Delaware Insurance Producer Ethics

Insurance producers operate in a position of trust and must adhere to high ethical standards. Delaware law and professional ethics require producers to act with honesty, integrity, and in the best interest of clients.

Core Ethical Principles

1. Honesty and Integrity

Fundamental Principle:

• Always be truthful with clients, insurers, and regulators
• Avoid deception, misrepresentation, or misleading statements
• Admit mistakes promptly and work to correct them
• Build reputation on trustworthiness

Examples of Honest Conduct:

• Accurately describing policy terms and conditions
• Disclosing all policy limitations and exclusions
• Providing truthful information on applications
• Correcting errors or misunderstandings immediately

Examples of Dishonest Conduct:

• Misrepresenting policy coverage to make a sale
• Hiding exclusions or limitations from clients
• Falsifying application information
• Making promises you cannot keep

2. Fiduciary Duty

Definition: A fiduciary is someone who holds a position of trust and must act in the best interest of another party.

Producer as Fiduciary:

• Producers owe fiduciary duty to clients
• Must prioritize client's interest over personal gain
• Duty to provide competent advice and service
• Duty to disclose material information

Fiduciary Responsibilities:

Duty of Care:

• Exercise reasonable skill and diligence
• Understand client needs and circumstances
• Recommend appropriate coverage
• Provide accurate and complete information

Duty of Loyalty:

• Act in client's best interest
• Avoid self-dealing or conflicts of interest
• Do not place business for highest commission if not suitable
• Disclose any conflicts of interest

Duty of Disclosure:

• Disclose all material facts
• Explain policy terms, limitations, and exclusions
• Inform clients of coverage changes
• Provide copies of applications and policies

Duty of Obedience:

• Follow client's lawful instructions
• Implement coverage as requested by client
• Do not substitute your judgment without client consent

Exam Tip: Producers act as fiduciaries, meaning they must place client interests above their own. This includes recommending suitable coverage even if it means lower commissions, disclosing conflicts of interest, and providing complete and accurate information.

3. Confidentiality

Obligation to Protect Client Information:

Producers must maintain strict confidentiality of client information:

Confidential Information Includes:

• Personal identifying information (name, address, SSN)
• Financial information (income, assets, credit)
• Health information (medical history, conditions)
• Insurance history (claims, coverage, cancellations)
• Business information (trade secrets, financial data)

Permitted Disclosures:

• To insurers as necessary to underwrite or service policies
• To regulators during examinations or investigations
• With client's written consent
• As required by law or court order

Prohibited Disclosures:

• Sharing client information for marketing to third parties without consent
• Discussing client information with unauthorized persons
• Using client information for personal benefit
• Disclosing information after client relationship ends

Privacy Laws:

• Gramm-Leach-Bliley Act (GLBA): Federal financial privacy law
• HIPAA: Health information privacy (for health insurance)
• State privacy laws: Additional Delaware requirements
• Producers must provide privacy notices and protect client data

4. Avoiding Conflicts of Interest

Conflict of Interest Defined: A situation where a producer's personal interest could interfere with duty to client.

Common Conflicts:

Commission Bias:

• Recommending policy paying higher commission over better-suited policy
• Placing business with insurer offering bonuses or incentives
• Churning policies to generate additional commissions

Dual Agency:

• Representing both buyer and seller (or insured and insurer)
• Competing interests may prevent serving either party's best interest
• Disclosure required if dual agency exists

Self-Dealing:

• Selling insurance to clients through entity you own without disclosure
• Referring clients to related businesses without disclosure
• Profiting from client transactions beyond disclosed compensation

How to Address Conflicts:

1. Avoid conflicts whenever possible
2. Disclose conflicts fully to client in writing
3. Obtain client consent to proceed despite conflict
4. Document disclosure and consent
5. Prioritize client's interest even if conflict exists

Example:

• Producer owns interest in insurance agency and related claims adjusting firm
• Client needs property insurance and will likely have claims
• Producer must disclose ownership in adjusting firm
• Client must consent knowing about the conflict

5. Professional Competence

Obligation to Maintain Competence:

Producers must maintain professional knowledge and skills:

Initial Competence:

• Pass licensing exam demonstrating minimum knowledge
• Understand insurance principles and regulations
• Know Delaware-specific laws and requirements
• Understand policy forms and coverages

Ongoing Competence:

• Complete continuing education (24 hours/2 years, 3 in ethics)
• Stay current with industry changes and new products
• Understand regulatory updates and law changes
• Maintain expertise in areas you serve

Admit Limitations:

• Do not provide advice outside your expertise
• Refer clients to specialists when appropriate
• Consult with experts on complex matters
• Be honest when you don't know the answer

Examples:

• Producer primarily sells personal lines should not claim commercial lines expertise
• Producer unfamiliar with professional liability should refer client to specialist
• Producer should research or consult before answering complex questions

Ethical Decision-Making Framework

Steps for Ethical Decision-Making

When facing an ethical dilemma, follow this framework:

Step 1: Identify the Issue

• What is the ethical problem or dilemma?
• Who are the affected parties?
• What are the competing interests?

