No insurance agent wants to run into legal problems. They are distracting, potentially very harmful to the producer's reputation, and often costly to deal with—even if the producer has done nothing wrong.
While producers selling on the front lines generally receive education in business ethics and insurance sales compliance as part of their training, licensing, or professional designation course work, the support staffs many independent producers employ to handle a wide variety of administrative, marketing, appointment setting and other tasks typically are not required to receive training in ethics and compliance issues.
This can be lead to trouble, as plenty of legal problems originate at lower levels, where employees may knowingly or unknowingly act improperly. It may be out of ignorance, indifference or some other motivation, but the mistakes they make can have significant consequences that impact the stability of the producer's practice.
The good news is that many of these potential problems can be avoided or at the very least mitigated by providing employees with adequate training to make sure they are aware of how to accomplish their day-to-day job responsibilities in an ethical and compliant manner.
Errors & Omissions disputes are not something that happens only to unethical or incompetent producers. It is estimated that about one in seven agents with E&O coverage will report a potential claim to their carrier, making it somewhat likely that an agency at some point during its existence will be involved in a claims situation. Some are truly mistakes – made innocently or out of carelessness – while others might come from clients who are unhappy or suffered an uncovered loss.
But clearly, the best way to avoid an E&O claim is to do everything in your power to prevent an incident from occurring in the first place. This is where having a well-trained staff comes into play.
By dedicating resources to train employees on regulations, policies and the types of potential problems they can face while doing their jobs, producers can instill in employees an appreciation, understanding and commitment to the agency's ethics and compliance standards. Ethics training encourages appropriate behavior, sets expectations, and demonstrates the agency's commitment to conducting business in an ethical manner. It prepares employees to respond appropriately when questionable issues cross their path, as they inevitably will.
"Effective ethics training is good business since it leads to fewer compliance violations," said Julie Anne Ragatz, director of the Cary M. Maguire Center for Ethics in Financial Services at The American College in Bryn Mawr, Penn. "I have often heard people say that they 'don't have the time to spend thinking about ethics, because they are so overwhelmed with their compliance obligations.' To my mind, this is the wrong way to look at the issue. Perhaps if companies focused more on ethics, they would have to focus less on compliance."
The Center works to promote ethical behavior by offering programs that go beyond the "rules" of market conduct to help executives and producers be more sensitive to ethical issues and think more critically about ethical solutions.
Ragatz said ethics and compliance may require the same action—such as selling only "suitable" products— but they appeal to different motivations. "The ethical appeal is to our desire to pursue what is good, while the compliance appeal is usually towards our desire to avoid punishment. Both are helpful, but a focus on ethics primes us to think more broadly about how we achieve the most good in our professional activities."
