1

ETHICS IN INSURANCE SECTOR

IN INDIA

Aproject report submitted in partial fulfillment of the requirement for the degree of

MASTERS OF BUSINESS ADMINISTRATION

(2012-2014)

Submitted to: Submitted by:

Dr. Sandeep S. Virdi vipul kanojia
Assistant Professor MBA 2nd year SEC A
Roll No.: 120426036

SCHOOL OF MANAGEMENT STUDIES

PUNJABI UNIVERSITY PATIALA
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PREFACE

This project report pertains to the ethical and unethical practices in

insurance sector in india that will cover the all the ethical services
provided by the insurance sector to the insured and also the obstacles
and unethical services faced by the insured person from the
insurance company.
The purpose of this project is to provide knowledge
shed light on the various appropriate and un appropriate services
rendered by the insurance companies .The report will provide detailed
demonstration regarding those insurance companies that attract
customers by introducing various bewildered plans and schemes but
fail to fulfill their promises and also explains the dos and dont in the
insurance sector.
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TABLE OF CONTENTS
S.NO CONTENT PAGE NO

1 CHAPTER 1: Introduction 4-7

2 CHAPTER 2 : Importance of Business ethics 8-10

3 CHAPTER 3: Unfair practices in business 11-15

4 CHAPTER 4 : Objective of the study 16

5 CHAPTER 5 : Insurance planning process 17-18

6 CHAPTER 6 : Unethical practice in insurance 19- 24

7 CHAPTER 7 : Ethics in insurance today 25-28

8 CHAPTER 8 : Institute for insurance ethics 29-33

9 CHAPTER 9 : Case study of ICICI 34-36

10 CHAPTER 10 : Suggestion and remedy 37

11 CHAPTER 11: Conclusion 38- 39
Bibliography 40
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Introduction to business Ethics and insurance ethics:-

Ethics is a social science that deals with what is good and right, and with moral duties
and obligations. Ethics is a science of morality that guides and helps to achieve objectives
through legal and moral means. Business ethics regulates the activities of business firms
including insurance firms towards society and other on social, legal and moral values.it is the
important part of business ethics.
What is Ethics?

Ethics involves learning what is right or wrong, and then doing the right thing -- but "the
right thing" is not nearly as straightforward as conveyed in a great deal of business ethics
literature.
Many ethicists assert there's always a right thing to do based on moral principle, and others
believe the right thing to do depend on the situation -- ultimately it's up to the individual.
Many philosophers consider ethics to be the "science of conduct."
Seniors explain that ethics includes the fundamental ground rules by which we live our lives.
Philosophers have been discussing ethics for at least 2500 years. Many ethicists consider
emerging ethical beliefs to be "state of the art" legal matters, i.e., what becomes an ethical
guideline today is often translated to a law, regulation or rule tomorrow. Values which guide
how we ought to behave are considered moral values, e.g., values such as respect, honesty,
fairness, responsibility, etc. Discussions around how these values are applied are sometimes
called moral or ethical principles.
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Code of Conduct for Business Practices:-

In order to adopt fair business practices, trade associations, chambers of commerce,

Council for Fair Business Practices, and others have framed code of conduct for
businessmen. The code of conduct is to be followed by the members of the association. The
code of conduct states what is to be done and what should not be done by businessmen.
A code of conduct is framed by Council for Fair Business Practices (CFBP) for its members.
The following are the highlights of code of conduct of CFBP:
1. To charge fair and reasonable prices.
2. To ensure accuracy in weights and measures.
3. To ensure that intermediaries do not manipulate the prices.
4. To fulfill social responsibility towards various sections of the public such as
employees, customers, shareholders, government, suppliers, competitors, dealings,
and the general public.
5. To pay attention to consumer rights.
6. To provide product warranty in clear terms
7. Not to engage in hoarding and profiteering.
8. Not to adulterate the goods.
9. Not to trade in sub- standard products, and also smuggled products.
10. Not to undertake misleading and deceptive advertisements.

The members of the CFBP are expected to follow the code of conduct. The code is
framed in the interest of business community and in the interest of the society. Adoption
of the code of conduct would enhance the image of the business firms in the society. An
award has been instituted by CFBP to encourage members to adopt fair business practices.
The award is given to the organization, which adopts high level of ethical practices.

Why Study Business Ethics?

1) Business executives and budding managers study the various ethical theory, ethical
principles and ethics judgements. Students understand the nature of ethical problems
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critically analyse it. Use conceptual tools and also leads the students to respecting
opposite views and reflecting upon them.
2) It will help build and groom a value based organization. Ethical behaviour is important
for business leaders as they influence the ethical climate for everyone else. In a value
based organization there is a high degree of trust and integrity and it empowers all the
stakeholders.
3) It creates awareness about their social responsibility. A business has to share pat of its
prosperity with the community, by offering amenities and services not otherwise available
to the needy of the community.
Making them better individuals study of ethics, practice of virtuous acts, resolving
dilemmas at the work place will go a long way in their spiritual. development. Such managers
will not be slaves of material possessions, they would not amass wealth out of selfish motive
but as a trustee of the community to which they belong. Such managers, who practice
business ethics would be led by divine thought within and through their relentless ethical
conduct, lead a life of dharma and realize godliness.
1) Measures at the Business/ Organizational Level:-

a) Adoption of code of conduct for dealing with employees, consumers, shareholders

and other social groups
b) To hire the services of expert in business ethics and arrange for his lectures.
c) To make social audit compulsory to identify the ethical and unethical conduct of
business.
d) To arrange training programmes on ethical standards for executives and employees.
e) To introduce open and free communication system and bring total
transparency is business working.
f) To penalize those employees who willfully violate rules of ethical standards.

2) Measures at the Government Level:-

a) Government policies, procedure and working should be simplified.

b) Excessive or unwanted controls over business working be lifted or reduced.
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c) Strict enforcement of laws relating to protection of interest of shareholders,

consumers, employees and other social groups.
d) There should be political discipline and corrupt politicians must be punished
seriously.
e) The working of Lok- Adalat should be popularized.
f) Quick dispersal of legal cases relating to unethical business practices.

