When Does Helping a Client Become Unethical?

insurance continuing educationIt’s important to realize that what is unethical may not always be illegal (though sometimes it is both). There are many instances where businesses may act within the law, but their actions hurt society and are generally considered to be unethical.

Let’s look at an example. Anne Jones is a newly licensed agent at the AB Insurance Agency who is given her own book of current business for renewals. She decides to introduce herself to each client to make sure that everyone renews with her. Her first stop is Mark and Mary Able’s apartment to renew their rental coverage.

The Ables tell Anne that they have purchased a house and are closing soon. Anne tells them, “You’ll need an HO-3 policy at your closing to show proof of insurance. I’ll be happy to provide that for you. The HO-3 form covers the house and everything in it on an all-risk basis, and it also includes $100,000 in personal liability coverage.”

Mark was anxious to finish the deal and move into the new house. “You mean it covers everything, Anne? But do we really need $100,000 in liability insurance? Isn’t that too much?”

“Yes; it’s all-risk.” Anne said. “$100,000 is the minimum we can write. I can provide the policy for your closing next week, but I’ll need a check for $520.00.”

Mark sighs and says, “I don’t get paid until the end of the month. I need money for the closing so I can’t write you a check today.”

Anne wanted to keep the business so she said, “How about writing me a deposit check for $100 and pay me the balance next month? I’ll pay the insurance company and deliver the HO-3 policy in time for your closing.”

Mark writes the check payable to Anne, who deposits it into her personal checking account. Anne writes a check to the insurance company for the annual premium (less commission) and delivers the policy as promised so the Able’s closing goes smoothly.

Has Anne Jones done anything illegal or unethical?

Anne’s enthusiasm has created some misjudgments in her sales approach and policy information. The HO-3 policy is an “open perils” form that contains certain exclusions and limitations on coverage. Although not a direct violation in many states, the extension of credit can be perceived as an inducement to purchase by offering an interest-free loan. Even if interest is charged, Anne’s offer to pay the premium can be considered rebating in many jurisdictions. Collected premiums and personal funds must be maintained in separate accounts. When Anne deposited the Able’s check into her personal account, she commingled funds, which is illegal.

Anne’s supervisor should not rein in Anne’s enthusiasm about selling insurance, but should direct it with some additional training by reminding her that commingling and rebating are violations of state law and that the contract is not “all-risk.” Anne must immediately correct the Able’s impression about what their policy covers and deposit funds into her agency’s Premium Fund Trust Account.

Want to know more about ethics?  Check out our ethics insurance continuing education classes.

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