Improving Ethics in the Insurance Industry

By Marco Bendinelli

Whether it is for legal, personal or humanitarian reasons, ethics can't be ignored, and this is especially true for the insurance industry.

Unfortunately, the current system isn't perfect, and newspapers are often rife with stories of people falling out with their providers for a range of issues. An annual ethics poll by Gallup, for instance, has always seen insurance companies fare poorly. In over 35 years, no more than 15 percent of the participants considered the insurance industry to have “high ethical standards." Clearly, this is something that needs to change.

A quick overview

Much of the ethical issues in insurance are a case of utilitarianism and deontology. The former perspective focuses on the greater good or collective, while the latter believes in personal duties. Insurance businesses are arguably utilitarian, as they look at the larger picture.

An individual customer, on the other hand, is somewhat deontological; they consider their needs first and foremost, with no relevant interest outside their insurance policy. Many problems occur when insurance providers fail to understand these concerns, conducting practices that simply ignore personal objections.

Demonstrate ethical knowledge

A recent (June 2015) survey conducted by Business Insurance, partially in response to the low results seen in the Gallup Poll, showcased two very important figures:

• The majority (over 90 percent) of people in insurance and risk management believed the industry is “largely ethical”


• Just over half (55 percent) claimed the public considers the industry as “largely unethical”

Since this poll asked people within the industry, unlike the Gallup Poll, it is clear companies believe they are acting ethically, while also recognizing the public does not believe them. The best way to resolve this, then, is to demonstrate ethical knowledge. If companies can offer in-depth ethical knowledge, even if it is just a page or a clear statement online, they might be able to change public consensus.

Full disclosure of data

One of the major problems in the insurance industry is a bias toward minorities with a lower incident rate. Take motor vehicle insurance, for instance, where certain subsets of drivers receive lower rates, while others receive higher rates, such as young, male drivers. Any given driver may meet these criteria, but that doesn't mean they reflect those standards. Why should good drivers suffer because of the majority?

However, insurance companies have done extensive research on these subjects, a lot of which simply isn't published or disclosed to the public. As a result, customers can incorrectly assume a company is just being unethically biased towards them. Sharing this information, on the other hand, can show the reasoning and logic behind any decision.

Individual assessment

On the other hand, it might be beneficial to remove this practice entirely. By judging people on their individual merits, records and history, insurance providers can offer coverage to their customers on an individual basis. This is a core foundation of medical coverage, for instance, so why not apply it to other areas?

Regular review

Whether companies provide rates to specific minorities or offer an individual assessment, some form of regular review process needs to take place. Years of good behavior are often rewarded with better rates, and this is a process that can be spread more widely.

Similarly, as mentioned before, certain minorities are often labelled in a demeaning way for the purpose of insurance. This may have been the case during the initial assessment, but are regular reviews being taken to ensure this is the case? If young drivers get involved in fewer incidents, or crime rates drop considerably over the years, do the respective insurance businesses reflect this in their policies?

The fine print

Hiding things in the fine print may be legal, but it's questionably ethical. The insurance industry is often guilty of many examples of this, such as increasing the annual renewal costs after the first year, or being very specific about what does and doesn't come under the excess. Various medical procedures are considered cosmetic or unnecessary depending on where you live, so how do you know your insurance provider will cover a specific operation or procedure?

Likewise, nobody likes finding out their company is using their money for intentions that go against personal belief. Many companies use under-writers, secondary companies and other means to spend money, create the illusion of competition or simply serve their own interests.

Regulations

Can better regulations help enforce ethical standards? If someone is fighting for insurance companies to pay for an important procedure, they can't always wait for a lengthy legal process.

Escrow, however, is a prime example of something that works and is ethically sound. Using an escrow account takes the money out of the providers’ hands, but not directly into the policy holder's. The customer knows the money is available, and the escrow agency isn't under any obligation to please any party. Their role is to simply determine if the cost is covered under the policy.

The future

While many insurance companies are starting to drift with the current flow towards ethical consciousness, there is still a long way to go and a lot of room for improvement. Increased awareness toward ethical practices must take firm roots in the industry, and only then will insurance companies be fully viewed in ethical lights.
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Marco Bendinelli is an attorney and the founding shareholder at Bendinelli Law Firm. He is devoted to representing individuals who suffered injury or death caused by the negligence or wrongful conducts of others. He also finds time to motivate and inspire through his writings.