3) At the Social Level:-

a) Social boycott on the products made by companies involved in unethical business.

b) Trade Associations and chambers of commerce to prescribe code of conduct to its
members and they must be made to observe it strictly.
c) Social organisations like Consumers Guidance Society of India, and Council for Fair
Business Practices should play active role in spreading the message of ethical values in
business.
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IMPORTANCE OF BUSINESS ETHICS:-

Standard of behavior: When we talk about business ethics, usually we're

speaking about standards of behavior in the workplace as well as with customers and
partners. Companies known for ethical standards usually have an ethical code stating
that they treat everyone with dignity, don't present misleading information, and
scrupulously follow rules and regulations.

True North Principles to lead a Business: Having a moral compass leads to

more effective business practices - whether in building sales, retaining employees, or
reducing litigation and regulation costs. For example, people are usually willing to
pay premium prices to feel good about the products they buy. Also, companies that
follow certain moral codes attract better people - and these people often are willing
to work harder with less compensation. It goes without saying that ethical companies
are less likely to undergo the costly scrutiny of courts and regulators.

Short Term Gain and Long Term Pain V /s Short Term Pain and
Long Term Gain : People normally like to take a short cut to success not
realizing that short term gains lead to long term pain. Also it's important to
understand that people don't engage in unethical behavior when the incentives are
small. They tend to engage in unethical behavior when the incentives are large. Keep
in mind also that unethical behavior usually breeds more unethical behavior -
because hiding that first misdeed usually requires more misdeeds - and for some
businesses, like Enron, this can lead down a path ill destruction.

Value Based Leadership creates Ethical Practices: Most of the time

people in positions of power tend to become more egocentric and self-focused. This
limits their capacity to understand the viewpoints of other people, which may provide
needed insight. However, an ethical company that values the contributions of its
employees is more likely to be innovative in the marketplace.

Moral values of employees: Milton Friedman once stated that the employees of
a firm have the moral obligation to maximize shareholder value. Deviating from this
directive, he believed, is like a form of taxation without representation, because
shareholder money gets spent in ways that does not maximize returns. This, I think,
needs to be tempered with a stakeholder theory of the firm, which deals with how
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employees interact with suppliers, partners, customers, and their co-workers - and
these are all interactions that should be encapsulated in a company's code of ethics.

Strong and Independent Board: Business ethics are critical for members of
company boards, as these people should provide a great deal of moral leadership. But
in some cases, board members turn a blind eye to developing problems, and this can
make bad situations worse. Still, board members often find it difficult to fulfill their
ethical duties; Board members who are zealous about fulfilling their duties often get
punished by not being selected for boards at other companies.

Role of Regulation in Business Ethics: Legislating some ethical behavior

can help keep the marketplace free of monopolistic behavior and safeguard
stakeholders such as partners, customers, and investors. What's more, a transaction
between two organizations can affect other parties - and these externalities, as
economists call them, are sometimes best addressed by regulation.

Role of Information Technology & Business Ethics: Some of the biggest

issues with ethics and technology can be found in security and privacy concerns.
Ethical companies do their best to protect company assets without making people feel
stifled - and this balance is increasingly important for innovation and creativity.
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Advantages:-

1) It builds a value based organization: Ethical behaviour is important for business

leaders as they imbibe high degree of trust, integrate and motivate and empower all
the stakeholders thereby building a strong organization which can compete in a
globalised economy. For e.g.: Tata Group of company has a very good reputation of
business ethics.

2) It creates awareness about the corporates social responsibility of business: A

business is a part of the society and it shares its prosperity by offering various
facilities and services to its immediate community. It also funds important projects
which are for welfare of the community. For eg: - building garden, hospitals, schools.

3) Business ethics is a practice: Managers has to study the theory of business ethics and
practice it in their professional life as they understand the nature of ethical dilemma
and analyzing it they are better equipped to practice business ethics.

4) Practising ethics at work place: It makes the individual associated with the
organisation aware about their divine nature and brings peace and harmony to all of
them.
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Unfair or Unethical Business- Insurance practices

(I) With Respect to Customer:

1) Pricing: Differential pricing for different class of customers similarly

low price identified as low quality. Special pricing factoring discount
are all forms of unfair business practices.

2) Advertisement: Marking false claims using advertisement to confuse or

confuse the customer with exaggerated claims and colorful copy.

3) Product Promotion: Using sales promotional techniques like demo

pack, free trial buy two get one free offers, etc. are used to lure the
customer in purchasing the products Similarly in industrial goods giving
bribe to get the order.

4) Customer Service: Appointing female executives to get new business

and then sending recovery agents for outstanding dues is unfair business
practice.

5) Price Fixing: Collaborating with other companies and fixing prices

which are on higher side so that customers does not have any choice.
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(II) Unethical business practice of employees:

(a) Job Switching: When an employee changes job, he must protect
the information of his previous employer. Similarly a huge
amount of money is invested in training of employee and he
leaves the organization which has trained him and takes his
expertise with him.

(b) Giving Information which is Confidential (Insider

Information): An employee has confidential information about
financial status, future projects etc. which he should not disclose
to anyone. Investors buy or sell shares of the company based on
this sensitive information.

(c) Industrial Espionage: This is spying for either personal or

companies benefit.

(d) Occupational Crimes: They are wrong actions of employees

like:
a) Using office telephone or PC for personal use.
b) False claims made by sales executive.
c) Theft or pilferage.
d) Damaging the property of the company.
e) Manufacturing, transporting & selling products that are
prohibited by law e.g. liquors and drugs.
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Ethical Issues

How Ethics Can Make Corporate Governance More Meaningful?

1) Corporate governance is meant to run companies ethically in a manner such

that all stakeholders, creditors, distributors, customers, employees, the
society at large and governments are dealt in a fair manner.

2) Good corporate governance should look at all stakeholders and not just
shareholders alone. Otherwise, a chemical company, for example, can
maximize the profit of shareholders, but completely violate all environment
laws and make it impossible for the people around the area to lead a normal
life. Shipbreaking in Valinokkam, near Arantangi in Tamil Nadu, leather
tanneries in South, Arco and hosiery units in Tirupur, have brought about too
much of environmental degradation that has unleashed untold miseries to
people in and around their locations.

3) Corporate governance is not something which regulators have impose on a

management, it should come from within. There is no point in making
statutory provisions for enforcing ethical conduct.

