization of the principle of caveat emptor (buyer beware) should no longer guide corporate philosophy. Products today�from pharmaceuticals, to electronics, to automobiles, to food, to insurance policies�are far too complicated for the average buyer to know their quality, safety factors, or fair market value. Liability laws indicate that society has moved from favoring caveat emptor (buyer beware) to favoring caveat vendor (seller beware). The burden to be open and honest in marketing has shifted to the producer.

An insurance company owes the client whatever any company owes a prospective customer: truth in advertising. As we have seen, the basis of the market is ideal exchange, and ideal exchange requires full information and autonomous individuals making the choice to exchange freely. In medical ethics the operative ideal is known as informed consent. For a client to give informed consent requires there be no misleading, coercive or manipulative advertising. Such advertising takes the decision out of the hands of the client. An ad that says "guaranteed renewable" when in reality it is not, is deceptive and unethical.

Underwriting. Knowledge of health risks are relevant for underwriting purposes. One of the classic ethical conundrums is whether a company should underwrite a client who is a known health risk, such as in the case of a prospective client who has AIDS. Should insurance companies insure those with AIDS? Obviously they are not a good health risk. But most risks can be insured. So the question is not so much should companies insure people with AIDS, but rather into what insurance pool should they be placed? More humanitarian, egalitarian groups might insist on putting the AIDS group into the general pool. Of course those in that pool might call it unfair for they would, in a sense, be subsidizing the AIDS policyowner. On the other hand, if we were to create a pool only for those who have AIDS, the cost of the premiums would be prohibitive. Some people might argue that this is an area where the insurance needs to be social insurance and therefore be funded through taxes.

A different problem for insurance companies is whether�and to what extent�to engage in genetic testing and/or genetic screening. This results in an actuarial paradox because the more we can predict about the future health and time of death of a person, the greater the role the risk factor plays in the decision of who gets covered and for how much. If I knew a client would cost X number of dollars to care for by a certain date, then should I not in all fairness to the other policyholders and the owners of the company, underwrite a policy in such a way that there is no loss of revenue? Companies make promises to deliver money upon certain contingencies. They have a responsibility therefore to stay in sound fiscal shape so they can deliver on those promises. The inclusion of people with known and highly predictable health risks into an insurance group at premiums that cannot be soundly underwritten is a violation of the company�s trust to others who depend on its soundness. What looks hard-hearted may be the ethical path.

It could be said that the company has the right�possibly even the duty�to be discriminatory, but not unfairly discriminatory, and this involves fair underwriting. A company is obliged to treat its constituency fairly, with requirements set forth in the canons of fairness that govern marketplace transactions.

One practice that is prohibited by the NAIC�s Unfair Trade Practices Act is the practice of redlining. At one time realtors drew red lines around a geographic area on a map to keep certain people out of that area. Redlining is a form of unfair discrimination and is more common in auto insurance than in life insurance. There are companies that do not want to insure in certain geographic areas. This is not to say there are not genuine underwrting issues involved, but one must look carefully at the exclusion of anyone to see that it occurs on legitimate grounds and not on the basis of racist or sexist biases. Of course there can be lively debate as to what counts as legitimate grounds.

As a result of the underwriting process, and given the amount of information required on insurance applications, insurance companies receive an extraordinary amount of private information about people, particularly in life insurance contracts where physical examination may be required. Thus the company is obliged to practice due care that this private information�the disclosure of which could be harmful to the client�does not become available to anyone without a reason to possess it. It is a very important responsibility for a company to keep confidentialities, including the maintenance of privacy and the protection of confidential health records.

What constitutes the proper use of health records? Clearly, only those with legitimate claims to such knowledge should have access to it. Does a pharmaceutical company have a right to access the list of a Health Maintenance Organization�s client records so it can push its prescription drugs? No matter what the case, to have information on someone is to hold that information in trust and it is unethical to divulge it except to those who are legitimately entitled to it� those the client has authorized to receive the information.

Claims Settlement Practices. The insured has a right to prompt fair and equitable settlement. Prompt settlement is the efficient processing and payment of a claim within a reasonable time. Fair settlement means paying what a claim is worth. If a company attempts to settle a claim for less than what a reasonable person could expect, the company is acting unethically. The company also has an obligation to give reasons for any compromise claims settlement and the company has the responsibility to make known when and where appeals procedures are available.

Fair Cancellations and Nonrenewals. Suppose a company that sells guaranteed renewable disability insurance finds that such a policy is not profitable and discontinues the line. On the policy there is an automatic reinstatement period following the expiration of the contractual thirty-one day grace period, so if a policyowner missed the end of the grace period, he could get identical coverage automatically reinstated. Suppose as a result of poor financial conditions, the company changes its procedure and requires policyowners to apply and qualify for reinstatement. That reinstatement however, when granted, is on a modified basis. Beneficial riders are dropped in some cases and some promises of return of premiums are discontinued.

In this case it would appear that the company is adopting a policy that harms policyholders in order to minimize loss. What is the responsibility of a company that finds itself with commitments that are far more costly than they seemed originally? To what extent can the pursuit of profit override obligations to the insured? What should happen when circumstances change so that the terms of a contract now benefit one party and injure another far more than was foreseen? If the purpose is to make contracts as a hedge against those times, shouldn�t they be honored? Should the insurer�s main concern be profit or the benefit of the client? On the other hand, if a company needs to make adjustments to long-standing agreements in order to stay in business, aren�t those adjustments ethically defensible? In our system one cannot benefit the client without remaining competitive in the marketplace.

Due Diligence in Hiring, Firing, and Retaining Agents. As mentioned, another responsibility of the company is to practice due diligence in the hiring and firing of agents. It has been said that one of the problems with retention is recruitment. If you don�t recruit well, you will not retain your agents. We could add that if you don�t recruit well, you may acquire unethical agents. Along with the responsibility of diligence in the hiring of agents, the company also has an obligation to provide for the training of its agents.

On another issue, should a company keep a top producer, if it becomes clear that top producer writes business by cutting ethical corners? Recently a CEO of a major insurance company that had recently ceased commission payments on internal replacements, contemplated offering no commissions for external replacements. The reason was simple�such a move would disincentivize replacements. Clearly this was an insurance executive who took the company�s responsibility to its clients very seriously. But is such a plan fair to the agents who also had to work hard on replacements? Would it be fair to the shareholders of the company if it forced productive agents to look for another company? This example shows that responsibilities are not simply one-sided but involve a multitude of responsibilities, some of which may be in conflict.

This concludes the discussion of the various relationships and obligations that arise among the agent, client, and insurer. We have seen in the course of this discussion that the relationships are multidimensional and involve a wide range of stakeholders, that is, anyone who has a stake in an action or a situation. When there is a multitude of stakeholders, inevitably and occasionally conflicts of obligation with respect to two or more of those stakeholders will occur. The CEO mentioned above has duties to many stakeholders: his stockholders (or policyowners in the case of a mutual company), his agents, his clients, his family, and himself. What should be done when these conflict? The ethical course of action would be to try to resolve the difficulty without hurting someone in the process, and to try to be fair and true to yourself.