Professionalism and Industry Image
The public image of the insurance and investment business has been affected significantly by the sensationalism of the misleading sales practices affecting many of the largest insurers and brokerage houses. The unfortunate truth is that these unethical sales practices are practices that many practitioners, representing many companies, have used in the past. As we continue through this course, we will examine many of these practices in considerable depth -- practices whose common thread is that they misled the customer. We will look at the use of such terms as "private pension," "vanishing premiums" and a number of others. Each of them has a common element of deception -- an element that stands in direct opposition to the concept of professionalism.
When we think of a profession, such as medicine or law, we can usually find three components that are necessary for an occupation or business to be considered a profession.
a "service before income" outlook, and
a code of professional ethics
While any profession may have additional requirements for membership, every profession has each of those three components. These professions encompass a body of specialized knowledge, a "service before income" outlook and a code of ethics. This code is what governs their actions and against which they are measured, just as compliance requirements and our own code of ethics govern ours in the financial services business.
The mantle of professional in the eyes of the client comes at a price. The consequence of being considered a professional as opposed to a seller of insurance policies or securities is the greater potential liability imposed by the courts. If we recognize that achieving the status of professional results in our greater liability, we need to ask whether it is worth the greater liability. Not only is the label of professional worth being held to a higher ethical standard, it is essential to the financial well-being of the practitioner.
There is no question but that competition is an economic fact of life. If you are able to make and sell something cheaper than your competition, you may have an ever-increasing share of the market. Although we often hear about the increased competition for the insurance dollar from banks, brokerage companies and other financial institutions, we hear much less about the competition from a source that is far more difficult to deal with the alternative distribution systems that insurers are experimenting with.
Insurers have determined that the agency system is an expensive way to sell insurance, regardless of whether it is life insurance, health insurance or property & casualty insurance. However, the agency system continues to exist because it is also the most effective system. What happens, however, when the public no longer feels the need for an insurance agent?
The answer should be obvious; insurers will move quickly to those less expensive alternative distribution systems. Unless agents and other financial services practitioners become more professional and the public perceives a greater benefit from the practitioner's participation in the sale, the agency system may die. Even if there were no other reason for agents to be in the forefront insisting on an ethics-driven profession this would be enough.