4) There is a lot of provisions in the Companies Act, for example, (a) disclosing
the interest of directors in contracts in which they are interested; (b)
abstaining from exercising voting rights in matters they are interested; and
(c) statutory protection to auditors who are supposed to go into the details of
the financial management of the company and report the same to the
shareholders of the company. But most of these may be observed in letter,
but not in spirit. Members of the board and top management should ensure
that these are followed both in letter and spirit.
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5) There are a number of grey areas where the law is silent or where regulatory
framework is weak, which are manipulated by unscrupulous persons like
Ketan Parikh and Harshad Mehta. In the US, for instance, the courts
recognise that new forms of fraud may arise, which may not be covered
technically under any existing law and cannot be interpreted as violating any
of the existing laws. For example, a clever conman can try to sell a piece of
the blue sky. In order to check such crooks, there is the concept of the "blue
sky" law. However, such wide-ranging processes are not available to courts in
developing countries.

The Securities and Exchange Board of India (SEBI) has jurisdiction only in
cases of limited and listed companies and are concerned only with their
protection. What about the shareholders and others of other unlisted Limited
companies?

6)The Serious Fraud Investigation Office (SIFO) in the Department of Company

Affairs (DCA). has been investigating several "Vanishing Companies". By 2003,
SEBI has identified 229 as "vanishing companies" which tapped the capital
market, collected more than Rs. 800 crores from the public and subsequently
became untraceable. However, thousands of investors have lost their hard-
earned' money and no agency has come to their rescue so far.
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Business Ethics is now a Management Discipline:

Business ethics has come to be considered a management discipline, especially since the birth
of the social responsibility movement in the 1960s. In that decade, social awareness
movements raised expectations of businesses to use their massive financial and social
influence to address social problems such as poverty, crime, environmental protection, equal
rights, public health and improving education. An increasing number of people asserted that
because businesses were making a profit from using our country's resources, these businesses
owed it to our country to work to improve society. Many researchers, business schools and
managers have recognized this broader constituency, and in their planning and operations
have replaced the word "stockholder" with "stakeholder," meaning to include employees,
customers, suppliers and the wider community.

The emergence of business ethics is similar to other management disciplines. For example,
organizations realized that they needed to manage a more positive image to the public and so
the recent discipline of public relations was born. Organizations realized they needed to better
manage their human resources and so the recent discipline of human resources was born. As
commerce became more complicated and dynamic, organizations realized they needed more
guidance to ensure their dealings supported the common good and did not harm others -- and
so business ethics was born.

Note that 90% of business schools now provide some form of training in business ethics.
Today, ethics in the workplace can be managed through use of codes of ethics, codes of
conduct, roles of ethicists and ethics committees, policies and procedures, procedures to
resolve ethical dilemmas, ethics training, etc.
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Objectives of study
'Need of customer can cause change in the policy of business,
A strong insurance plan can change the history of business'
Insurance industry is suffering from an ethical dilemma. It is a risk sharing technique,
oriented to social pattern for covering the risks of the customer. However, privation in the
sector has covered the heights of capital market. LPG Model led it to moneymaking business
and ground for agents and brokers by realizing their potentials. Forces of market also allure
customers to cover their risk against the hazards of nature available through insurance
market. Need of insurance has diversified with time in other areas like tax benefits, money
endowment etc. New aspirations of customers are towards capitalization of insurance against
the social pattern. Sometimes, under the avenue of capitalization, insurance activities go
beyond the values and ethics. Therefore, the study is covering the following objectives for
justification.
1. To identify unethical practices of insurers in insurance sector.
2. To identify the role and position of agents, brokers in context of ethics in particular.
3. To critically understand acts of IRDA in mitigating and curbing unethical practices of
insurer.
INSURANCE - The indication of reforms
IRDA - central to the insurance reform process - is an autonomous, regulatory authority
endeavoring to protect the interests of policy holders; and regulate, promote & ensure orderly
growth of the insurance industry. The IRDA has been empowered to carry out several
functions, including:
* Promoting and regulating professional organizations connected with insurance &
reinsurance
* Improving the efficiency while conducting the insurance business
* Establishing a code of conduct for players in insurance
* Determining the specification of accounts, and the manner in which funds are
Invested.
* Laying down prudential norms for investment for both life and general
Insurance company.
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THE SIX STEP INSURANCE PLANNING PROCESS

Insurance Planning is the process of providing advice and assistance to clients to determine
whether and how clients can meet their financial needs and lifes goal through proper
management of financial resources.

Establishing and defining the client planner relationship: The Financial advisor
should clearly explain or document the services to be provided and define the responsibilities.
The advisor should explain fully how he will be paid and by whom. The advisor should also
disclose any restrictions on his ability to give unbiased advice and disclose any conflicts of
interests. The advisor should agree on how long the professional Relationship should last and
how decisions will be made.

Gathering client data, including goals: The Financial advisor should ask for information
about the financial situation. The planner should mutually define the personal and financial
goals, understand the time frame for results and discuss, if relevant, how one feels about
risk. The Financial Planner should gather all the necessary documents before giving the
advice.

Analyzing and evaluating the financial status: The Financial advisor should analyze the
information to assess the current situation and determine what one must do to meet the goals,
depending on what services have been asked. For this one could include analyzing the assets,
liabilities and cash flow, current insurance coverage, investments or tax strategies.

Developing and presenting Financial Planning recommendations and/or alternatives:

The Financial Planner should offer Financial Planning recommendations that address the
goals, based on the information provided. The planner should go over the recommendations
with the client to help and understand them so that one makes informed decisions. The
planner should also listen to the clients concerns and revise the recommendations as
appropriate.
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Implementing the Financial Planning recommendations: The planner and the client
should agree on how the recommendations will be carried out. The planner may carry out the
recommendations or serve as your coach, coordinating the whole process along with
professionals such as solicitors or stockbrokers.

