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Why no one is immune from potential ethical lapses

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Schadenfreude is a wonderful German word from a culture and country not known for its linguistic delicacies. Defined as a “malicious joy in the misfortunes of others,” it literally means damage-joy.[1]

Schadenfreude will be high among the advisors and agents reading about the following situation, especially those who’ve experienced mind-numbing audits and investigations with a “damned if you do, damned if you don’t” choice of outcomes.

The Baltimore Sun recently reported that the Maryland Insurance Administration has “cost the state hundreds of thousands of dollars in recent years by failing to properly collect taxes on insurance premiums.”

The paper claims the failure is tied to the botched procurement of an online payment tool implemented in 2012—a process largely controlled by a single employee who has since been referred to the Maryland State Ethics Commission for possible violations of state ethics laws.

The Sun said that the employee, who was not identified, “influenced virtually all aspects of the procurement and implementation” of the payment tool, the audit found. The tool, in turn, lacked a built-in system of checks and balances to ensure payments from and refunds to insurance companies were correct, Thomas J. Barnickel III, the state’s auditor at the Office of Legislative Audits, told the paper.

“Not only did they handle the procurement wrong, but it adversely impacted their operations,” Barnickel said in an interview. “It’s a double whammy, really.”

The paper adds that premium taxes apply to “a broad spectrum of providers in the state, including health and automobile insurers and writers of insurance, surety, guaranty and annuity contracts. With some exceptions, premium taxes, more than $400 million annually, go into the state’s general fund.”

Who’s watching the watchers, who’s policing the police? It’s a clear-cut case of those responsible for insuring the legality and ethicality of a particular industry demonstrating that they are sometimes just as bad as the worst of whom they oversee.

It is reminiscent of the famous exposé from Chris Hansen of NBC on the insurance industry, one in which a particular media outlet sarcastically noted that Hansen’s report attempted to “catch insurance agents for selling insurance.”

A prominent state insurance commissioner was featured, in which she decried the high-commission annuity products with long lock-up periods. What apparently never occurred to Hansen or anyone on his staff is that the very person criticizing these products was the exact same person who approved the products for sale in her state. Why approve them for sale to only then complain about their prevalence.  Might it been a proactive attempt to cover her own tracks?

Who knows? But it’s a perfect illustration of how even those with an explicit mission of not only living up to ethical behavior, but doing all they can to influence it others, can themselves get tripped up.

[1] “Scadenfreude.” 2015


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