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Insurance industry takes look at ethics to polish reputation

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The insurance industry has had a longstanding problem with its reputation, and The Institutes, a non-profit provider of professional insurance education, recently decided to survey risk management and insurance professionals on ethics in the profession. Peter L. Miller, president and chief executive of The Institutes, discusses those results and offers suggestions on how the industry could improve its standing.

For about 40 years, the Gallup Poll has asked Americans how they view the honesty and ethics of various professions. Over that time, the insurance profession has scored fairly consistently — which is to say, poorly.

Since 1977, no more than 15% of respondents have said our industry's ethical standards are high, while no fewer than 25% have ranked us below average. The ethical standards of accountants, bankers and lawyers all rated higher.

The survey's language may serve to skew the result: asking about “insurance salesmen” up until 2009, and then “insurance salespeople.” However, we also know that the public largely thinks the insurance industry consists of only sales positions, so it's hard to say how a change to “insurance professional” would affect perceptions.

March was the 25th anniversary of the financial services industry's Ethics Awareness Month, and we decided to conduct our own survey. The Institutes and our affiliate, the Society of Chartered Property and Casualty Underwriters, surveyed members of The Institutes Community, an online network of risk and insurance professionals, asking them how they view ethics in our field, how it's changed and how we can improve. We received more than 3,000 responses.

The responses made clear that insurance professionals are proud of their ethical standards, but they are also aware of the disconnect when it comes to the public's point of view. More than 90% of respondents said insurance professionals are largely ethical; 55% said they believe the public thinks insurance professionals are largely unethical.

We agree that most insurance professionals do act ethically. Unfortunately, it takes only a few negative examples to undermine that. Behavioral economics has thoroughly documented that human brains are wired to have a negative bias and that it can take five positive interactions to overcome just one negative encounter.

Our approval ratings haven't budged in the past 40 years because changing people's minds is hard work.

Survey respondents seemed to believe that the reason for this poor reputation is a lack of information on the public's part, because 82% of respondents said the best way to change these perceptions would be better educational efforts. Another popular solution was to make our business easier to understand, by clarifying policy language and creating more transparency in pricing and claims processes.

These are admirable goals, but we should be looking internally as much as externally. Are our ethical standards improving? Results in our survey were mixed, with slightly more than half of respondents saying our industry is not acting more ethically than it did a decade ago.

Those who think we've seen improvements cited a number of factors they believe played a role:

• Ethics education.

• Transparency through technology.

• More competition.

• Better regulation.

• High-profile prosecutions of those who have crossed the line.

Others said they have seen changes come as much from inside the profession as from outside.

“I believe that more professionals are taking more pride in their careers,” said Kathryn A. Lyons, commercial lines account manager with Crotty & Associates L.L.C. “They are elevating their work standards and educating their staff. Ethics plays a huge part in this.”

Some of the people who said insurance ethics hasn't changed much since 2005 clarified that they felt our industry was, and still is, largely ethical. Others felt not much has changed because the same old temptations exist.

That raises a crucial point. What is motivating today's professionals to do something they know may be wrong?

There seem to be a number of fronts: Pressure to meet business objectives, at 41%; working with unethical colleagues, at 24%; and being pushed by customers, at 23%.

Those forces are certainly not unique to insurance. The University of Notre Dame, on behalf of a law firm, released a survey in mid-May finding that about one in five financial services respondents feel they must engage in unethical or illegal activity to be successful. About one in 10 said they felt direct pressure to compromise ethical standards or violate the law.

Ultimately, we are most interested in how we can improve. The message from respondents to our survey was clear: change needs to come from leadership, either by demonstrating ethical behavior or including ethics in company goals. Only 8% of respondents favored reprimanding wrongdoers.

Professionals were optimistic, with 52% saying the industry will become more ethical over the next 10 years. Yet, the reasons they cited did not have much to do with corporate executives taking the lead on such issues. Instead, many identified technology as a driver of more transparency, with social media bringing sunshine to shadowy areas of company operations.

“With the impact of social media on everyday life, being ethical is the only way to go,” said Terri McKane, an agent and a quality control coordinator at American Strategic Insurance.

Respondents also believe that ethics can align with business goals, saying that smart businesses will ultimately see that unethical employees are simply too risky for an organization.

“Ethics has become a valued commodity in our industry,” said Jay Lewandowski, a senior risk control specialist with Wright Risk Management. “The unethical are ostracized and are, more often than not, released from their positions, if not terminated. I sincerely hope — no, believe — this practice will continue.”

Interestingly, three in five respondents said acting ethically was simply the right thing to do, rather that citing business reasons for such behavior. But even if that's the primary reason, leaders would be shortsighted to think that reputation doesn't affect our bottom lines.

We are optimistic about the next 10 years as well, but we also know that behaving ethically isn't always easy. Even if we all aim to uphold the highest ethical standards, we still will face hard choices. In free ethics courses provided by The Institutes and the CPCU Society, we tell our students that ethics is not simply a choice between right and wrong.

Instead, it's often choosing between two options that both seem right at the time, like doing what's best for your family versus what's best for someone else's.

We don't have to wait until we are faced with those choices. Instead, smart leaders should recognize that unethical business practices are not only wrong but are also a risk to be managed. They should lead by example and make it clear that honesty is absolutely a part of their culture.

Managers should empower their teams to make good decisions and not encourage them to cut corners. New recruits should receive basic ethics training, so they understand how to handle tough decisions.

Awareness of ethics for only one month of the year isn't enough—it needs to be part of our daily routine.

In the end, only by changing the reality of insurance industry ethics can we hope to change perceptions about our industry.

Peter L. Miller, CPCU, is president and chief executive of The Institutes and can be reached at miller@theinstitutes.org or 610-644-2100, ext. 7732.