A critical step in the sales process is the presentation of the agent's recommended course of action. The purpose of this step is to present to the prospect a solution to a need that he or she has admitted having. Two primary ethical considerations of this step are suitability of the recommendation to the client's needs and a balanced disclosure of risks and benefits.
The only ethical recommendation an agent can make is one that is "suitable" for the client. The overriding ethical issue with respect to product selection is that it must be suitable to the prospect's particular circumstances and the produce meets the client's needs.
During the early phases of the sales process, agents should inquire as to the prospect's tolerance for risk -- financially and psychologically. Prospects will vary substantially from one to the other in their risk-comfort levels. While many will avoid risky planning strategies, others will try to push the envelope as much as they can. When discussing the possible use of strategies or products that involve risk, the key ethical consideration for the agent is appropriate risk disclosure. The competent agent will understand the risk being taken by the prospect that implements a proposed strategy; often, however, the prospect's awareness level is far below that of the agent. The agent's failure to advise the prospect of the risks inherent in the adoption of any recommended strategy is unethical and likely to expose the agent to the risk of a malpractice claim.
The second ethical consideration in the presentation step concerns how the product being presented is communicated to the prospect. Obviously, the product must be properly identified. Regardless of the nature of the recommended product, it needs to be referred to in terms that offer understanding. Agents should use general terminology to identify the recommended product. Insurance products should be described as a means of protection, not as an investment vehicle. Calling the product by a name that is unfamiliar to the prospect may result in its true nature being disguised. To do so intentionally is unethical.
Selling often involves educating the prospect has to how a recommended product functions. When the client possesses only a rudimentary knowledge of financial products, this process is frequently done by explaining the unknown in terms of what the client already knows. This fundamental teaching technique is commonly used when selling insurance coverage since insurance tends to be a somewhat complicated subject for many customers.
Using that teaching technique, we might use phrases like "similar to" or "very much like." However, this intention to make insurance clearer and its benefits more obvious to our prospects may have unintended and serious adverse consequences. The ethical risk of an analogy is that it often leaves out more important information than it imparts. As a result, the prospect may have an incomplete and erroneous understanding of the product. For example, referring to the personal injury protection of an automobile policy as “health insurance” overlooks the limited role that coverage may afford the client.
In many cases, the customer remembers only the analogy and may believe the insurance product is identical to the product to which it was compared. Eventually, the customer may discover that the insurance is not identical to the product used in the analogy. Frequently the customer then feels that the insurance product has been misrepresented and that he or she has been misled.
Since the ethical requirement in the insurance business calls for the full and candid disclosure of everything that is material to the sale, the agent needs to avoid any terms that might tend to obscure the facts. It is both ironic and unfortunate that the terms that might have been used to help clarify the insurance product at the time of the sale are often viewed as obscuring those facts the agent hoped to make clear.
Since certain terms have a high likelihood of ultimately being misleading when used to describe the features of insurance products, the ethical agent will take pains to avoid them. Premiums should never be referred to as “contributions, deposits or investment”. Insurance policies should be referred to as such, not as “accounts, plans, programs or strategies”. Instead of illuminating the agent-customer conversation, these terms obscure it. Likewise, agents should be careful to not confuse the terms “tax-deferred” with “tax-free”—and any discussion of tax benefits should be full and balanced.
Another ethical concern is when the terms used to refer to insurance products have a different meaning when applied to non-insurance products. For example, a dividend on a participating insurance policy is in reality a refund of premiums paid by the policyholder. In non-insurance contexts, dividends are a return of profits earned by a corporation. To state that policy dividends are an "investment return" or to allow a client to believe that is misleading and unethical, for a couple of reasons: It misstates what a policy dividend truly is, and it mistakenly draws a parallel between insurance and securities.
In summary, misrepresentations, whether deliberate or unintentional, are the root cause of many ethical lapses. The misrepresentation may be in writing, but is more often verbal. In most cases misrepresentations are unintentional -- the agent believes that he or she is being truthful — but the agent's ignorance is not a defense against liability arising out of unintentional misrepresentation. The existing laws that hold agents responsible for misrepresentation are generally based on the premise that agents have an ethical duty to know what they are selling and to present policies in a truthful manner.
Comparisons of insurance policies must be approached carefully. It is rare when an agent compares two policies with identical coverage. More likely, comparisons of policies will be “apples-to-oranges”. The purpose of a comparison is to educate a client, so that he or she is better able to make a fully-informed decision. A fair and balanced comparison that details the pros and cons of each product along with a detailed examination of their similarities and differences is the only ethical way to do that.
Rarely does an agent represent the full range of insurance products available in the marketplace. Clients may be approached by agents of competing insurers. Agents will often present the relative merits of competing products or sponsoring companies. The ethical imperative in such a comparison is that it must be balanced and complete. A "balanced" comparison is one that compares all of the important features of the products and examines the advantages and disadvantages of both products. It is obvious that the intentional misstatement of fact concerning a competing company or product would be unethical; it may be less obvious that the intentional omission of material information would also be unethical. The guiding ethical principal is that a comparison must include a comparison of all of the important features.
Statistics are often necessary and helpful when comparing products or companies; they must be substantiated and referenced whenever they are used. Agents should be careful that statistics be used only to clarify a comparison and not used to confuse the prospect or obscure the facts.
Insurer-provided product illustrations and sales materials normally present few ethical problems —principally because they are insurer-provided. The significant ethical issues generally arise when the illustration is not insurer-provided but is created by an outside vendor or by the agent. Insurers often prohibit the use of illustrations created by their agents unless the illustrations have been approved by the sponsoring company. The obvious reason for the prohibition is that company-created illustrations contain important information that helps provide a balanced and complete presentation of the product to the prospect.
While an agent should only present illustrations provided by the sponsoring companies, sometimes it may be desirable to present supporting or ancillary information to the prospect. These supporting illustrations present a large area of ethical concern. In order to comply with ethical obligations, an agent should be sure these supporting illustrations are accurate, balanced and complete, and presented in a manner that enables the client to understand the situation as it truly is. For example, an illustration that presents only the benefits of an offering without consideration of the attendant costs would be unbalanced, misleading and unethical.
Any sales literature used by the agent — including agent-created supporting illustrations — should be submitted to the companies whose products are illustrated for their input and approval. While many companies require submission of sales literature, the agent should submit the point-of-sale supporting information used to all of the companies represented, whether or not they require such submission. Insurers are generally better equipped to assess the ethical and legal pitfalls inherent in the literature. And, we shouldn't forget that the agent has an ethical and legal duty to those companies that could be held liable for his acts by virtue of the law of agency.
Testimonials and endorsements
Florida regulations require testimonials and endorsement by third parties to "be genuine, represent the current opinion of the author, be applicable to the policy advertised and be accurately reproduced". If the person endorsing the insurance product is considered a "spokesperson"", the spokesman most likely must be licensed as an insurance agent. A spokesperson is anyone who has a financial interest in the insurer, is in a policy-making position or is in any way directly or indirectly compensated for making a testimonial or endorsement. The financial interest of the spokesperson, or his or her capacity as a representative of the insurer must be disclosed. If the spokesperson is compensated for the testimonial or endorsement, the phrase "Paid Endorsement" must also be included. When a testimonial refers to benefits received under a policy for a specific claim, the specific claim data, including claim number, date of loss, and other pertinent information shall be retained by the insurer for inspection for a period of four years.