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Regulation and Compliance > State Regulation

The case for providing ethics training for your staff, and dangers that lie in failing to do so

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No insurance agent wants to run into legal problems. They are distracting, potentially very harmful to the producer’s reputation, and often costly to deal with—even if the producer has done nothing wrong.

While producers selling on the front lines generally receive education in business ethics and insurance sales compliance as part of their training, licensing, or professional designation course work, the support staffs many independent producers employ to handle a wide variety of administrative, marketing, appointment setting and other tasks typically are not required to receive training in ethics and compliance issues.

This can be lead to trouble, as plenty of legal problems originate at lower levels, where employees may knowingly or unknowingly act improperly. It may be out of ignorance, indifference or some other motivation, but the mistakes they make can have significant consequences that impact the stability of the producer’s practice.

The good news is that many of these potential problems can be avoided or at the very least mitigated by providing employees with adequate training to make sure they are aware of how to accomplish their day-to-day job responsibilities in an ethical and compliant manner.

Errors & Omissions disputes are not something that happens only to unethical or incompetent producers. It is estimated that about one in seven agents with E&O coverage will report a potential claim to their carrier, making it somewhat likely that an agency at some point during its existence will be involved in a claims situation. Some are truly mistakes – made innocently or out of carelessness – while others might come from clients who are unhappy or suffered an uncovered loss.

But clearly, the best way to avoid an E&O claim is to do everything in your power to prevent an incident from occurring in the first place. This is where having a well-trained staff comes into play.

By dedicating resources to train employees on regulations, policies and the types of potential problems they can face while doing their jobs, producers can instill in employees an appreciation, understanding and commitment to the agency’s ethics and compliance standards. Ethics training encourages appropriate behavior, sets expectations, and demonstrates the agency’s commitment to conducting business in an ethical manner. It prepares employees to respond appropriately when questionable issues cross their path, as they inevitably will.

“Effective ethics training is good business since it leads to fewer compliance violations,” said Julie Anne Ragatz, director of the Cary M. Maguire Center for Ethics in Financial Services at The American College in Bryn Mawr, Penn. “I have often heard people say that they ‘don’t have the time to spend thinking about ethics, because they are so overwhelmed with their compliance obligations.’ To my mind, this is the wrong way to look at the issue. Perhaps if companies focused more on ethics, they would have to focus less on compliance.”

The Center works to promote ethical behavior by offering programs that go beyond the “rules” of market conduct to help executives and producers be more sensitive to ethical issues and think more critically about ethical solutions.

Ragatz said ethics and compliance may require the same action—such as selling only “suitable” products— but they appeal to different motivations. “The ethical appeal is to our desire to pursue what is good, while the compliance appeal is usually towards our desire to avoid punishment. Both are helpful, but a focus on ethics primes us to think more broadly about how we achieve the most good in our professional activities.”

There are two primary stumbling points producers seem to encounter in attempting to their staff on ethics.

“The first is the assumption that there is no meaningful difference between ethics and compliance. Some believe that they have exhausted their ethical obligations when they have fulfilled their legal obligations, but this is not always the case,” Ragatz said.

The second is the belief that there is little that any one organization can do to influence the behavior of their representatives and staff in an ethical direction, Ragatz said. “Many people believe that ‘good people will do good things’ and ‘bad people’ will do the opposite. This is true, in part, but neglects the important role that organizational culture can play in motivating our actions. The truth of it is that most of us are not good or bad, that is, we are somewhere in the middle and the thoughtful organization will think seriously about the policies and procedures it can put in place to drive us to act in preferred ways.”

The fact that an employee may be a “good” person does not mean he or she intuitively knows the specific laws or regulations that apply to the position for which they have been hired. The employee needs and deserves to know what those regulations are. It would be unfair not to let employees know the ethical standards to which they will be held.

Ragatz, who has been with The American College since 2006 and was named Director of the Center for Ethics in 2011, said the Center has broadened its reach and refined its strategy to fulfill its mission of raising the level of ethical behavior in financial services. The Center’s research energies have been focused on identifying ethical issues important to the industry, and one of them is cultivating ethical cultures throughout agencies, she said.

“We have grown to appreciate the importance of talking to senior leaders about the role of ethical culture in encouraging the right behavior in their organizations,” Ragatz said. “We believe that we can serve the industry by offering practical suggestions on how organizations can develop a more ethical culture.”

An agency that conducts business in an ethical manner engenders respect from employees and the community alike. Employee retention is higher, and clients tend to remain loyal to agencies that exhibit a strong sense of ethics.

“Consumers are looking for ways to distinguish whom they should trust,” Ragatz said. “One of the perils of seeking the advice of an expert is that we are not always certain when we are getting good advice. Having a reputation for ethical behavior and developing the practice of talking about your values to clients is one way to ensure that you and your organization stand out. Of course, it is important that your behavior is alignment with these heightened expectations.”

For more information about ethics training programs, visit your state’s department of insurance website, or:


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