Monitoring the Financial Planning recommendations: The planner should agree on who
will monitor the progress towards the clients goals. If the planner is in charge of the process,
he/she should report personally to review the situation and adjust the recommendations, if
needed.
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Unethical Practices in Insurance: Nature and Generation

Agent and broker play an important role in the marketing of the insurance plans and policies.
Today, more than 70% of business is carrying through insurance agents by their personal
contact and relationship with the customer (Singh, M.P., 2011). Mostly, business of insurance
is depending at the efforts of agents. Insurance agents are four pillars of insurance company
(Agarwal, 2012). Life insurance agent is the foundation stone of the glorious building of Life
Insurance Corporation of India (Kothari et. all, 2010). The life insurance agent is to act,
keeping in view the interest of the policy-holder and the insurance company (Singh et. all.,
2009). The insurance agent is in a position of trust. On his assurance, the policyholders
entrust their small savings to an insurer (Balachandran, 2007). An agent has the right to get
remuneration in lieu of his functions, to get commission on the insurance business secured by
him and the amount of premium due on renewal of existing insurance policies as per
prescribed rules (Kothari et. all, 2010). Insurance intermediaries like insurance agent and
broker provide in correct information on the transaction cost leading to information
asymmetric in the hand of customer (Traub, 1994). A broker's strategy is often sales-driven
and focused on insurance solutions instead of customer orientation. Therefore, brokers are
unable to offer services originating from companies' needs (Maas 2006). Direct marketing as
per the National Association of Insurance Commissioners (NAIC) regulations provide for
bringing more transparency to buyers, it also saves buyers against the misleading of agents
like the case of Metropolitan Life Insurance Co. In the case, it was found that agents were
selling whole life policies as retirement plans due to high rate of commission (Shah 2008).
Things go wrong in insurance when the agent becomes concerned with the commission that
he will earn from the policy, rather than the benefits to the prospect (Balachandran, 2007).
Business policy, marketing policy in particular, followed by insurance companies are too old
and outdated. The companies' expense little on the research and development of the insurance
sector. Premium charges by the insurance companies in India tends to relatively high due to
obsolete and rigid actuarial practices and inefficient operations (Govt. of India, 2002).
Quality of services is poor comparared with the pricing or premium rates charged for
services. Prior liberalization, the LIC had enjoyed a monopolistic exploitation with limited
products. (Govt. of India, 2002). As competition increases and the product life cycle shorten,
the actuary is under increased pressure to respond quickly to changes in the market place
(Jacques, 2008). In the first decade of privatization, the focus was more on expanding and
stabilizing the business applying the prevailing business models rather than on innovation .
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To cover the risk of individual in fewer funds, health insurance is very suitable tool of
insurance. Very often, in developed countries, it is most favorable by employer to divert
health and hygiene related risk of his employees. Health insurance benefits the poor and the
weak people in terms of better coverage and health services at lower costs without the
negative aspects of cost. The experience from other places (countries) suggest that if health
insurance is left to the private market it will only cover those which have substantial ability to
pay leaving out the poor and making them more vulnerable. Hence, India should proactively
make efforts to develop Social insurance pattern (Mavalankar, 2000).
Insurance sector faces many more unethical practices such as untrue advertisements, half-
truths and nondisclosure of material information regarding what the policy covers and what it
does not ( , 2008). They advertise themselves king of the Chandrasekharan market by false
statement of competitor. Indian insurer misrepresents competitor's product to gain a
competitive edge (Flesch, 2010). Private sector develops and introduces only those
policies/schemes, which involve minimum risk burden and are more profitable to them. They
overlook the interest of common people (Mathew, 2010). Business of life insurance did not
flourish in India, is suffering regional imbalance due to favor of some states and union
territory of India (Chaudhary, 2011). Business of new companies also skewed in some favor
states. In the first decade of privatization, the focus was more on expanding and stabilizing
the business applying the prevailing business models rather than on innovation .
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Actions of IRDA to Control Unethical Practices

There is no fixed remuneration to agents (Maheshwari, 2005). They are depending at
commission, provided by the insurance companies on basis of annual sales of insurance
policies. The rate of commission is varying according to plans, which lead them towards the
unethical practices to earn more by the sale of the insurance policies anyhow. IRDA is
responsible to take action for controlling the agents by both qualitative and quantitative
measures. Therefore, IRDA framed and issued agency regulations in the year 2000, providing
a code of conduct for agents. In addition to this, through these regulations.
IRDA introduces compulsory pre recruitment training for 100 hours in accredited
institutions. For composite agents 50 hours of additional training is prescribed.
Agents are getting license only after successful completion of the test conducted by
Insurance Institute of India (I.I.I.). The license is only for three years. At the time of
renewal further training for 25 hours is necessary.
Strict vigilance on training institutions and review of the quality of their work has
been undertaken.
The accreditation has to renew periodically. The quality of agents has improved to a certain
extent due to the above steps. A factor that has helped here is the infusion of professionals
and executives who took voluntary retirement from banks and other organizations .
To control the monopoly of insurance agents IRDA initiated some new channels for the
marketing of insurance. These channels make insurance products more transparent and avail
in easy access of customer. The Insurance Regulatory and Development Authority (IRDA),
through issuance of regulations, has permitted a variety of distribution channels to enter the
marketing process expecting that they would stimulate a greater demand for purchase of
insurance products. An extensive public awareness drive also initiated by the IRDA on TV,
radio and in the print media to make the uninsured know the benefits of insurance. The IRDA
has also stipulated obligations on insurers to develop a minimum business annually from the
social and rural sectors.
Insurance industry is an important part of financial market. IRDA takes steps to make it more
flexible. To enhance the flexibility in the operation of unit-linked insurance products, IRDA
decided to increase the allowable share of money market instruments to 40% from the
existing 20% (Vermani, 2007). Technology takes part itself in agenda of IRDA with pace of
time. Technology enhances the knowledge of insurer, insured and regulatory body for
betterment of product. Activities to increase IRDA's knowledge of health insurance and
managed care are already underway with technical assistance sponsored by the US Agency
 22

for International Development, USAID (Rao, 2004). To provide relaxation of documentation

to purchase low cost policies reduces to make it less paper, formality oriented and for easy
sale of products. IRDA decided to provide exemption up to a total annual premium of
INR10,000 on all the life insurance policies held by a single individual from the requirement
of recent photograph and proof of residence .
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Penalty for Defaulter

