Ethics and Consumer Protection in Insurance

The study of ethics leads us to the subject of consumer protection in insurance. How did we get to the point of legislating protection for consumers? Insurance is a very old business. Until 1850, insurance companies operated with only little regulatory supervision. Generally, the powers of insurers were defined by their charters. Essentially, insurers themselves determined whether or not their clients were treated fairly.

A basic question that is often asked is “Can ethics be regulated?” Can laws make an individual an ethical person? Will a person in any type of sale of a product or service be more honest and moral if there are laws and penalties for noncompliance? Judicial ethics is part of the larger legal category of legal ethics. Judicial ethics consists of the standards and norms that bear on judges and covers such matters as how to maintain independence, impartiality, and avoid impropriety.

Disciplinary actions for infractions of the rules of conduct by state judges are typically controlled by a state judicial commission. All states have established such an agency or commission either by statute or by amendment to the state constitution. Their responsibility is to deal with complaints of judicial misconduct. Most were established during the past 30 years.

As the business of insurance grew, unscrupulous and unethical practices by some insurance companies and their agents were common. When losses were discovered, it was not unusual to find insurers refusing to settle claims on the grounds that they were not licensed to do business in a particular state. In many instances, insurers simply refused to meet their obligations. Unfortunately, plain incompetence and outright deceit were prevalent.

During this time, many insurance companies failed. A great number of policy owners were affected, many of them devastated. It was not long before the entire insurance industry became suspect.