This is the presentation that Ted This is the presentation that Ted Pappas used when he was chosen Pappas used when he was chosen

to speak at the NAMIC to speak at the NAMIC (National Association of Mutual (National Association of Mutual

Insurance Companies) Insurance Companies) Commercial Lines Seminar on Commercial Lines Seminar on February 28February 28thth, 2008 in Chicago., 2008 in Chicago.

Ethics In The Insurance IndustryEthics In The Insurance Industry

Theodore M. Pappas,Theodore M. Pappas,

CLU, CIC, CWCACLU, CIC, CWCA

Ethics Awareness Month for the Ethics Awareness Month for the Insurance IndustryInsurance Industry

MARCH

What We SellWhat We Sell

NOTHINGNOTHING

But A PromiseBut A Promise

OUR PROMISE: OUR PROMISE:

To pay a claim in the event of an To pay a claim in the event of an unknown contingencyunknown contingency

To Sell An IntangibleTo Sell An Intangible

All you have is your credibility All you have is your credibility and perceived honestyand perceived honesty

What Do We Know About Our What Do We Know About Our Industry?Industry?

Eventually you will be between a Eventually you will be between a rock and a hard placerock and a hard place

“Perhaps THIS Will Refresh Your Memory”

We have a fear that there are a We have a fear that there are a finite number of customersfinite number of customers

“Entrepreneurs have this horrifying sense of scarcity, that the customers they have,

are the only ones in the world”

-G. Richard ShellProf. Of Legal Studies & ManagementWharton School,University of Pennsylvania

Defending an E&O claim is…Defending an E&O claim is…

……A Liars ContestA Liars Contest

Your Reputation,Your Reputation, Past ethical behavior, Past ethical behavior, will be the key issue will be the key issue

If you have a history of :If you have a history of :

Misrepresenting a risk,Misrepresenting a risk, being creative in rating a risk being creative in rating a risk or – simply ignoring the rules or – simply ignoring the rules

That will be used to discredit youThat will be used to discredit you

REMEMBERREMEMBER

A jury of your peers has A jury of your peers has absolutely no idea how or what absolutely no idea how or what

you do for a livingyou do for a living

If the opposition can demonstrate If the opposition can demonstrate you are less than ethical…you are less than ethical…

“Touche!”

ETHICS:ETHICS:

A system of moral standards or A system of moral standards or valuesvalues

ETHICS:ETHICS:

Rules or standards governing the Rules or standards governing the conduct of a person or members conduct of a person or members

of a professionof a profession

Easy To Define?Easy To Define?

Different people and different Different people and different organizations have different organizations have different

standards and valuesstandards and values

An action considered ethical by An action considered ethical by one may not be considered one may not be considered

ethical by anotherethical by another

Early on we learned it Early on we learned it is wrong to killis wrong to kill

In time of war?In time of war?

Capital Punishment?Capital Punishment?

To steal to feed your children?

If it’s difficult to answer these If it’s difficult to answer these questions covered by rules or questions covered by rules or

laws, it’s more difficult to answer laws, it’s more difficult to answer business ethical questionsbusiness ethical questions

Business ChoicesBusiness Choices

Not between Right and Wrong…Not between Right and Wrong…

…but between 2 RIGHT answers

LAW:LAW:

Minimum StandardMinimum Standard

Ethical BehaviorEthical Behavior

Abides by the spirit of the lawAbides by the spirit of the law

Qualities Society Views as Ethical:Qualities Society Views as Ethical:

Honesty

Integrity

Responsibility

Respect

Courage

Ethical Decision:Ethical Decision:

Make best choice in compliance Make best choice in compliance with dutywith duty

Rather than the best choice for him or her personally

Primary Cause of Unethical BehaviorPrimary Cause of Unethical Behavior

Conflict of Interest

Conflicts of InterestConflicts of Interest

Do not equate to unethical behavior

Think of them as temptations to resist

Conflicts of InterestConflicts of Interest

Arise from unique circumstances

Relationships

Business Arrangements

Not known to the other party

TRANSPARENCYTRANSPARENCY

-Eliot Spitzer-Eliot Spitzer

Impossible to eliminate all Impossible to eliminate all conflicts of interestconflicts of interest

Acting EthicallyActing Ethically

“Doing The Right Thing”

What are my legal duties and What are my legal duties and contractual obligations?contractual obligations?

What benefits, what costs or harms What benefits, what costs or harms each course of action produce?each course of action produce?

