The Insurance Industry and Business Ethics

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Erik Cohen

Business Ethics
26 September 2011

The Insurance Industry and Business Ethics
The Insurance industry is a perfect example of the use of “grey areas” in the culture of business ethics in the United States. Within my research and years of experience in the field of insurance the use of business ethics couldn’t be of greater importance then the companies that provide the actual policies themselves. Even with all of the regulations the Insurance Department puts on the insurance companies, agents, brokers, and adjusters there are still areas where discrepancies in the code of business practices exist. I will explain some of the insurance company’s ways of motivation, monetary compensation, underwriting rules, business strategies, and the “grey areas” or lack of business ethics of the professional agents and brokers who sell their products. The birth of Insurance in the United States was in 1732 in one of the American colonies at Charleston SC and then New York City in 1787 (Encyclopedia). "Insurance developed rapidly with the growth of British commerce in the 17th and 18th cent. Prior to the formation of corporations devoted solely to the business of writing insurance, policies were signed by a number of individuals, each of whom wrote his name and the amount of risk he was assuming underneath the insurance proposal, hence the term underwriter." (Press) According to the Columbia Electronic Encyclopedia, since the late 19th century there has been a growing tendency for the United States to increase their interest in insurance, especially with protecting workers against sickness and disability, either temporary or permanent, destitute old age, and unemployment. The U.S. government has also experimented with various types of crop insurance which began the Federal Crop Insurance Act of 1938. In World War II the government provided life insurance for members of the armed forces; since then it has provided other forms of insurance such as pensions for veterans and for government employees. (Stalson) After 1944 the supervision and regulation of insurance companies, previously an exclusive responsibility of the states, became subject to regulation by Congress under the interstate commerce clause of the U.S. Constitution. Many insurance companies have since expanded, many insurance companies have merged, and multiple-line companies now lead the insurance industry. In 1999, Congress repealed banking laws that had prohibited commercial banks from being in the insurance business; this measure was expected to result in expansion by major banks into the insurance arena. (Press) In recent years insurance premiums (particularly for liability policies) have increased rapidly, leaving unprecedented numbers of Americans uninsured. Many blame the insurance conglomerates, contending that U.S. citizens are paying for bad risks made by the companies. Insurance companies place the burden of guilt on law firms and their clients, who they say have brought unreasonably large civil suits to court, a trend that has become so common in the United States that legislation has been proposed to limit lawsuit awards. Catastrophic earthquakes, hurricanes, and wildfires in late 1980s and the 90s have also strained many insurance company's reserves. (Press)

This global multi trillion dollar industry has for the first time in the past three decades declined “with non-life premiums falling by 0.8% and life premiums falling by 3.5%”. (Maslakovic) Although the stock market and insurance investment returns decreased due to the bankruptcy of Lehman Brothers[->0] and the rescue of AIG[->1] by the federal government in September 2008 the financial crisis has shown that the insurance industry has the sufficient capital to maintain its function. In 2008 there was study created by Marko Maslokavic which stated that North America produced $1,346 billion dollars of premium and Asia produced $933 billion of premium...
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