South Dakota Ethical Practices and Consumer Protection

Ethics form the foundation of the insurance profession. South Dakota producers hold positions of trust and must maintain the highest standards of integrity and professionalism.

Core Ethical Principles

The Golden Rule in Insurance

"Treat every client as you would want to be treated"

This fundamental principle guides all ethical decision-making:

In Practice:

• Recommend coverage you would buy for your own family
• Explain terms as clearly as you would want them explained
• Handle claims as promptly as you would expect
• Provide service you would demand as a consumer
• Be honest even when it costs you a sale

Exam Tip: When facing ethics questions on the exam, apply the Golden Rule. The right answer usually involves treating the client fairly, honestly, and as you would want to be treated.

Six Fundamental Duties

The Fiduciary Relationship

What "Fiduciary" Means

A fiduciary is someone who holds a position of special trust and confidence.

Fiduciary Duties:

• Duty of Care - Act competently and diligently
• Duty of Loyalty - Put client interests first
• Duty of Good Faith - Act honestly and fairly
• Duty of Disclosure - Reveal all material information
• Duty of Confidentiality - Protect client privacy
• Duty of Obedience - Follow lawful instructions

The Trust Clients Place in Producers

Clients Trust Producers To:

• Understand their insurance needs
• Recommend appropriate coverage
• Explain complex policy language
• Handle their money properly
• Advocate for them with insurers
• Guide them through difficult situations

This Trust Requires:

• Superior knowledge (you know more than client)
• Professional expertise
• Ethical behavior
• Putting client welfare first

Exam Tip: As a fiduciary, producers must always put client interests ahead of personal interests. When commission conflicts with client benefit, choose client benefit.

Client-Centered Approach

Understanding Client Needs

Before Recommending Coverage:

1. Ask Comprehensive Questions

   • What do you need to protect?
   • What are your concerns?
   • What's your budget?
   • What risks keep you up at night?
   • What coverage do you currently have?

2. Listen Actively

   • Pay attention to spoken and unspoken concerns
   • Ask follow-up questions
   • Clarify understanding
   • Don't rush to solutions

3. Assess Holistically

   • Consider client's full situation
   • Look for gaps in coverage
   • Identify overlaps
   • Think long-term

4. Educate, Don't Sell

   • Explain options clearly
   • Discuss pros and cons
   • Let client make informed decision
   • Don't pressure or manipulate

Recommending Appropriate Coverage

Suitability Standard:

Insurance must be suitable for client's:

• Needs and objectives
• Financial situation
• Risk tolerance
• Time horizon
• Knowledge and experience

Questions to Ask Yourself:

• Would I buy this for my family in similar circumstances?
• Does this truly meet the client's needs?
• Can the client afford this?
• Am I recommending this for client's benefit or my commission?
• Have I explained limitations and exclusions?

Red Flags - Unsuitable Recommendations: ✗ Coverage far exceeds realistic need ✗ Premium unaffordable for client's budget ✗ Complex product client doesn't understand ✗ Replacement without clear benefit ✗ Coverage duplicates existing protection ✗ Recommended primarily for higher commission

Providing Full Disclosure

Material Information Must Be Disclosed:

Material Fact: Information that would influence a reasonable person's decision to buy or terms they'd accept.

Must Disclose: ✓ Coverage limitations and exclusions ✓ Policy conditions and requirements ✓ Deductibles and out-of-pocket costs ✓ Waiting periods or coverage delays ✓ Cancellation and renewal provisions ✓ Comparison with existing coverage (replacements) ✓ Your compensation if client asks ✓ Insurer financial strength if poor ✓ Any conflicts of interest ✓ Alternative options available

Disclosure Standards:

• Before policy purchase (not after)
• Clear and conspicuous (not buried in fine print)
• Plain language (not insurance jargon)
• Written when appropriate (document important disclosures)

Exam Tip: Producers must disclose material information BEFORE the sale. Failure to disclose material facts is misrepresentation by omission.