Which alternative leads to best Which alternative leads to best overall results?overall results?

Does one course of action best Does one course of action best respect the moral rights of all?respect the moral rights of all?

Is one course of action fairer to Is one course of action fairer to all the parties than are the others?all the parties than are the others?

Examples of Ethical Behavior:Examples of Ethical Behavior:

Only making promises you can keep

Fulfilling all promises you make, or explaining why they can’t be fulfilled

Honesty in all communications

Stay within your area of expertiseStay within your area of expertise

Never oversell your knowledge or abilities

Disclose bad news timely

Disclose unavoidable conflicts of interest

Work through proper channels

Maintain confidencesMaintain confidences

Quickly admit and rectify mistakes

Associate with others known for their ethics and integrity

Join organizations that support ethics and integrity

People who display these People who display these characteristics are perceived as characteristics are perceived as

dependable and trustworthydependable and trustworthy

Add to thisAdd to this

In-depth and up-to-date In-depth and up-to-date knowledge on the technical side knowledge on the technical side

of the businessof the business

You are an You are an Insurance ProfessionalInsurance Professional

Insurance Generates Conflicts of Insurance Generates Conflicts of InterestInterest

Ethics Comes Down To The Ethics Comes Down To The Golden RuleGolden Rule

Golden RuleGolden Rule

Christianity: Christianity: Do unto others as you Do unto others as you would have them do unto youwould have them do unto you

Judaism: Thou shalt regard thy Judaism: Thou shalt regard thy neighbor as thyselfneighbor as thyself

In Judaism: Thou shalt regard In Judaism: Thou shalt regard thy neighbor as thyselfthy neighbor as thyself

In Buddhism: Hurt not others In Buddhism: Hurt not others with that which pains yourselfwith that which pains yourself

In Islam: No one is a believer In Islam: No one is a believer until he loves for his bother until he loves for his bother what he loves for himself.what he loves for himself.

In Hinduism: Good people In Hinduism: Good people proceed while considering that proceed while considering that what is best for others is best what is best for others is best for himself.for himself.

In Christianity: Do unto others In Christianity: Do unto others as you would have them do unto as you would have them do unto youyou

In Confucianism: What you do In Confucianism: What you do not want done to yourself, do not want done to yourself, do not do to others.not do to others.

Golden Rule

CASE STUDIESCASE STUDIESSharing Information About Sharing Information About

an insureran insurerBoard Member Conflict of Board Member Conflict of

InterestInterest

Intellectual PropertyIntellectual Property Underwriting InformationUnderwriting Information

Treatment of EmployeesTreatment of Employees Application MisstatementsApplication Misstatements

Gifts and ConflictsGifts and Conflicts Competitor MisdeedsCompetitor Misdeeds

Renewal PricingRenewal Pricing Data SharingData Sharing

Insurance CertificatesInsurance Certificates Surplus Lines DeclinationsSurplus Lines Declinations

DownsizingDownsizing Commission LevelsCommission Levels

Referrals to CompetitorsReferrals to Competitors Hiring PracticesHiring Practices

Claim SettlementsClaim Settlements Duty to CustomersDuty to Customers

Personal Relationships and Personal Relationships and Duty to the EmployerDuty to the Employer

Rebates and Premium Rebates and Premium FinancingFinancing

““It is easy to find successful It is easy to find successful businessmen, but not so easy to businessmen, but not so easy to

find men who put character find men who put character above business”above business”

- Orison Swett Marden 1908- Orison Swett Marden 1908

“ Never try to fool the men you represent. Tell them what is possible and what is

impossible to do. And look upon a single contract as something sacred - - a pact to be observed; an agreement which is your bond

of good faith” - Philip Murray

“ Your word is who you are.” “Good enough seldom is”

- Admiral James Greer - Debbie Fields

“ Even if you are on the right track, you’ll get run over if you just sit there”

- Will Rogers

TESTTEST

Questions???Questions???

Special Thanks to….Special Thanks to….

D.C. Department of InsuranceD.C. Department of InsurancePaul J. Winn, CLU ChFCPaul J. Winn, CLU ChFC

WebCE LP, LLLP WebCE LP, LLLP IRMIIRMI

National AllianceNational Alliance

Competition is anCompetition is an Economic Fact of Life Economic Fact of Life

1725 DeSales St. NW, Washington DC 200361725 DeSales St. NW, Washington DC 20036www.mclaughlin-online.comwww.mclaughlin-online.com

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