Businesses give plenty of lip service to ethics, but you have to wonder how many really take it seriously. Corporations are awash in sensitivity training, sexual harassment prevention workshops and other endless efforts to promote ethics. Yet many of these same businesses have also contributed to the financial mess we’re in today — by promoting salary and bonus policies that emphasize profit over common sense.

The issue of ethics, or lack thereof, is exacerbated in tough economic times. It’s no surprise that insurance fraud is up across the board for the first half of 2009, according to the NICB, or that crimes like burglaries and break-ins are on the rise in even the safest communities.  I currently serve on the national ethics committee of the American Society of Business Publication Editors (ASBPE), where the convergence of print and online content have blurred the line between editorial and advertisement – at a crucial time when advertising dollars are growing ever scarcer. When businesses are fighting for survival, the concept of ethics can seem like a quaint anachronism from a more profitable past.

Ironically, as times get tougher, ethics become more important — or should.  AA&B ran a “Last Word” editorial in April by a programs insurance broker who blamed the seemingly endless soft market for the cutthroat competition that was trumping professionalism and in-depth customer knowledge. She complained that unethical newcomers were passing themselves off as experts and using discount rates to entice formerly loyal clients, who, financially squeezed themselves, were seduced by cheaper premiums. Think of the E&O claims that await an agent or broker who doesn’t really understand a client’s risk!

On a larger scale, the lack of ethics in the financial services industry has not only put us into a global recession, but now has the Feds breathing down the industry’s neck for tighter regulation. Based on the industry’s past irresponsibility, this should neither be surprising nor unwarranted.

That’s why the CPCU Society‘s recent unveiling of “A Guide to Organizational Ethics Policy” couldn’t come at a better time.  The Society’s ethics committee collected 75 ethical codes of conduct from different insurance organizations and compiled a list of 12 steps an insurance business can take to ensure it is operating ethically.

Not surprisingly, the first and most impotant step is to “create an ethical mission of the organization,” a single sentence that broadly describes the organization’s goal. Sample statements include “Treat customers, vendors, employees, owners and regulators as we would wish to be treated,” or “Place the interests of those with whom we have business relationships above our own interests.” The other 11 steps boil down to communicating and enforcing this statement.

Does your agency have an ethics policy? Tell us about it, and why it was adopted.

Although the pundits are still predicting the end of the soft market, most agents and brokers responding to CIAB’s Commercial P/C Market Index Survey reported an average 6.4 percent decrease in commercial rates for fourth-quarter 2008. Forty-three percent of respondents said premiums for small accounts were down from 1 to 10 percent, with 35 percent reporting no change compared with the third quarter. For medium accounts, 50 percent said premiums were down between 1 and 10 percent while 17 percent saw decreases in the 10 to 20 percent range. Eighteen percent saws no change in rates compared with last quarter.

Not surprisingly, one of the few exceptions was in D&O coverage, where 17 percent of respondents reported a 1 to 10 percent increase in premiums, while 36 percent reported no change and 21 percent said rates declined between 10 and 20 percent. Other lines that show single-digit signs of tacking upward included business interruption, broker E&O, commercial property (especially in coastal areas), flood insurance, EPL, marine and workers’ compensation.

For the complete survey, click here.

Just in time for Halloween, here’s a little something from the news wires to add another touch of lunacy to the AIG debacle. From the Duluth News-Tribune:

Duluth insurance agency fined for AIG ad

A Duluth insurance agency has agreed to pay thousands of dollars in fines for taking out an ad questioning the financial health of insurer AIG.

 The state Department of Commerce says Wednesday that insurance agent Gregory Brisky agreed to pay a $2,000 fine. His agency, the Dwight Swanstrom Co., agreed to pay a $3,000 fine.

 The department says the agency took out a newspaper ad soliciting AIG customers who might be “nervous” about their insurance company in an attempt to get them to switch insurers.

 American International Group was bailed out last month when the federal government offered it an $85 billion loan during the ongoing credit crisis.

 The Commerce Department says it has affirmed the financial solvency of AIG’s insurance companies, despite the troubles with the parent company.

