What Is NU’s Next Questions Of Ethics?
Insurance regulators are charged with making personal lines insurance widely available. Nothing has undermined the industry’s image more over the years than the battles between regulators and carriers over the availability and affordability of auto and homeowners insurance. The question is, are carriers and their producers ethically required to assist in this effort? What are the ethical responsibilities of insurers and their agents and brokers, if any, with regard to providing insurance to all who approach them for personal lines coverage? Click on to respond.
While you may remain anonymous, please identify your role in the insurance business so we can get a better sense of where you are coming from with your response—agent, adjuster, risk manager, etc.
A column recapping the responses will appear in the May 25 edition of National Underwriter, written by our ethics columnist, Peter R. Kensicki.
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Personal lines auto and home insurance are required purchases for consumers. Auto liability insurance is required by the states and auto physical damage and home insurance is required by lenders. This makes the provision of insurance a critical public policy consideration, it makes personal lines a sort of public utility.
Insurance is not rocket science, it is simply the collection of a common fund from the policyholders, to pay out to those policyholders that suffer insured damages. From the beginning, when Phoenician ship-owners first invented insurance, the underlying way it works is the same. The ship-owners noticed that when a ship was wrecked, the unlucky ship-owner was wiped out so they decided to pool the risk of wreck. They did this by agreeing to share the loss of any ship from the members of the group in accordance with the values of all the ships, on a pro-rata basis.
At first, the ship-owners simply waited for a wreck and then got together and divvied up the loss. But after some time they thought it would be better to collect some money up front to spread out the collections and hired a bookkeeper to handle the details. The bookkeeper is what we call the “insurance company.”
Insurance companies do not create anything related to the common fund, a fact recognized by the federal government which, when calculating the Gross National Product contribution of insurers, only count the overhead costs, not the common fund collection in the CNP data.
So, since personal lines is a sort of public utility and the real insurance company is the people, since they create the common fund. Thus, your real question should be “Should the bookkeepers have some ethical requirement to help the state and the people obtain required protection?”
Obviously the answer is “Yes!”, which is the answer the bookkeepers essentially gave when they applied for licenses in each state.
The “ethical issue” that you probably have in mind is whether some groups of policyholders should be forced systematically to subsidize other groups of policyholders, through things like price controls, “take all comers” laws, and assigned risk mechanisms. That’s what the “affordability” issue always comes down to.
“Availability” is not the issue – insurance is always available (if government does not destroy the market with price controls) to those who are ready, willing and able to pay the premium commensurate with their prerceived risk of loss, plus the expenses of the enterprise. One could argue about the insurers’ perceptions of risk, and in hindsight they don’t always prove to have been correct – but no one has better foresight.
Forcing one group to subsidize another’s cost of risk encourages the continuation or exacerbation of higher-risk behavior by the latter. That’s damaging to the society as a whole. Insurers and their sales forces have no ethical obligation to assist in that process.
An Underwriter