A Question of Ethics: A Producer’s Responsibility to Recommend Coverage

In most states an insurance agent has no legal duty to recommend coverage to an applicant for insurance unless the agent, in some manner, assumes that duty (see “Special Circumstances May Mean Agents, Brokers Owe Greater Duties To Clients,” April 18, 2011 edition of NU). But the question for this column is: What ethical responsibilities does an agent have with regard to recommending coverage—and do those duties vary if the producer is a broker?”

The majority of those responding believe a producer, if he or she is a professional, has at least two duties: The first is to uncover relevant exposures of clients; and the second is to make recommendations as to the treatment of those exposures. The majority also agreed that it did not matter if the producer was an agent or a broker—the duties remained the same.

An insurance consultant was particularly strong in his opinion. “Any insurance professional is ethically and morally, if not legally, obligated to point out loss exposures to the client. It makes no difference if there is a means to insure the exposure. If the producer knows of an exposure to loss, he or she is obligated to point it out and document such.”

Another risk-management and insurance consultant agreed: “The producer has superior knowledge regarding the terms and application of highly complex contracts. Therefore the producer has an ethical duty to use that knowledge and skill to add substance and quality to the customer’s purchasing decisions.”

A slightly different take came from an agents’ association executive. “Part of being a professional is sharing expertise with clients. We could hide behind the law, but it would be unconscionable for an agent who calls himself a professional to simply sell whatever coverage is requested without at least attempting some risk analysis.”

A producer from Florida noted, “My clients hire me for advice on the best way to protect their assets. Ethically I must recommend proper solutions.”

Similarly, a retired California producer responded, “I do not care what the law says. Common sense and professional ethics create the perception that any producer owes a duty of care to recommend coverages—even those not requested that are in the best interest of the client. In simple terms, no producer should be an ‘order taker’ under conventional market conditions.”

A regular responder from Minnesota was almost insulted by the question. “Attorneys have told us to quote options but not recommend. I’m in the business of protecting people. I will not live in fear of an E&O suit. My joy, and my personal duty, is closing insurable loopholes—and that requires identifying them and recommending solutions.”

The Golden Rule came up in a number of responses. For example, a Massachusetts producer wrote, “Remember the Golden Rule: treat the client the way you would want to be treated. Anyone receiving advice from a professional or an expert in any filed expects to receive sound advice with suggestions, recommendations and choices based on the experience of that professional.”

Ethical Exceptions

A District of Columbia attorney noted, “Ethics is more of a discretionary, conscience-driven phenomenon. Typically ethical choices involve ‘multiple right decisions.’ Proposing a quote for insurance requested clearly meets any legal duties and is not unethical. Failing to make a recommendation may well be a marketing gaffe but is no breach of ethics.”

A property underwriter had this to say: “When a producer truly represents only the insurer, he or she must ethically follow the guidelines of the insurer. Those guidelines may include, for example, an instruction to not recommend any coverage not available from the specific insurer.”

In keeping with that exception, some responding did note a difference between those producers in the American Agency (Independent) System and those in the Captive, Exclusive or Direct Writing distribution systems. In the latter group, it was commonly noted that those producers are “agents” in the true sense of the word as used in the insurance business. They do represent the interests of the insurer and must ethically follow the instructions of their principal. However, for producers in the American Agency System, according to the agents’ association executive, “the distinction between an agent and broker is meaningless. An independent agent should be representing the best interests of his or her client.”

Read original article by Peter R. Kensicki here.
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