11.1 Ethics and Professionalism
Key Takeaways
Ethics concerns what is right and wrong; it is wider than compliance, which concerns obeying rules, because conduct can be legal but still unethical.
Insurance depends on trust, because the product is a promise that is tested only when a loss occurs and the customer relies heavily on the intermediary's honesty.
General ethical principles for practitioners include honesty and integrity, fairness, objectivity, competence and due care, confidentiality and accountability.
Ethical courage means speaking up, refusing improper instructions and declining unsuitable business even when it costs a sale.
A profession requires a body of specialised knowledge, entry examinations, a code of conduct with discipline, and continuing professional development.
11.1 Ethics and Professionalism
Quick Summary: Ethics is about doing what is right, not just what is allowed. Insurance is a promise bought on trust, so ethical failures such as misrepresenting cover, encouraging non-disclosure or mishandling premiums cause serious harm to customers and to the industry. Practitioners show professionalism through specialised knowledge, examinations, codes of conduct and continuing professional development.
What Is Ethics?
Ethics is the set of moral principles that guide people in telling right from wrong and in choosing how to act. For an insurance practitioner, this comes down to questions such as: Am I telling the customer the whole truth? Is this product really suitable? Would I be comfortable if my conduct were made public?
Ethics Is Not Compliance
Compliance means following laws, regulations, notices and company rules. It is essential but not enough:
- Rules cannot cover every situation. Ethics guides you where the rules are silent.
- Legal is not the same as ethical. Persuading an elderly customer to buy cover she does not need might break no specific rule, but it is unethical.
- Compliance asks "Can I?"; ethics asks "Should I?" A practitioner who only asks whether something is allowed will eventually harm customers.
Regulators expect both. MAS's Guidelines on Fair Dealing require boards and senior management to make fair dealing central to corporate culture, which is an ethical expectation that goes beyond ticking boxes (Section 11.2).
Why Ethics Matters So Much in Insurance
- The product is a promise. Customers pay now for a benefit that may come years later, so they must trust the insurer and the intermediary.
- Information is unequal. Customers rarely understand exclusions, warranties and conditions, so they rely on the practitioner's explanation.
- Utmost good faith runs both ways. Insurers and their representatives must deal honestly with proposers, just as proposers must disclose material facts (Section 4.2).
- Misconduct damages everyone. A mis-sold policy hurts the customer, exposes the firm to complaints and regulatory action, and erodes public confidence in the whole industry.
General Ethical Principles
| Principle | What it means in practice |
|---|---|
| Honesty and integrity | Tell the truth about cover and costs; never forge, backdate or alter documents |
| Fairness | Treat customers even-handedly; handle claims and complaints fairly |
| Objectivity | Recommend what suits the customer, not what pays the highest commission; disclose conflicts of interest |
| Competence and due care | Advise only within your knowledge, seek specialist advice when needed, and keep up to date |
| Confidentiality | Protect customers' information and use it only for proper purposes (Section 11.3) |
| Accountability | Take responsibility for your actions and correct mistakes promptly |
Ethical Courage
Knowing what is right is not enough; you must also act on it. Ethical courage means:
- speaking up when a colleague or manager suggests something improper;
- refusing instructions to backdate a cover note or "adjust" a proposal answer;
- declining business that is unsuitable for the customer, even when it costs a sale or a target;
- admitting your own mistakes and putting them right; and
- reporting misconduct through proper channels, including whistleblowing arrangements.
Benefits of Ethical Behaviour
- For customers: suitable cover, clear explanations and fair claims handling.
- For the practitioner: trust, repeat business, referrals, a good reputation and a longer career.
- For the firm: fewer complaints, disputes and regulatory problems, and a stronger brand.
- For the industry and society: public confidence in insurance, which supports enterprise and financial stability.
Common Unethical Acts
GIA's Code of Practice for Agents expressly prohibits several of these:
- Inducing non-disclosure or misrepresentation: preventing or discouraging a proposer from stating material facts to the insurer, or encouraging the proposer to misstate them.
- Misrepresenting the product: overstating cover, hiding exclusions, or claiming to be the underwriter when only distributing the product.
- Unfair criticism of competitors: making inaccurate or unfair criticisms of other insurers.
- Using concealed numbers for outbound marketing, servicing, claims or renewal calls.
- Hidden charges: adding charges to the premium without disclosing their amount and purpose.
- Twisting or churning: persuading a customer to drop a suitable policy for a new one mainly to earn commission.
- Misappropriating premiums or client money, and misusing personal data.
- Undisclosed conflicts of interest, such as recommending an insurer because of a personal relationship.
Professionalism
Requirements for a Profession
A profession is usually marked by:
- a specialised body of knowledge;
- formal education and examinations for entry, such as SCI's BCP, PGI, ComGI and HI;
- entry standards and registration, such as MAS registration for brokers and ARB registration for agents, with fit and proper requirements;
- a code of conduct that is enforced through discipline; and
- continuing professional development (CPD) to keep knowledge current. GIA's minimum for general insurance agents is 24 hours in each of the first two years and 15 hours a year after that.
Responsibilities of Professionals
- Put the customer's interests first and give suitable, well-explained advice.
- Maintain competence and recognise the limits of your knowledge.
- Keep accurate records and protect confidential information.
- Provide ongoing service: answer questions promptly, help with changes, renewals and claims.
- Uphold the reputation of the profession in all dealings.
Which statement best describes the difference between ethics and compliance?
They mean the same thing in insurance practice
Compliance is about personal values, while ethics is about following the written rules of the firm
Ethics applies only to insurers, not intermediaries
Compliance asks what is allowed; ethics asks what is right, even where rules are silent
Under GIA's Code of Practice for Agents, which of the following is an agent prohibited from doing?
Recommending specialist advice whenever a risk falls outside the agent's own expertise
Discouraging a prospective policyholder from telling the insurer about material facts
Identifying the insurers the agent represents
Explaining exclusions and conditions before the sale
An agent's manager asks her to backdate a cover note so that a customer's earlier accident appears to be covered. What does ethical courage require?
Refusing the instruction and reporting it through proper channels
Backdating it, because a manager approved it
Backdating it only if the customer is a long-standing client
Asking the customer to decide whether to backdate it
Sections you finish are checked off in the contents.