Step 2: Gather Facts

• What are all the relevant facts?
• What laws, regulations, or policies apply?
• What are the potential consequences?

Step 3: Consider Alternatives

• What are the possible courses of action?
• What are the pros and cons of each alternative?
• Which alternatives comply with law and ethics?

Step 4: Make a Decision

• Which alternative best serves the client's interest?
• Which alternative aligns with ethical principles?
• Which alternative you can defend and explain?

Step 5: Implement and Monitor

• Take action on your decision
• Monitor the outcome
• Learn from the experience

Step 6: Reflect

• Was the decision ethical and appropriate?
• What would you do differently next time?
• How can you prevent similar dilemmas?

Ethical Tests

Apply these tests to evaluate decisions:

The Legal Test:

• Is it legal?
• Does it comply with regulations?
• Would a regulator approve?

The Transparency Test:

• Would you be comfortable if this decision were public?
• Could you explain this to your client?
• Would you want this in the newspaper?

The Golden Rule Test:

• How would you want to be treated in this situation?
• Would you want someone to do this to you?
• Is this how you'd want your family treated?

The Consequence Test:

• What are the short-term and long-term consequences?
• Who benefits and who is harmed?
• Can you live with the consequences?

Delaware Code of Ethics

Professional Conduct Standards

Delaware law and industry standards require:

1. Truthfulness

• Make no false or misleading statements
• Accurately represent policy terms and conditions
• Do not exaggerate benefits or minimize limitations

2. Fair Dealing

• Treat all clients fairly and equitably
• Do not unfairly discriminate among clients
• Provide equal service regardless of policy size

3. Competent Service

• Provide knowledgeable and skilled service
• Keep current with products and regulations
• Admit when you need to research or refer

4. Client Priority

• Put client's interest first
• Avoid conflicts of interest or disclose them
• Do not place business based solely on commission

5. Confidentiality

• Protect client information
• Use information only for authorized purposes
• Maintain privacy safeguards

6. Compliance

• Follow all laws, regulations, and industry rules
• Cooperate with regulatory examinations
• Report violations you discover

7. Professionalism

• Conduct business with dignity and respect
• Maintain professional appearance and demeanor
• Represent the industry positively

Common Ethical Violations

Scenarios to Avoid

Scenario 1: Misrepresentation

Violation:

• Producer tells client homeowners policy covers flood damage when it doesn't
• Client relies on misrepresentation and doesn't purchase flood insurance
• Flood occurs and client discovers no coverage

Why It's Wrong:

• Dishonest and violates duty of care
• Client suffers financial harm
• Breach of fiduciary duty

Consequence:

• License revocation
• Civil lawsuit for damages
• Potential criminal fraud charges

Scenario 2: Churning

Violation:

• Producer recommends client replace life insurance policy unnecessarily
• Replacement generates new commission for producer
• Client loses benefits and incurs surrender charges

Why It's Wrong:

• Prioritizes producer's commission over client interest
• Violates fiduciary duty
• Constitutes twisting if involves misrepresentation

Consequence:

• License suspension or revocation
• Restitution to client
• Civil penalties

Scenario 3: Rebating

Violation:

• Producer offers client $500 cash back if they purchase policy
• Inducement not specified in policy or filed with state

Why It's Wrong:

• Illegal rebating under Delaware law
• Unfair to other clients who don't receive rebate
• Distorts market competition

Consequence:

• License suspension
• Fines up to $5,000 per violation
• Termination by insurers

Scenario 4: Misappropriation

Violation:

• Producer collects $5,000 premium from client
• Producer uses money for personal expenses instead of remitting to insurer
• Client's coverage lapses due to non-payment

Why It's Wrong:

• Theft of client funds (premiums are trust funds)
• Breach of fiduciary duty
• Criminal act

Consequence:

• License revocation
• Criminal prosecution (embezzlement)
• Civil lawsuit and restitution

Scenario 5: Failure to Disclose

Violation:

• Producer knows insurer is financially troubled but doesn't tell client
• Client purchases policy and insurer becomes insolvent
• Client's claim denied due to insurer insolvency

Why It's Wrong:

• Failure to disclose material information
• Violates duty of disclosure
• Client harmed by lack of information

Consequence:

• License suspension
• Civil liability for damages
• Professional reputation damage

Handling Ethical Dilemmas

Real-World Scenarios

Dilemma 1: Family Pressure

Situation:

• Your sibling pressures you to provide insurance to their friend
• Friend has poor claims history and is high-risk
• You know insurer will likely non-renew after first claim

Ethical Considerations:

• Duty to friend (client) to provide coverage if possible
• Duty to insurer to underwrite appropriately
• Family relationship creates conflict

Appropriate Action:

• Apply for coverage honestly disclosing all information
• If approved, explain to friend potential for non-renewal
• Do not misrepresent information to get coverage approved
• Set boundaries with family about professional obligations

Dilemma 2: Commission Pressure

Situation:

• You're behind on sales goals and need commissions
• Client needs modest coverage but you want to sell maximum limits
• Higher limits mean higher premium and commission

