Insurance Ethics and Fraud

Read: Ethics and fraud in financial advice 1/2

My client was a woman in her forties, professional, childless and living alone. An anxious by nature. She wanted disability insurance, but she already had health insurance and group insurance. No question of insurance replacement, she wanted a new contract. His existing insurance did not cover all illnesses and would not give him benefits for very long if needed. She had very good arguments to present to me, but I felt that it was above all her natural anxiety that inspired her.

I could have easily had her sign a new insurance application, but instead I decided to explain to her in detail what would happen with her contracts and why, in my opinion, she did not need one. new. Several readers or former colleagues will say outright that I was a fool. You wouldn’t have taken advantage of her, you would have simply complied with her request. But for me it was a question of ethics.

You and I know that disability insurance is the most complex product to sell in insurance. Several factors must be taken into account: the definition of one’s own job, that of total and partial disability as well as benefits from other sources and contracts. I knew this client well and her protections were largely sufficient. I gave her the choice, but I convinced her. What would you have done in my place?[1]

Let’s clarify the terms. Conformity is based on laws and regulations that must be respected or face fines. Ethics goes further in philosophical reflection, because it touches on moral rules[2]. Ethics goes further, because it is interested in moral values ​​such as justice. I will stay here in the strictly business, as the English say. In financial security, the boundary of ethics is sometimes not very clear. Read the disciplinary notices of the Financial Security Chamber (CSF)[3] for your reflection on ethical misconduct.

I remember another client, this time on welfare, to whom a counselor had already sold disability insurance a few months ago. This client had also taken out cancer insurance, courtesy of a traveling insurance salesman. I had met her to talk about insurance for her daughter, but then I took the opportunity to explain to her that any benefits from these disability insurance contracts would be considered, for social assistance, as being revenues[4], a detail I had learned from a ministry official. In other words, she was wasting money, because these insurances were completely useless as long as she remained on welfare. Was selling him health insurance ethically wrong?

THE SOURCE OF FAULTS AND FRAUD

A fraud does not appear without reason. As a financial security advisor, we receive commissions on the premiums paid by our clients. The source of the problem lies in the calculation thresholds for commissions.

How many sales should we make per quarter? What is the minimum amount a premium must have to be counted by the insurer for our quarterly and annual bonuses?

“20 sales per quarter and your commission percentage increases to 5%. A bonus of less than $25 does not count towards the total sales for the quarter. 75 sales per year and the bonus increases by 1%. »

The figures vary between insurers and you know which ones apply to you.

Such sales incentives have proven successful in all businesses, but in our thinking about ethics the strategy must be questioned, as it provides the rationale for fraud. To reach the magic sales figure, each advisor will look for tricks. Which ? We could present phantom proposals, poles in business jargon.[5] You can defraud a client, but you can also defraud the financial institution. If you work in brokerage, you know that some insurers offer more advantageous remuneration than others. So what should you watch? The insurance product, the claims service or our commissions? The limit is blurred, because ethics is too.

Under pressure, an advisor may suggest replacing an old insurance contract with, say, a more advantageous for his client. He might suggest small riders insurance proposals. Inflating a monthly bonus by $2 or $3 is usually enough for the sale to count towards sales for the quarter and for year-end bonuses. These cases are debatable, I agree. On the other hand, if we invent fictitious customers or if we modify the customer’s information to make it more acceptable in pricing, then yes, it is clearly a fraud.

It’s the structure in the scale of paid commissions that puts pressure on advisors, especially at the end of a quarter. This structure works like a production quota and is then similar to option contracts. You, like me, have already felt this imperative need to make sales at the end of the quarter. With stock options, expirations are every third Friday of the month.

Don’t feel guilty, such stuff exist in all professions. Here is an example that will probably surprise you. Some students learn by heart the amount paid by the RAMQ for each examination and laboratory analysis. This is a known fact in all faculties of medicine. Deontological gaps exist everywhere and no professional escapes them. For fraud, the CSF regulations are clear, but for ethical faults, it is up to each adviser to question himself.

PRACTICAL CONSEQUENCE

It is essential for insurers to rethink the remuneration of advisors. The following article gives a possible solution.

As financial security advisors, we also sometimes touch on investments. We are strongly encouraged to do so by our superiors. When we discuss RRSP or TFSA topics with our clients, this time we act as an investment advisor. This field is very different and breaches of ethics are more common. This will be the subject of a future article.

[1] A few weeks later, I received a call from a friend of my client who wanted to talk to me about her insurance.

[2] In France, the site https://deontofi.com/c/deonto/regulation/ offers several articles on ethics in finance.

[3] See https://www.chambresf.com/fr/protection-public/deontologie-discipline/disciplinary-decisions

[4] Social assistance bases its benefit calculations not on income financial, but on the resources financial. A lottery ticket is a financial resource, much like an inheritance or a private health insurance benefit.

[5] A post is an insurance proposal that the client, real or fictitious, will cancel after 30 days. Cancellation will affect the advisor’s annual sales count, but commissions for sales for the quarter will have already been paid.

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