IRDA have vigilance over the activities of insurance companies if they were noted failure in
keeping with the regulation and guidelines of the body. In such cases, they may be penalizing
with monetary values. Here below is a list of amount of penalty imposed and realized in the
consulting company for the nonobserving of the regulations and guidelines for a period of last
three years.
LIST OF PENALTY YEAR WISE
YEAR 2011-2012
SR NO INSURANCE PENALTY DATE OF BREIF PARTICULAR OF THE
COMPANY AMOUNT PENALTY VIOLATION COMMITED
1 SBI LIFE 70 LAKH 8TH JULY 2011 FAILURE TO COMPLY WITH
GROUP INSURANCE GUIDELINES
2 MET LIFE 2 LAKH 9TH JAN 2012 FAILURE TO COMPLY WITH
TIMELY PROCEESING OF THE
PROPOSAL FORMS OF
INSURANCE
3 FUTURE 20 LAKH 11TH JAN 2012 FAILURE TO COMPLY WITH
GENERAL PROCURING BUSINESS THROUGH
LIFE LICENCED INDIVIDUALS/ENTITY
4 SAHARA LIFE 12LAKH 28TH FEB 2012 FAILURE TO COMPLY WITH
PAYMENT OF DEATH CLAIMS
WITH INTEREST IN DELAYED
STAEMENT
5 MAX LIFE 5 LAKH 23RDMARCH FAILURE TO COMLY WITH THE
2012 PROVISIONS TO REGARD
TOLICENSING.

YEAR 2010-2011
1 SBIL LIFE 10 LAKH 11TH AUG FAILURE TO COMPLY
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2010 WITH FILE AND USAGE

GUIDELINES
TH
2 BHARTI AXA 10 LAKH 27 SEP VIOLATION OF
LIFE 2010 STIPULATION UNDER
REGULATION 2 (G) (I) OF
IRDA REGULATION 2000
TH
3 RELAINCE 10 LAKH 29 OCT FAILURE TO COMPLY
LIFE 2010 WITH FILE AND USE
GUIDELINES
TH
4 TATAIG LIFE 5 LAKH 14 DEC FAILURE TO COMPLY
2010 WITH SECTION 40 B OF
INSURANCE AC 1938,
READ WITH RULE 17D
OF INSURACE RULE
TH
5 BAJAJ 10 LAKH 18 FAILURE TO COMPLY
ALIANZ LIFE MARCH WITH FILE AND USE
2011 GUIDELINES AS WELL
AS VIOLATION OF ULIP
GUIDELINES.

Ethics in insurance today (present scenario):

According to insurance stakeholders, the issue of compliance with ethics and best practices
should govern market strategies and operations.
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Stakeholders have warned that the sector's efforts at achieving a more robust financial
capacity would be rubbished if steps are not taken to address unethical practices and the
prevalence of fake institutions in the industry.

Insurance operators need to devote more of their energies and resources to ensuring the
emergence of a new order in terms of players' attitude to the issue of ethics.

Insurance, being a business that is based on trust, could only win the admiration and
patronage of the buying public when there is a widely acknowledged effort by operators to
operate by the rules laid down by trade bodies and the regulatory authorities.

One would agree that the level of capital companies have had to raise within the last few
years is quite challenging. That is why there must be a collective resolve by underwriters,
brokers, loss adjusters, and agents to ensure that the additional funds injected into the sector
are safeguarded and used optimally through strict adherence to ethics of the profession.
Operators are usually expected to display more commitment to ethical standards in all the
operations. There should not be any room for unprofessional and unethical practices in the
dispensation.

Generally, the fear of losing business, rate cutting and offer of illegal inducements has
compromised insurance operators' compliance to the industry's ethics.

Industry watchers say experience of non compliance with ethics in the insurance industry is a
reflection of the situation in the larger society, adding that professionalism, honour, service
and social responsibility, should be the key attributes of the sector.

Insurance and Ethics

Insurance, by definition raises ethical questions. Insurance might be viewed as mans attempt
to control and influence an environment that we all know is in Gods hands. Mans attempt to
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insure anything is, at best, limited. Insurance is nothing more than a pooling of money to
provide limited reassurance for a limited set of assets or circumstances.

Many people look to insurance to provide them with a complete sense of security and
assurance. When they buy insurance some people think, Oh, now I dont have to worry,
everything will be taken care of. Unfortunately, over the years, the insurance industry has
often nurtured this paternalistic and incorrect notion.
Because they do not control the world, insurance is only a partial or stopgap
measure to deal with the uncertainties that the world presents. Insurance does not provide the
kind of universal coverage and assurance that many people look for. Many ethical concerns
with insurance exist because of this gap between consumer expectations and genuine
insurable risk.
For example, people are often disappointed, angry or disillusioned to find
that the insurance they have been paying for does not cover a particular situation. This can
leave consumers feeling that insurance is a poor economic value or a rip-off. In this
business managers frequently hear statements like, Ive paid thousands of rupees of
premiums, and this small claim isnt covered or Because I forgot two payments, my
coverage was cancelled. Now my claim wont be paid after paying premiums for many
years, or I didnt understand what I bought, I thought everything was covered. Not
meeting a customers expectations can feel frustrating and dissatisfying to them. Because of
this difference between what people expect and what insurance provides, insurance is one of
the most highly regulated industries in our country. Although it is national in scope, it is one
of the few industries of its kind that is primarily regulated at the state level with 50 different
sets of laws and regulations governing insurance.
Historically, insurance has played an important role in the development of
world economies. Unfortunately, there are times when the industry has not been a good
corporate citizen. In some cases, the insurance industry has a history of discrimination,
usurious prices, and dishonest business practices.
Is insurance a good business after all? Does it raise so many ethical questions that we should
just avoid or eliminate it?
Once looked at carefully, insurance is a wonderful and much needed product.
Insurance, at its core, is a pooling of community risks. It is a formalized way for people to
come together and help each other. For example, when we pay life insurance premiums, we
are putting our money together, not just to help ourselves but to help other families. When
 27

