If you treat people right, they not only become and remain clients, they generate lots of referrals. But now there's some new research that quantifies the link between business ethics and a firm's financial performance. All insurance and financial advisors should read this study and apply its findings to their own practices.
Sponsored by the Center for Risk Management and Insurance Research at Georgia State University, the study found that life insurers certified by the Insurance Marketplace Standards Association have stronger financial performance, including a higher return on equity and more efficient use of capital.
As with most things in life, however, the gold is in the details. The Georgia State researchers found that IMSA-qualified companies have:
- Almost two levels higher A.M. Best ratings
- 4 percent higher return on equity
- 8 percent increase in cost efficiency
- 3 percent increase in revenue efficiency
- 27 percent lower legal fees and expenses
- 88 percent lower investigation and policy settlement expenses
On the flip side, companies that aren't IMSA qualified have:
- 3 percent to 4 percent higher policy lapse rates
- 10 percent higher rate of regulatory discipline
- 67 percent higher ranking on the study's Justified Complaint Index
Granted, the study's purpose was to evaluate the economic value that IMSA membership brings to insurance carriers. But at the National Ethics Bureau, we believe this study not only lends power to our belief that ethics pays, it provides advisors with life lessons for building a profitable financial services business. Companies don't have to become IMSA certified to make their belief in ethics serve the greater good, but knowing what an organization like IMSA requires can help.
IMSA requires certified carriers to subscribe to six specific principles of Ethical Market Conduct. Based on the study's findings, the lesson is that if you believe and act on the basis of a written ethics code, you will be well on your way to running a successful practice.
