- Responsibilities of an insurance company
- June 16, 2015
In the business of life insurance, companies owe their clients a great deal of responsibility. Selling a policy is much like offering a promise– a promise to provide for one’s loved ones when they pass away.
Insurance companies are responsible for developing successful products, marketing them ethically, following underwriting procedures and, if need be, paying proper compensation.
First and foremost, product development is the most essential element a life insurance company can offer its clients.
Their primary goal should be to provide quality, cost-effective policies to all applicants in which all insurance needs are being covered. With this being said, insurance companies need to ensure that they are financially sound before promising to fulfill any future obligations.
Once an insurance company develops a product or products, it is their duty and responsibility to properly market it to the general public by following specific ethical guidelines. As noted in a previous article, consumers generally find life insurance policies to be confusing, complex and sometimes misleading.
Consumers are often bogged down by the technical details laid out in a policy that they forget to look at the big picture. Too much information is not always a good thing as it could turn people away from purchasing a policy.
Fortunately, due to new liability laws, the corporate philosophy for the insurance industry has shifted to providing more protection for consumers. In previous years, the philosophy of caveat emptor (buyer beware) dominated the industry, but now there has been a shift towards caveat venditor (seller beware).
What does this mean?
By legal definition, caveat venditor means the seller – insurance company – is legally responsible for any problems that the buyer – the client – might encounter with a service or product. As result, insurance companies will have to make sure no misleading, coercive or manipulative language will be used in their advertisements.
Sayings such as “guaranteed renewable” would be considered deceptive and unethical under these guidelines, as not every policy can be renewed.
The next step involves a company underwriting an applicant for a policy. During the underwriting process, information, regardless of an applicant’s health risks, occupation, personal history, etc. will be used to determine insurability and an ideal premium rate. Policies will be written in a case-by-case scenario.
According to McGill’s Life Insurance, insurance companies have the right – possibly the duty – to be discriminatory, but not unfairly discriminatory when underwriting a policy. This revolves around the practice of fair underwriting. If companies did not discriminate to some degree, then everyone would qualify for the same policies in which everyone would be rated the same. While this would be beneficial for those with poor health conditions, it would penalize those leading a healthy life.
A company is obligated to treat it constituency fairly, with requirements set forth in the canons of fairness that govern marketplace transactions, according to McGill’s Life Insurance.
As with the nature of the business, insurance companies are exposed to an abundance of private, personal information about applicants, current clients and past clients. Thus, these companies are obligated to practice due care that this private information does not become available to anyone who does not have a right to see it.
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