someone else dies, his family benefits because a payment can be made from this pool of
premiums and the investment income that arises from it. When we die, our claim is paid to
our family, from the same pool. People, in more informal ways, have done this for centuries.
When someone dies, those remaining help the family. This may appear very basic, but
insurance is much more powerful than just survivor benefits. Insurance allows us to take risks
and therefore fully live our lives. Insurance is required in most industries and professions.
This gives us some assurance of the quality of goods and services that we use. Commercial
insurance for industries and professions has underwriting standards that require certain
practices, safeguards, licensing, and so on. In this way, insurance provides a form of safety
net for consumers both in terms of the product or service delivered and remuneration if there
is malfeasance.
Very few of us would have surgery, ride in an airplane, get on an elevator, eat in
a Restaurant, and drive cars, if there was no insurance in place. Even more compelling, in
many cases, without insurance we would not enter into these businesses. Without insurance
one mistake could bankrupt the business and shatter customer confidence. Insurance not only
provides protection to the consumer, but also frees us to conduct business.
Insurance, just like money, is not an evil unto itself. It is a channel that can be used in very
good and helpful ways. Once we accept the proposition that insurance actually is a good
business, the ethical concerns do not end. In fact, in many ways, they just begin. Every day in
running an insurance business, ethical considerations arise.

A few of the questions insurance corporatists confront daily are:

1. What is a fair price to charge? Should we charge as much as we can, as little as we can, or
something in-between?
2. What is the proper level of customer service? Just enough to get by, more than the
customer has bargained for, or something in-between?
3. What kinds of policies and procedures should govern the running of the company? Should
we follow the letter of the law, the spirit of the law, or both?
4. Which laws are we talking about, mans laws, Gods laws, or both? When can and should
we make exceptions to our policies and procedures?
5. How should we contract with other companies? Should we get as much as possible, give as
much as possible, or something in-between?
 28

6. What should our benefits and compensation be for the people working within the
company? Should we pay them as little as possible, as much as possible, or Something in-
between?
7. What should be done when someone is not doing the job? Should we help them, get rid of
them, or keep them no matter what? How can we best address these ethical dilemmas?

There are no hard and fast answers to any of these questions. Based upon the situation, any of
the answers may be right. It is possible to face the changing questions, and the changing
answers, every day depending upon the individualistic views and ethical followings

Institute for Insurance Ethics

Mission and Purpose

 29

The mission of the Institute for Insurance Ethics is to develop programs that will educate
members of the insurance and financial services industry, as well as the consuming public
about the nature of ethics, social responsibility, and the application of high ethical standards.
A primary purpose of the Institute will be to consider the role of ethics as an alternative to
additional regulation of the insurance and financial services industry. Unlike many other
businesses, insurance is based on mutual trust between insurance producers and insurance
clients. Trust, in turn, is based on the highest ethical standards.

Vision of the Future

The Institute for Insurance Ethics will be a highly visible advocate for ethics and ethical
behavior in the life insurance and financial services industry. It will be a strong, clear voice
for ethical conduct and social responsibility within the insurance industry. The leadership
shown by the institute will create ever-growing awareness of ethical issues among insurance
and financial services professionals. Through its growing leadership and influence, insurance
professionals will gain more and more formal training in ethics and in dealing with ethical
situations that they confront. Through that training and awareness, consumers will continue to
gain trust and confidence in insurance professionals and in the insurance industry.

CODE OF ETHICS
Selling Life Insurance is like selling intangible product. So, the marketing staff needs to
observe a set of norms in his / her professional conduct, which make him / her worthy of trust
and faith.
The Code of Ethics for the life insurance, marketing staff
1. To perform his / her duties in high esteem.
2. To give utmost priority to the client's interest.
3. Not to disclose client's confidential and personal information
4. To ensure prompt and sincere service to the client and his or her family.
5. To use appropriate methods in convincing clients to protect their insurable interest.
6. To make truthful and accurate presentations.
7. To improve his / her knowledge of life insurance through constant study.
8. To set a plan and work accordingly.
9. To maintain fair relations with colleagues.
10. To strictly follow the concerned laws and regulations.
 30

11. To obtain proposals only on the lives of persons who fits in the physical, moral and
financial standard defined by the Company.
12. To be loyal to the Organization.

The IRDA has formulated a Code of Conduct for the marketing staff which comprises two
broad group heads viz. "Do's" and "Don'ts". They are listed herewith:

Do's
1. Identification of marketing staff and the insurance agency - certificate of License to be
shown to the prospect on demand.
2. Match the needs of his / her client with various products available with his insurer.
3. Work out the premium to be charged so that his / her prospect is able to weigh the
economic or financial implication of the proposal on his / her resources.
4. Bring to the notice of his / her client the implication of various questions in the proposal
form and other documents and advise the client to disclose all the material information.
5. Disclose to the insurer all relevant information.
6. Inform the prospect about acceptance or rejection of the proposal by the insurer.
7. Obtain all documents from the prospect for the completion of the case.

8. Assist the policy holder in matters of:

Claim settlement,
Effecting nomination/assignment,
Revival, change of address,
Exercise of various options.

Don'ts - No Marketer shall

1. Solicit or procure insurance business without holding a proper authorization
2. Induce the prospect to omit to disclose the material information in the proposal form
3. Induce the prospect to submit wrong information in the proposal form or in the documents
submitted to the insurer for acceptance of the proposal
4. Behave in discourteous manner.
5. Interfere with any proposal introduced by any other insurance marketers.
6. Offer different terms and conditions other than offered by the insurer.
7. Part with or share his incentive with Prospect or with any other person.
 31

8. Receive a share of the policy proceeds from the beneficiary.

9. Compel any person to terminate an insurance contract with any insurer in order to effect
a new proposal within three years from date of such termination.
10. Apply for fresh license to act as an insurance marketer if his / her earlier license /
authorization have been terminated with in five years from the date of termination.
11. Remain or become a director of any insurer carrying on insurance business in India.

