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Ethics In Insurance

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What do you think of when you hear the word ethics? There are many times in our personal and business lives that we will face dilemmas where we will have to decide what is the right choice. Sometimes the unethical choice won't hurt us immediately, but time passes things tend to catch up with everyone. What, then, is ethics? Ethics refers to well based standards of right and wrong that prescribe what we as humans ought to do, in terms of rights, obligations, benefits to society, fairness, or specific virtues. Ethical standards enjoin virtues of honesty, compassion, and loyalty.

State Farm is one of the most well known insurance companies in the world today. The company was founded in 1922 and is still going today. It is not just one company, but is built by subsidiary companies that offer both insurance and financial services, which was all form under State Farm Automobile Insurance Company. There are over 17,000 agents and 69,000 employees that serve nearly 73 million policies within the United States and Canada putting it at number nineteen on the Forbes 500 list of largest companies according to Business Ethics Magazine. According to State Farm didn't get its name from offering crop insurance, but instead by providing automobile insurance to farmers. It was founder George J. Mecherle who believed that farmers drove less than city drivers and were involved in fewer accidents so they should be able to pay less for insurance. Since the company began it has expanded in to providing home owners insurance and life insurance. State Farm Bank, which provided banking and financial services has strived for perfection, and has become the sixth largest bank in the United States.

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. All of State Farms employees face ethical decisions everyday. It is an agent's job to provide the best service for each client, but not to sell him or her anything that they don't need. The National Association of Life Underwriters tries to secure and enforce the need for the fundamental rights of the client by having each agent taking their basic creed, oath and code was to uphold the laws and to act in the best fiduciary interest of the public. 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 their state.

When asking Joe Tabares, an independent agent, how he decides what products are best for his clients he responded, "You listen to what the customers needs are, but try to mention other products you have available. Some clients don't know that we offer life insurance, stocks, bonds, investments, and sometimes we have to cross-sell some of our products, but be sure not to force them upon customers. If we sell them products that they don't need now, then they won't come to see us in the future. We are in large communities and small communities to be sure that we are able to service our customers, and be close to home. We really do strive each and every day to be a good neighbor." When asking why he chose State Farm as an insurance company to work for his response was, " I have been apart of State Farm my whole life. I have always carried insurance with them, they have always treated me with respect, but they have also been there as a friend. Anytime I walked into my agency I was always called by name, and never had a bad experience. Being a new agent, I don't know all of my customer's names, but I am working every day to give the experience that I have always had with State Farm. I am really lucky to be able to be a part of this organization." Not all agency uphold the same standards, because of this 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.

State Farm does their best to live by their slogan of being a "good neighbor", and reach out to organizations throughout the areas that they service. Just over a year ago State Farm teamed up with Clay Aiken in order to start a new foundation. The Bubel/Aiken Foundation was created to develop a primary education curriculum focused on teaching social and life skills through service to children of all levels of ability. State Farm has granted $1.5 million dollars in order to help out this foundation. State Farm agents and employees volunteer thousands of hours to support their communities. (Found in Business Ethics Magazine and in 2005 Year in Review).

According to State Farm's 2005 year in Review nearly 90 percent of their customers that were surveyed are satisfied with their experience they have encountered with State Farm. Insuring one in five homes in America State Farm has been the largest provider of homeowners insurance since 1964. They have also led the way in leading the car insurance business since 1942 and currently insure one in every six vehicles that are on the road. So if they are keeping 90 percent of all these people happy, then they must be following most of their ethical principles that they have set forth for their customers.


State Farm is committed to operating its business with honesty, integrity, and the highest level of ethical conduct. They request that their employees maintain independence, and should avoid any other employment, business dealings or other relationships or activities that could impair independent thinking and judgment.

State Farm has many valuable assets -- including its people, property, information and reputation. By enforcing ethical behavior the company insures the



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