Insurance CE - A Look at the History of Insurance

Insurance is first of all a cooperative enterprise which has been defined to be a social system created to minimize the risk of financial loss from specific unforeseen future events for the insured and beneficiary(s) (if applicable). When a person acquires insurance they enter into a private contract to become a member of a group, and by doing so, they collectively assist each other to minimize the specific risk. Immediately, an ethical question arises in respect to the fairness of discriminating for some and against others who wish to join the group. A good example would be where a group of healthy people join together to (for instance) insure their lives. Their cost of this protection would be much cheaper if they could exclude those with unhealthy conditions, histories and/or lifestyles. Is it ethical for such a group to be exclusionary? If an unhealthy person, with worse health than those in the group, wishes to apply to join the group, what would be a fair price for their joining? Based on these facts, there is already an ethical and moral difficulty, starting whether such person should even be allowed to join the group as; obviously, joining the group would be at the expense of those in the group. What justification could be provided to counter the negative influence of the person and his effect on the entire group? These reasons address the fundamental ethical concepts.

Life insurance is rather unique when compared to property and casualty insurance, as life insurance is designed principally to provide support for dependents, whereas property and casualty insurance minimizes the risk to the insured, rather than survivors. Life insurance in its basic concept benefits others than the insured. Or as McGill's, Life insurance, puts it, it is "other regarding."

Life insurance has evolved into a financial instrument that has taken on the atmosphere of investment, a viatical tool, or source of long-term care, but originally it required the ignoring of self-interest for the sake of others-the very essence of unselfish behavior. The antithesis of selfishness is ethical behavior; therefore an insurance agent becomes a promoter of that type of altruistic behavior.

Simply put, the original purposes of insurance is simple-the joining together of a group of people for the purpose of pooling their resources to protect themselves and/or their property from risk-the products and the distribution of such products have become quite complex over time.

There have been examples of unethical behavior in respect to marketing these products with resulting adverse publicity for the entire insurance industry-the general public has a difficult time in separating types of insurance and has a tendency to place all insurance companies in the "same basket." These situations seem to focus on the misrepresentation of the values of certain products, or on the unnecessary replacement of policies to further for the benefit of the agent (as opposed to the benefit for the policyowner) with the overall purpose of meeting quotas so as to increase the profits of the insurance company.

This is only one type of unethical behavior in life insurance, as other problems involve the ethics of underwriting in respect to the demands of the insurer and the demands of the client; and some issues stem from the greed of the agent, and yet other situations place an agent in a no-win situation.