Ethics in insurance: Building relationships through trust

 32

The momentum of the private insurance sector leaves no doubt in ones mind that it is
amongst the foremost growth sectors of our country. A market share of 26.18 per cent in five
years is testimony to this. But even while one braces himself to avail of the numbers within
his/her sight, they need to realize that the "long-term" will belong to that company which
rigidly benchmarks ethics for itself and for the industry. In a business, where the customer
entrusts the company with his / her financial savings, ethics has a direct relation to sales. The
greater the trust, the more the sales.
There are many ways to build trust through ethics, the most fundamental being the way the
product is designed. It should offer complete clarity and transparency and the literature
supporting the product should not over-promise the benefits or understate the risks.
For eg: At Birla Sun Life, the use of the sales illustration, the inclusion of the policy proposal
form, and the free look period they offer have served to win their customers' trust. By giving
customers the option to track investments online and by publishing the performance of the
funds against benchmark indices, specifically prepared for Birla Sun Life by CRISIL, they
prove that they are an open and reliable organization.
Ethics is an attitude that needs to touch every aspect of the customer relationship. It entails
having great reverence for the customer's needs, being open to suggestions and insights that
might enhance his / her comfort levels, building in riders and flexibility options that address
these needs, providing assistance and clarity in documentation and upgrades, and settling
claims on time. Ethics means being fully accountable, not just to the company and to its
customers, but to the industry they serve. The inspiration for ethics thus comes from the
highest source from a need to impact the industry.
On the flip side, a lack of ethics can have serious consequences. Litigation and costs of
settlement, business losses, a reduction in ratings, and increased scrutiny are not half as
damaging as the loss to image and reputation. It's a fact that good ethics makes good business
sense. Of course, the mandate for good ethics always stems from the top. Which explains,
why at Birla Sun Life, they have introduced a system of checks and balances that guards
against concealment and why they follow norms of compliance and adhere to IRDA
regulations so scrupulously that their books and processes are open to audit at all times.
While top management can lay down a code of ethics and request adherence, its
implementation depends on the individual. As Albert Einstein said, "Ethics is an exclusive
human concern without any superhuman authority to back it.. Ethics is that discipline, that
momentum that challenges a company to rise above themselves and raise the bar each time
they interact. It is the means by which they measure themselves, the strength by which they
 33

progress, and the light by which they shall be remembered. It is the way ahead - for each
individual and for his industry.

CASE STUDY:
 34

CODE OF ETHICS AND PROFESSIONAL CONDUCT

ICICI LOMBARD-CHEATS

Rahul Saxena is a policy holder who is an unsatisfied consumer of ICICI LOMBARD. He

shares his personal experience with us.

Member's Rating of this Product:

Member's Recommendation of this Product:No
Customer Service:
Claims Settlement:
Rates/Premium:
Range of Plans:
Staff Attitude:

Pros: None
Cons:Business ethics

The Cheating by ICICI

Now if things could not get any worse, I am currently going through what can only be termed
as the blatant cheating of a customer from one of Indias largest Companies ICICI. The
following is a timeline as to what happened and continues to happen.

12-11-05: Accident took place. Police report was made. Insurance company was notified and
claim number received.

16-11-05: After checking the list of cashless garages on their company website, and verifying
the same with your customer service representatives as well as the garage of choice
Autograph Skoda,
Official Skoda dealers, I towed the car to the workshop. All papers as desired by ICICI were
handed over to the garage to produce to the Insurance agent at the time of the survey. The
only reason I picked an authorized Skoda garage, even after knowing the ridiculous prices
they have, was because ICICI told me they had a cashless facility for that garage.
 35

19-12-05: At 7:30pm, I get a call from Mr. Abhay stating that ICICI cannot process my
cashless claim as a third party has been injured and a case has been filed. He instructed me
that if I want my car I could pick it up after paying the full amount. I then spoke to Mr.
Suresh Shetty, who stated, the ICICI legal department had advised them not to pay the
claim. I asked for a written copy of the clause in the policy where it is stated that the claim
for vehicle repairs cannot be paid unless the case is solved in court. I also spoke to my long
time insurance agent from New India Assurance who confirmed that there is no such
requirement and that ICICI is known to harass its customers on large claims.

I was put on the line with Mr. Kapil Madgar who stated that he was the Regional Manager. I
asked him to provide me with the clause as mentioned above. However he rudely told me that
he does not know and even though he was sitting in the office, he did not take the bother to
atleast try and assist me. Till date, Mr. Abhay and Mr. Shetty were well mannered and helpful
to the extent they could be, but I must say that the manner of speaking of Mr. Kapil leaves a
lot to be desired! As it was obvious that I was not going to get an accurate answer on the
phone, I have asked for a written statement by fax from the company showing me where this
clause is mentioned. I was assured that it would be with me by 10am the next day. Nothing
came.

On 20/12/2005, I receive the biggest shock of my life. I get an unsigned fax from ICICI
stating that they will NOT HONOUR my insurance at all stating the limitation in the policy
of PACEMAKING. No explanation was given as to what they mean by pace making, and
my agent at New India told me that this is a motor sport activity and does not apply to my
case at all.

All further attempts to get a proper reply from ICICI has fallen on deaf years, and a fax sent
on the 20th to their MD Mr. Sandeep Bakshi has not been replied too till date.

There is no-one at ICICI who is willing to take responsibility, all their written
correspondence is unsigned, and there is no-one you can speak to who will give you a straight
answer. This from a company whos slogan is Haam hai na! I should take them to court for
false advertising alone!
 36

I have now approached the WIAA who are supporting me completely. This battle will now
move to the Insurance Regulatory Board. From there I can move the Consumer Court if I am
not happy with the verdict.
However this will now take time and I have no choice but to fund the entire repair costs
myself. But, from all the legal opinions I have taken, I am in very good standing legally and I
should win my case plus penalties and other expenses paid to me.

I am putting this topic up here now to WARN all other members that ICICI are COMPLETE
CHEATS AND DO NOT GIVE A DAMN ABOUT THEIR CUSTOMERS. They will try
anything in their power to wriggle out of paying a large claim, which they are rightfully
entitled to pay. This tactic is probably their company policy, hoping that finally the customer
will give up and forget about it.
Well, this is not happening here with me and rest assured this case will be followed till its
rightful conclusion. And hopefully it will serve as a lesson to ICICI and other insurance
companies that the Customer is no longer just going to lie down and take the CRAP that is
meshed out to them.
My Final notes DO NOT DEAL WITH ICICI, whether its their banking, insurance or
loans. They will gladly take your money with a smile, but when it comes to actual customer
service, they are the WORST I have ever had the displeasure of dealing with.
Conclusion:
The ethical and spiritual path in insurance, and in life, is an individual one.
At times, it can feel like a solitary path. Ethics is not reached by consensus but by conviction.
The ethical path may not be popular but it does stand the test of time. Ethics is not a hard and
fast set of rules but is based upon guiding principles. Ethics should guide our communities,
yet they are deeply personal. Above all, ethics and the spiritual compass that underlies our
individual ethical code, is not a destination, it is not even a journey, it is the journey. What is
good, right and true usually stands the test of time and may not always be immediately
apparent. The ethical stake in the ground will always be scrutinized and criticized by
someone

