Ethics in the Insurance business

1. Ethics in the Insurance business Bernard K. Aquing, Chartered Insurer and Consultant to Association of Trinidad and Tobago Insurance Companies (ATTIC)

2. Ethics in the Insurance business • In Carter v Boehm (1766) 3 Burr 1905 at 1909, Lord Mansfield stated: 'Insurance is a contract based upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only; the underwriter trusts to his representation and proceeds upon the confidence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risque as if it did not exist.'

3. Ethics in the Insurance business • core principle of insurance is • THE “utmost good faith” (de boa fé) (uberrimae fidei). The principle that is found in most commercial transactions –i.e. “buyer beware” or caveat emptor (sem uma garantia o comprador assume o risco) is the contrary. • In insurance, the law recognizes that parties to a contract must exercise utmost good faith both on the part of the buyer as well as the seller. • This means non asymmetric information : adverse selection and moral hazard • the buyer must provide complete and accurate information of his risk so that the insurance company can make an assessment while • the insurance company must act in manner that is not intended to deceive the buyer and consequently it must make good its promise. • .

4. Ethics in the Insurance business • The old school taught you that your word was your bond and if even there was no written contract you were expected to honour your agreement. • Today, there is a feeling that those principles no longer apply and all decisions must be reduced to writing otherwise there is every chance that verbal agreements will not be honoured

5. Ethics in the Insurance business • ethics and ethical behaviour must be inculcated from very young. There must be a clear understanding of what is right and what is wrong and these are judgments that you arrive at by learning from the home environment. • The modern world has been teaching that “wrong is right” as long as you are not caught and if caught there is some loophole through which you can escape. • There is too much play on words and semantics and an obsession with spin-doctoring and public relations in order to confuse rather than taking the moral high ground and owning up to the misdeed. • Greed has been the underlying cause of all the financial scandals but at least the authorities are taking steps to punish the wrongdoers and that in itself must be a lesson for us in the insurance business.

6. Ethics in the Insurance business • The question has to be asked- how did we arrive at this stage? There is many reasons and that is the business has evolved where standards of behaviour have changed worldwide. • Many leaders in the insurance industry around the globe are calling for a return to ethics since they see ethics as the bedrock of professionalism and reputation. • Much of what is done in insurance relies on trust-between the various parties whether they are the insurance companies, the agents or brokers and the customers. • However, if this trust is lacking then steps must be taken to restore confidence. How does one behave in an ethical manner? It is all too easy to behave unethically especially if through conduct and example there is no intention to act fairly.

7. Ethics in the Insurance business • The various professional bodies have been attempting to treat with this matter by shaping thinking and practice. • In the past, breach of ethics would have been dealt with through a disciplinary procedure that could lead to disbarment and or other sanctions. While these still remain, there is likely to be a more proactive approach in which persons are introduced to ethical behaviour as a component of professional training. • Management competence is another key pillar in the determination of ethical conduct since it was concluded that managerial incompetence has been the root cause of every collapse in the insurance industry. • In spite of rules and regulations scandals do take place because people circumvent rules and it is only if the rule of right or wrong is applied then this might have prevented such a situation.

8. Ethics in the Insurance business • At the heart of regaining trust the written code of conduct and a return to core principles of utmost good faith and ethical standards of behaviour. • In short, insurance companies must provide a high quality service by paying their legitimate claims in a fair and timely manner but equally they must guard against the increasing insurance fraud which is a worldwide phenomenon. • They must uphold the public trust at all times and exercise prudence in the management of their business.

9. CODE OF ETHICS OF EMC INSURANCE GROUP INC • CODE OF ETHICS OF EMC INSURANCE GROUP INC. • The principal executive officer, principal financial officer, principal accounting officer, controller, and/or persons performing similar functions for EMC Insurance Group Inc. (the“Company”) shall be governed by this Code of Ethics (the “Code”). This Code is designated to deter wrongdoing and to promote: • 1. honest and ethical conduct, • 2. full, fair, accurate, timely and understandable disclosure in reports and documents; • 3. compliance with applicable governmental laws, rules and regulations; • 4. the prompt internal reporting of violations of this Code; and • 5. accountability for adherence to this Code.

10. CODE OF ETHICS OF EMC INSURANCE GROUP INC • Therefore, the Chief Executive Officer, the Chief Financial Officer, the Controller, the Treasurer, and any other senior officers performing financial management functions for the Company shall adhere to the following guidelines: • 1. Act with honesty and integrity,; • 2. Provide information that is accurate, complete, objective, relevant, timely and understandable to ensure full, fair, accurate, timely and understandable disclosure in reports and documents; • 3. Act in good faith, responsibly, and with due care, competence and diligence,; • 4. Comply with all applicable rules and regulations of federal, state and local governments, and other appropriate public and private regulatory agencies; • 5. Maintain skills and professional abilities important and relevant to the Company’s needs; • 6. Ensure responsible use of and control over all Company assets and resources employed by or entrusted to such officers; • 7. Respect and not use confidential information acquired in the course of his or her work for personal advantage; and • 8. Promote the utmost ethical behavior to peers, both in the workplace and in the community.