Ethical Considerations:

• Duty to recommend suitable coverage based on client needs
• Financial pressure to sell more
• Temptation to oversell

Appropriate Action:

• Assess client's actual needs and risk exposure
• Recommend appropriate coverage (not maximum or minimum)
• Explain benefits of higher limits but don't pressure
• Let client decide based on budget and risk tolerance
• Accept that doing right thing may mean lower commission

Dilemma 3: Insurer Error

Situation:

• Insurer accidentally rates policy too low, client pays less premium
• You notice the error but client hasn't
• Correcting error will increase client's premium significantly

Ethical Considerations:

• Duty to insurer to correct errors
• Duty to client to provide accurate information
• Client may be upset by premium increase

Appropriate Action:

• Notify insurer of error immediately
• Explain error to client before insurer corrects
• Help client understand why premium is increasing
• Offer to shop coverage with other insurers if needed
• Maintain honesty even if it's uncomfortable

When to Seek Guidance

Consult with Others When:

• Facing complex ethical issues
• Uncertain about legal requirements
• Decision could significantly impact client or your license
• Conflict of interest you can't resolve
• Pressure to act unethically

Resources for Guidance:

• Agency compliance officer or manager
• Insurance company home office
• Delaware Department of Insurance
• Legal counsel
• Professional associations (e.g., Independent Insurance Agents)
• Ethics hotlines

Delaware DOI Complaints and Discipline

Consumer Complaints

How Complaints Arise:

• Client files complaint with Delaware DOI
• Insurer reports producer violation
• DOI discovers violation during examination
• Another producer reports unethical conduct

Common Complaint Categories:

• Misrepresentation of coverage
• Failure to procure requested coverage
• Misappropriation of premiums
• Failure to disclose material facts
• Unfair discrimination
• Rebating or twisting

Investigation Process

Step 1: Complaint Filed

• Consumer or insurer files written complaint with DOI
• Complaint describes alleged violation
• Supporting documentation provided

Step 2: DOI Review

• DOI reviews complaint for jurisdiction and merit
• Determines if violation of insurance law occurred
• May request additional information

Step 3: Producer Response

• DOI notifies producer of complaint
• Producer has opportunity to respond in writing
• Producer provides explanation and documentation

Step 4: Investigation

• DOI investigates facts and circumstances
• May interview parties and witnesses
• Reviews policies, applications, and records

Step 5: Findings

• DOI determines if violation occurred
• Evaluates severity and intent
• Considers producer's compliance history

Step 6: Resolution

• Warning or educational letter (minor violations)
• Cease and desist order
• Consent order with agreed penalties
• Formal disciplinary action (hearing)

Disciplinary Actions

Range of Penalties:

Factors Affecting Discipline:

• Severity of violation
• Intent (willful vs. negligent)
• Harm to consumers
• Producer's compliance history
• Producer's cooperation with investigation
• Restitution to harmed parties

Appeals Process

If disciplined, producers may:

1. Request hearing before Delaware DOI
2. Present evidence and testimony
3. Be represented by legal counsel
4. Appeal DOI decision to Delaware courts
5. Seek judicial review of final orders

Best Practices for Ethical Conduct

Daily Ethical Practices

1. Document Everything

• Keep detailed records of client interactions
• Document advice given and decisions made
• Maintain copies of all policies and applications
• Save emails and correspondence

2. Communicate Clearly

• Use plain language, avoid jargon
• Confirm understanding with clients
• Provide written summaries of coverage
• Follow up in writing after meetings

3. Disclose Fully

• Explain policy limitations and exclusions
• Disclose your compensation structure
• Inform clients of conflicts of interest
• Provide copies of applications for review

4. Stay Educated

• Complete CE requirements early
• Attend industry seminars and webinars
• Read industry publications
• Join professional associations

5. Seek Supervision

• Consult with experienced producers
• Ask questions when uncertain
• Use compliance resources
• Request second opinions on difficult issues

6. Maintain Boundaries

• Keep client relationships professional
• Avoid dual relationships (business and personal)
• Set clear expectations about services
• Do not overcommit or promise outcomes

7. Practice Self-Care

• Manage stress and pressure
• Maintain work-life balance
• Seek support when struggling
• Take breaks to avoid burnout

Building Trust with Clients

Trustworthy producers:

Are Honest:

• Tell the truth even when uncomfortable
• Admit mistakes promptly
• Do not overpromise

Are Reliable:

• Follow through on commitments
• Return calls and emails promptly
• Meet deadlines consistently

Are Knowledgeable:

• Stay current with products and regulations
• Research questions thoroughly
• Admit when you need to learn more

Are Caring:

• Listen to client concerns
• Show empathy and understanding
• Prioritize client needs over sales

Are Ethical:

• Do the right thing consistently
• Maintain confidentiality
• Act with integrity

Exam Tip: Ethical conduct builds trust, protects clients, and safeguards your license. Always prioritize honesty, client interests, and compliance with law. When in doubt, seek guidance from supervisors, compliance officers, or the Delaware DOI.