Suggestions and Remedies

Today, insurance is need of common person. Terrorism, natural calamity, Impact of
technology has enhanced its need in business organization as well as for the common person
also. Nowadays, working style of people, living life as a machine, require proper protection
 37

policy against hazards on health due to working with machinery. To make pace with dynamic
age, IRDA have realized a better policy for the insurance, with less cost and scope for fraud
in insurance sector. It required some changes regarding the education of customer to tackle
the risk with insurance policy. Insurance Regulatory is requiring reviewing and
reconstructing the industry to make pace with the dynamic and global environment. Further,
it require taking action for redesigning the insurance plans/schemes and riders & features of
plans/policies for penetration in untapped market. It may help introducing quota for the rural
insurance, social insurance etc. the form and quality of product require diversifying with the
varied need of customers.The handling of insurance agents the admitted four pillars of the
industry is to important for the sake of future of insurance being free from fraud and unethical
practices. To stop misacts of agents, the regulating agencies should ensure a move to create
professionalization for agents. However, agents are under the strict guidelines and have fear
of debar with professional body. IRDA should imitate recognition of agents for the ethical
practices against the MDRT, Crorepati awards of insurance companies.
India has 22 languages as scheduled. However most of Indian speak, read (newspapers,
magazines) Hindi. IRDA should require making a strict regulation for the insurer to provide
information of new policies and plans in Hindi and other regional languages to better
communication with the customers. Insurance companies should print materials in English
with popular language of region.

FINAL CONCLUSION

Insurance contracts are often seen as a form of gambling. That is because they appear
as a type of wager that takes place over the lifetime of the policy. Basically the insurance
company is willing to bet that you and your property will not suffer the loss insured
 38

against. In exchange for making this bet, and taking on the risk, they receive your
premium. If they win the bet, they keep the premium; if they lose, they make the
payout. In this sense, they are often compared to a type of long term financial casino.

The difference between your premium amount, and the amount the insurance company
will have to pay out if the loss occurs, is simply the odds the insurance company is
getting for taking on the bet. It's just like going to the horse races and betting on a horse
that pays out 10 to 1.

This view of insurance has led to a number of people and religious communities
disapproving of insurance because of its similarities to gambling. Among those groups
that avoid insurance are the Amish and Muslim communities. What these people do
instead is create a system of what is known as social insurance. What this means is that
if there is a disaster and someone suffers a heavy loss, then the whole community will
step forward and help them to deal with their loss and rebuild. While this system is very
simple, it has the potential to be just as effective a safety net as insurance. However, it
requires that the community actually does step forward and help those who suffer from
disasters. This means that it is more successful in small closed and closely knit
communities than in large modern societies.

Social insurance systems therefore are not always effective. Often the community that is
supposed to adopt it is not suitable. Also, in very large disasters the system can break
down as a small community will not be able to rebuild itself completely without outside
assistance. This is why larger modern insurance systems can be more robust.
However, in extremely large disasters, modern insurance systems can also run into
difficulties. This is witnessed by the fact that it is impossible to insure against certain
risks such as floods and earthquakes. This is because the damage would be simply on
too large a scale for the insurance companies to cope with.

There are other ways in which insurance doesn't follow the gambling model. For
instance insurance companies seek to reduce the risk of the loss occurring constantly,
for instance by requiring the installation of fire alarms, or by reducing the loss if the
insured against event does occur, for example by providing rehabilitation to accident
victims. Therefore insurance is like a gamble in the reward and risk elements, but other
elements are different.
 39

Insurance Ethics isn't much different than the Ethics requirement for any other Fiduciary
position. Since Agents and Adjusters are tied to state regulation, the people and the Insurers
could lose their license and Certificate of Authority to transact business in that state.

There is a law called Public Law 15, the McCarran Ferguson Act, that allows for each state to
regulate their states' business, and the Federals will not intervene as long as the states handle
it properly. Inside these laws are the Unfair Trade Practices. If an Agent or Insurer violates
any of the Unfair Trade Practices, the state can assess fines and/or imprisonment. Some
examples would be Misrepresentation, Concealments, Twisting, Rebating, Defamation,
Giving away Free Insurance, Commingling, Embezzlement, etc.

Because the Insurance industry is tied to Ethics, the Insurers often keep strict reins on any
person who might mislead the public in any way.
Every Insurer has outstanding people, but are also cursed by the shysters and crooks. No one
is immune. If an Agent decides to lie to a client in order to promote his own commission,
then that Agent should have his license revoked and face justice. But, since 61% of taxpayers
say it's okay to cheat on your taxes, I would say that we will always face that problem.
Trying to police Ethics is a full time job, and every day is a new battle.

BIBLIOGRAPHY
1. Sovereign guarantee for all policies issued by LIC will continue.
2. Jump up ^ The Oriental Insurance Company Ltd was incorporated at
Bombay on 12 September 1947
"http://www.orientalinsurance.org.in/about-oriental-insurance.jsp"
 40

3. Jump up ^
http://www.irdaindia.org/regulations/TheInsuranceAct1938er126042004.
doc here
4. Jump up ^ GOI. "IRDA ACT 1999". GOI. Retrieved 19 June 2012.
5. Jump up ^ GOI. "IRDA ACT 1999". Department of Financial Services,
6. GOI. Retrieved 19 June 2012
7. http://ethicsandinsurance.info/
8. http://www.mondaq.com/x/123868/Insurance/Code+Of+Ethics+Professio
nal+Practice+For+Insurance+Companies+Operating+In+UAE
9. http://www.academia.edu/3147226/Factors_Affecting_Sales_Ethics_for_
Life_Insurance_Sector_of_India_-_A_Critical_Review_of_Literature_
10.http://www.indianjournals.com/ijor.aspx?
target=ijor:ijser&volume=1&issue=1&article=029