A life insurance company owes certain obligations to its customers. Selling a policy is similar to making a promise, and it is one that businesses do not take lightly.
Insurance companies are responsible for creating successful products, marketing them ethically, adhering to underwriting procedures, and, if necessary, compensating customers.
First and foremost, product development is the most important service that a life insurance company can provide to its customers.
Their primary goal should be to provide all applicants with quality, cost-effective policies that cover all of their insurance needs. With that said, insurance companies must ensure their financial stability before promising to fulfill any future obligations.
When an insurance company creates a product or products, it is their duty and responsibility to properly market them to the general public while adhering to specific ethical guidelines. As previously stated in a previous article, consumers generally find life insurance policies to be confusing, complex, and occasionally misleading.
Consumers are frequently so preoccupied with the technical details of a policy that they fail to see the big picture. Too much information is not always a good thing because it may discourage people from purchasing a policy.
Fortunately, as a result of new liability laws, the insurance industry’s corporate philosophy has shifted to provide greater consumer protection. Previously, the caveat emptor (buyer beware) philosophy dominated the industry, but there is now a shift toward caveat venditor (seller beware).
This means that the life insurance company owes its clients certain things as a result of the transaction.
Caveat venditor means that the seller – the insurance company – is legally responsible for any problems that the buyer – the client – may have with a service or product. As a result, insurance companies must ensure that their advertisements do not contain any misleading, coercive, or manipulative language.
Under these guidelines, statements like “guaranteed renewable” would be considered deceptive and unethical, because not every policy can be renewed.
The next step is for a company to underwrite a policy applicant. During the underwriting process, information such as an applicant’s health risks, occupation, personal history, and so on will be used to determine insurability and an appropriate premium rate. Policies will be developed on a case-by-case basis.
According to McGill’s Life Insurance, insurance companies have the right – possibly the duty – to be discriminatory when underwriting a policy, but not unfairly discriminatory. This is centered on the practice of fair underwriting. If companies did not discriminate to some extent, everyone would be eligible for the same policies and be rated the same. While this would benefit those in poor health, it would penalize those who live a healthy lifestyle.
According to McGill’s Life Insurance, a company is required to treat its constituents fairly, in accordance with the canons of fairness that govern marketplace transactions.
Insurance companies, by definition, have access to a wealth of private, personal information about applicants, current clients, and past clients. As a result, these companies are required to take reasonable precautions to ensure that this private information does not become available to anyone who does not have a right to see it.