Oct 2020
Insurance is vital to the functioning of society. Through the mechanism of entering into thousands of contracts we call insurance policies, families and businesses are able to manage the risks of everyday life.
For the insurance market to function, people and businesses must be able to source their insurance and obtain advice from insurance intermediaries and insurers they can trust. High integrity and strong ethics are therefore imperative qualities of an insurance professional and ensuring ethical business practices from employees and insurance intermediaries is a key priority for every organization in the insurance market, be it an insurer, insurance broker company or insurance agency.
“The insurance market depends on a culture of trust and ethical business practices to safeguard policyholder interests.”
The responsibility for building this trust and conducting business in an ethical manner is personal and every insurance practitioner is accountable for their own actions and behavior. A career in insurance, therefore, requires an individual to commit to a career of building and maintaining a good character, having integrity and being ethically minded in dealings with clients. This is how reputation is built and, in insurance as with any financial service, reputation is everything.
General principles of good conduct
This is why, since taking on the regulation of insurance intermediaries, the Codes of Conduct and Guidelines issued by the IA focus on general principles of good conduct which the public are entitled to expect of insurance practitioners and which every insurance practitioner should demand of themselves. These general principles include following:
General principles of good conduct
Acting with honesty and integrity with clients
Acting in the client’s best interests and treating clients fairly
Acting with due care and diligence
Possessing appropriate levels of professional competence and continuously developing professional knowledge
Disclosing accurate and adequate information to clients
Giving advice suitable to the client’s interests
Avoiding or managing conflicts of interest
Safeguarding client’s assets
The Codes of Conduct for Licensed Insurance Agents and Licensed Insurance Brokers and the Guidelines issued by the IA also lay down detailed standards and requirements which are context specific, providing guidance of the minimum requirements expected of an insurance practitioner in a given situation. But the general principles of good conduct on which Codes and Guidelines are based are universal and serve as articles of faith which insurance practitioners should instinctively display across every element of their insurance business practices, even those which are not covered by any specific compliance requirement.
General principles of good conduct go beyond mere compliance with law and demand far more than a mere tick-box compliance mentality. They require insurance practitioners to use their judgement to do the right thing by their clients. They serve as the foundation for the good character of an insurance practitioner and ethical business practices across the insurance industry.
A high integrity culture
At the corporate level, insurers, insurance broker companies and insurance agencies are responsible for ensuring their employees, individual agents and technical representatives conduct themselves ethically at all times when dealing with clients on behalf of their companies. It is for this reason that the Codes of Conduct and Guidelines require insurers, insurance broker companies and insurance agencies to implement governance frameworks that incorporate adequate controls and procedures. This responsibility lies with the board of directors, the controllers of the company, responsible officers (in the case broker companies and agencies) and key persons in control functions (in the case of insurers).
Governance controls and procedures are important to achieve this, but alone they are insufficient and, in isolation, can be counterproductive. An approach which says “just simply follow this list of actions” can remove ethical decision-making from the equation and is conducive to amoral behavior, which in turn can create a breeding ground for unethical business practices. The question “is this the right thing to do” becomes replaced with the question “is this allowed.” This tick-the-box-only mentality to compliance is detrimental to a company and should be avoided at all costs.
A strong governance framework and effective controls and procedures begins with a sound organizational culture which promotes personal accountability for acting at all times in accordance with the general principles of good conduct, fosters ethical decision making and gives confidence to employees, individual insurance agents and technical representatives to make the right judgement calls.
“Organizational culture, in a business context, are the values and norms that are shared by people who work for or represent a company, demonstrated through the way they interact with clients.”
It is the attitudes, values and norms of the employees, agents and technical representatives of the company (and which make up the company’s culture) that drives the manner in which a company deals with clients and sets the company’s reputation for trust (or otherwise).
Ensuring that a high integrity culture is embedded across the company, must be a key objective for every director, controller, responsible officer and key person in control function (particularly those in the control functions of compliance, risk management and the management of intermediaries). A high integrity culture is not formed overnight and there is no one-size-fits-all approach to doing this, but an approach to consider would include the following steps:
Suggested steps to building a high integrity culture
Establish a bespoke company code of conduct or mission statement which adopts the general principles of good conduct that are expected of all employees, agents or technical representatives representing the company and communicate it to all relevant stakeholders. The board of directors should take the lead on this, setting the right “tone from the top”. The entire governance framework of the company should be based on the company’s code of conduct or mission statement.
Controllers, responsible officers and key persons in control functions should model the general principles of good conduct in their day-to-day behavior in the company and in their dealings with all relevant stakeholders. The example set by the actions of top level of management is visible to all across any company. Nothing erodes a culture faster than members in management who do not act in line with the company’s stated values. Controllers, responsible officers and key persons in control functions should act like chief ethical officers in this respect.
Embed the importance of adhering to the general principles of good conduct in the onboarding process for new staff, agents or technical representatives, helping them internalize the principles so they can apply them to the decisions they will be making.
Design and implement governance controls and procedures which are based on and tied to particular general principles of good conduct. When implementing the control/procedure, clearly explain how that control or procedure is intended to achieve the general principle. The answer to the question “why do we have this control or procedure in place?” should not be “because that’s the way we have always done it” or “the regulator requires us to do it”. Rather, the answer should be tied to the particular general principle of good conduct which the control aims to achieve. Doing this reinforces an understanding across the company of the importance of complying with the control or procedure for the good of clients and the reputation of the company and helps tie compliance to the mentality of “doing the right thing by the client”.
Communicate the general principles of good conduct not only formally but in everyday informal conversations with employees and stakeholders. Highlighting good behavior and admonishing bad behavior sends the message to all regarding how important adherence to these general principles of good conduct are to the reputation of the company and the individuals working for and representing it.
Be aware of potential sources of ethical weakness. Ethical fading refers a condition in a culture which enables people to act in unethical ways whilst falsely believing that they have not compromised their own principles. It starts with small contraventions of the general principles of good conduct, by well-intended people who succumb to the pressure to hit targets or meet deadlines and rationalize their behavior (“others are doing it too, so why should I”?). This is a slippery slope. Every time someone crosses “over the line” to unethical behavior, the line becomes more blurred until it disappears altogether. Holding firm to the general principles of good conduct, recognizing when rationalization for poor behavior is taking place and calling it out, is an important function for any controller, responsible officer or key person in control function. It is also imperative that the design of Key Performance Indicators factor in qualitative measures based on the general principles of good conduct to incentivize good behavior.
Create a climate where employees and representatives of the company can speak up and express their uneasiness about a particular business practice they see or situation that they face.
Reinforcing the importance of ethical business practices
To demonstrate and reinforce the insurance industry’s commitment to ethical business practices and from 1 August 2021 onwards licensed individual insurance agents, technical representatives (broker) and technical representatives (agent) (apart from those who are licensed to carry on regulated activities in restricted scope travel business only) will be required to carry out at least 3 CPD hours in “Ethics or Regulations” as part of their annual CPD requirements.
Adherence to general principles of good conduct and ethical business practices is about maintaining and building good character (or as the regulators refer to it, “fitness and properness”). In the insurance market, trust is everything. Policyholders depend on trust in insurers and insurance intermediaries to fulfil their insurance needs. It is the duty of every insurance practitioner to build and provide that trust in their business practices.