Avoiding Conflicts of Interest

Types of Conflicts

Commission-Driven Recommendations:

• Conflict: One policy pays higher commission than another
• Ethical Response: Recommend policy best for client, disclose commission difference if asked
• Unethical Response: Recommend higher commission policy without considering client benefit

Replacement Situations:

• Conflict: Earn commission by replacing existing policy
• Ethical Response: Only recommend replacement if truly benefits client, fully explain costs/benefits
• Unethical Response: Recommend unnecessary replacement (twisting)

Company Incentives:

• Conflict: Insurer offers bonus for volume or certain products
• Ethical Response: Recommend products appropriate for clients, incentives don't influence recommendations
• Unethical Response: Push incentivized products regardless of client need

Personal Relationships:

• Conflict: Friend/family member asks for coverage they can't afford or shouldn't buy
• Ethical Response: Give same honest advice as any client, explain why coverage inappropriate
• Unethical Response: Sell inappropriate coverage to please relationship

Managing Conflicts

When Conflict Arises:

1. Recognize It - Acknowledge the conflict exists
2. Disclose It - Tell client about the conflict
3. Document It - Put disclosure in writing
4. Prioritize Client - Choose option best for client
5. Seek Guidance - Consult supervisor, compliance, or Division if unsure

Example: "I want you to know that Policy A pays me a higher commission than Policy B. However, based on your needs and budget, I believe Policy B is more appropriate for you because..."

Professional Competence

Maintaining Knowledge

Insurance Changes Constantly:

• Laws and regulations updated
• New products introduced
• Court decisions affect coverage
• Technology changes processes

Staying Current: ✓ Complete continuing education (10-20 hours every 2 years) ✓ Read industry publications ✓ Attend conferences and training ✓ Join professional associations ✓ Study new products before selling ✓ Review regulatory updates ✓ Consult with experienced colleagues

Knowing Your Limitations

Professional Honesty:

• Admit when you don't know
• Don't guess or speculate
• Research and return with answer
• Refer to specialists when appropriate

When to Refer:

• Complex commercial risks beyond your expertise
• Specialized coverage (aviation, marine, cyber)
• Large accounts requiring sophisticated analysis
• Legal questions (refer to attorney)
• Tax questions (refer to accountant)
• High-net-worth planning (refer to financial advisor)

Saying "I Don't Know":

• Not a weakness - it's integrity
• Clients respect honesty
• Better than guessing wrong
• Opportunity to learn

Exam Tip: Ethical producers admit limitations and seek help rather than providing incorrect information. Competence includes knowing when to refer to specialists.

Consumer Protection Responsibilities

Protecting Vulnerable Clients

Extra Care for:

• Elderly clients (potential for exploitation)
• Non-English speakers (ensure understanding)
• First-time buyers (need education)
• Financially stressed clients (prevent overselling)
• Clients with disabilities (accommodate needs)

Best Practices:

• Use plain language, avoid jargon
• Speak slowly and clearly
• Provide written materials
• Encourage questions
• Involve family members if client wishes
• Give time to make decisions (no pressure)
• Document conversations thoroughly

Privacy and Confidentiality

Protected Information:

• Personal identifying information (SSN, driver's license)
• Financial information (income, assets)
• Health information
• Claims history
• Driving record
• Credit information

Producer's Duty:

• Protect information from unauthorized access
• Use information only for legitimate insurance purposes
• Secure physical and electronic records
• Shred documents before disposal
• Follow insurer's privacy policies
• Comply with state and federal privacy laws

Consequences of Privacy Breach:

• Identity theft for clients
• License discipline for producer
• Civil liability and damages
• Criminal penalties possible
• Loss of client trust

Fair Treatment of All Clients

Equal Service Standards:

All Clients Deserve:

• Prompt attention to inquiries
• Thorough needs assessment
• Clear explanations
• Fair pricing
• Efficient claims assistance
• Respectful treatment