 It’s against Minnesota law to make misleading statements on the financial condition of any insurer.

 Brisky says he has no comment

I tried to reach the agent to get his side of the story, but had no luck (not surprisingly). What’s really ironic is the same day this little item appeared, pressure from New York AG Cuomo forced AIG to freeze $600 million in deferred compensation for the brain trust of executives that got them into this mess in the first place.

Naturally, agents have to be careful with what they say, or run the risk of violating local law. The New York State Insurance Department, for example, has issued a number of warnings about licensed producers attempting to cash in on AIG’s troubles, reminding them there are laws against:

AA&B’s legal guru Barry Zalma calls the agent’s efforts “a violation of a local law and a stupid attempt to gain business…E&O does not cover, nor should it cover, criminal or other intentionally wrongful acts.” And our “Avoiding E&O” columnist Louie Castoria, an attorney with Wilson Elser, says, “This issue came up yesterday at the Credit Crisis presentation I gave in Portland to the Oregon Surplus Line Assn. The E&O problem with dissing AIG, apart from factual inaccuracy, is that if you play on people’s fears and they swith to a non-admitted insurer, they won’t have the state insurance guaranty fund as a fallback. There are also the usual problems with switching: advancing retro dates, changes in primary coverage that may effect excess layers, etc. In general, a broker should view switching carriers with suspicion, just as a mortgage lender today should be somewhat skeptical of a re-fi. Bottom line: Does it create a material benefit for the borrower?”

However, I can’t say that I blame the Duluth agent for trying to (literally) scare up a little business in the wake of the AIG mess, although obviously one has to stay within the limits of the law. And the story does raise the legitimate issue of how to assuage policyholder concerns during these unprecedented times.

I’d be interested to hear from any of our readers about whether their customers have expressed concerns about their coverage with AIG (or any other insurer, for that matter) and how you’re responding to them.

The global economy may be going to “hell in handbasket” (what a great old-lady phrase, as my teenage daughter would say), but for us ordinary folks, life goes on. We still have to pay bills, do our jobs, satisfy our clients and keep our businesses running as profitably as we can.

That lesson hit home last week at the annual PIIAI meeting for Illinois agents in Springfield. It was a beautiful fall day, so I made the three-hour drive to check out the scenery.

Although national politics was on display–a panel moderated by Bob Rusbuldt featured media savants Paul Begala and Tucker Carlson posturing about the upcoming presidential election–it was the “smaller” issues that dominated the day.

Like every other entrepreneurial business today, Illinois agents are focused on survival. Their numbers are steadily shrinking through M&As and simple attrition. When they can take time away from regular business to attend an event like this, they want to get something out of it that they can bring back to their offices and put into immediate use. So although the undercurrent of national politics, the AIG fiasco and the big federal bailout was there, breakout sessions focused on workaday stuff: med mal insurance, how to hire good people, service fees and premium fund trust accounts (we cover a couple of these on our Web site — check it out at http://www.agentandbroker.com/ME2/dirmod.asp?sid=&nm=Articles&type=Publishing&mod=Publications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=3&Tier4=Web+Exclusive).

However, several issues of national scope are on the radar. PIIAI government relation guy Phil Lackman ticked off the most onerous. Topping the list is controversy surrounding certificates of insurance — a big national concern and a major problem within the producer community.

According to Phil, problems arising from misuse involving the issuance of certificates of insurance — such as client requests to add or change coverage on the certificate — accounted for the largest portion of E&O claims for Illinois agents: 7 percent last year, and as high as 12 percent in other years. Our own beloved Chris Amrhein has written extensively about the problem of relying on certificates of insurance instead of examining the actual policy language. And there’s lots of information on Big I’s educational site at http://www.iiaba.net/eprise/main/VU/NonMember/Certificates.htm

Although some states have passed legislation addressing the issue, most have not been successful, Lackman said. In Illinois, PIIAI got the DOI involved in clarifying that certificates of insurance are evidence of coverage, not coverage itself — and that policyholders can’t add coverage or endorsements through certificates.

I’d be interested in hearing if any of you have run into any “certified lunacy” horror stories involving your clients and certificates of insurance. Feel free to share here!

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