Insurance Ethics in the "Housing Crunch"
May 2008
Bruce couldn't believe his ears when he first
heard that Jim and Ruth Kelly actually got that house on Chestnut Circle. The
house in itself was nothing remarkable, but Jim and Ruth Kelly were a financial
disaster if there ever was one. Bruce's father worked at the bank in town, and
there wasn't a conversation in which Bruce didn't hear "all about those Kellys
and the debt that they were in up to their ears."
by George
L. Head, Ph.D. *
Bruce was an agent for Ajax Insurance Company. If the Kellys were to call
him to insure their home, he would balk at selling them any insurance. He thought
that, in order for them to have gotten a mortgage for that house, the Kellys
must have "adjusted" some of numbers on their mortgage application. Bruce knew
that there was no way they could keep up the payments—not with their credit.
Still, he knew since they got the house, some agency or brokerage would insure
them.
Does an insurance agent have a duty to deny coverage if the agent knows their
potential client is a "guaranteed foreclosure"? Should Bruce just sell them
the insurance and let the Kellys and Ajax deal with the fallout?
The Options
Bruce realized he has three choices if the Kellys were to call. The first
would be to routinely insure the Kellys as if he knew nothing special about
them, and he supposed that they would be typical policyholders. Second, he could
insure them subject to some special conditions that might lessen their default
risk. Third, he could reject the Kellys outright as "bad credit risks" who could
not meet Ajax's underwriting standards.
The remaining paragraphs pose several questions which Bruce should consider
in choosing among these three basic options. These paragraphs do not offer any
specific answers to these questions. Instead, each reader should answer these
questions for him or herself. Each reader's responses will vary with his or
her relationship to the current "housing crunch" as it affects how he or she
views his or her responsibilities in the marketing of insurance. Therefore,
my personal responses to the following questions do not really matter. But please
take time for reflection to ponder these questions for yourself; your responses,
and the actions you take, may matter a lot.
Question One: In marketing insurance, do
you serve primarily the financial/economic interests of
(a) you and your family or household?
(b) the insurers whose coverages you market?
(c) the policyholders who buy your coverages?
(d) your community and society as a whole?
Question Two: When your insurer's interests
conflict with your policyholder's interests, whose interest do you serve first?
Question Three: In light of your thoughts
about Questions One and Two, would you advise Bruce to
(a) accept the Kellys routinely as typical insureds?
(b) reject them outright as prospective insureds, recognizing that other
insurers may insure the Kellys despite the risk?
(c) agree to insure the Kellys, but with some special conditions such as
that the Kellys must:
(1) maintain credit scores above
some specified minimum;
(2) pay premiums annually (not monthly)
and in advance of each year of coverage;
(3) pass quarterly safety inspections
of their property?
Question Four: Can you visualize situations
in which you can best serve your financial/economic interests—while also meeting
your duties to insurers, policyholders and society—by offering financial counseling,
and perhaps other services beyond insurance marketing, to clients like the Kellys,
possibly for a separate fee?
Conclusion
If you reflect on each of these questions in light of your personal values
and position as an insurance professional, you will have truly explored some
important ethical questions more deeply and with greater insight than if I had
taken this space to preach to you about your role in the current "housing crunch."
*Lisabeth A. Groller contributed significantly to substance
of this column.
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