Prohibited:

• Preferential treatment based on premium size
• Neglecting "small" clients
• Discrimination based on protected characteristics
• Steering to high-commission products for some clients
• Different service levels without justification

Building Long-Term Relationships

Trust as Foundation

Trust Is Earned Through:

• Consistent ethical behavior
• Delivering on promises
• Being available when needed
• Admitting and correcting mistakes
• Putting client interests first
• Clear communication
• Professional competence

Trust Is Destroyed By:

• Dishonesty or misrepresentation
• Putting commission over client benefit
• Poor service or unavailability
• Failing to deliver promised service
• Hiding mistakes or blame-shifting

The Long View

Short-Term Thinking:

• Maximize commission on every sale
• Sell what pays most
• Pressure clients to close quickly
• Move on to next sale

Long-Term Thinking:

• Build lasting relationships
• Recommend appropriate coverage
• Educate and empower clients
• Be there when clients need you
• Earn referrals and retention

The Economics of Ethics:

• Ethical producers retain clients longer
• Satisfied clients refer new business
• Reputation attracts quality clients
• Less regulatory trouble
• Career longevity and stability
• Personal satisfaction and pride

Exam Tip: Long-term success in insurance comes from ethical behavior. Short-term thinking (commission over client) destroys careers. Long-term thinking (client over commission) builds sustainable businesses.

Ethical Decision-Making Framework

When Facing Ethical Dilemmas

Ask These Questions:

1. Is it legal?

   • Does it comply with South Dakota law?
   • Does it violate any regulations?
   • Could it result in discipline?

2. Is it honest?

   • Am I being truthful?
   • Am I withholding important information?
   • Would I want this done to me?

3. Is it fair?

   • Am I treating all parties fairly?
   • Am I taking advantage of anyone?
   • Is the outcome equitable?

4. Does it put client first?

   • Is this in client's best interest?
   • Am I prioritizing client or myself?
   • Would I recommend this to my family?

5. Can I defend it?

   • Could I explain this to supervisor?
   • Would I be comfortable if this became public?
   • Can I document my reasoning?

6. What would happen if everyone did this?

   • Would the insurance system still work?
   • Would trust in the profession survive?
   • Is this sustainable?

If Answer to Any Question is "No" → Don't do it

If Unsure → Seek guidance from:

• Supervisor or agency principal
• Company compliance department
• Professional association ethics hotline
• South Dakota Division of Insurance
• Legal counsel

Documenting Ethical Decisions

Why Document:

• Proves you acted in good faith
• Protects against false accusations
• Demonstrates thought process
• Helps resolve disputes
• Shows professionalism

What to Document:

• Client conversations and needs
• Recommendations made and why
• Disclosures provided
• Client decisions and acknowledgments
• Advice given
• Referrals made

How to Document:

• Written notes contemporaneous with conversation
• Email summaries to client
• Signed disclosure forms
• Recorded phone calls (if permitted and disclosed)
• CRM system documentation

Professional Standards Organizations

South Dakota Division of Insurance

Regulatory Authority:

• Enforces insurance laws
• Disciplines license violations
• Investigates consumer complaints
• Provides guidance on regulations

When to Contact:

• Unsure about legal requirement
• Reporting suspected fraud
• Seeking interpretation of regulation
• Responding to investigation

National Association of Insurance Commissioners (NAIC)

Purpose:

• Develops model laws and regulations
• Sets professional standards
• Coordinates interstate regulation
• Provides producer education

Professional Associations

Benefits of Membership:

• Ethics training and resources
• Networking with professionals
• Industry updates and news
• Professional development
• Ethics hotlines for questions
• Certification programs

Examples:

• National Alliance for Insurance Education & Research
• The Institutes (CPCU, CIC certifications)
• Professional Insurance Agents (PIA)
• Independent Insurance Agents & Brokers of America (IIABA)
• National Association of Professional Insurance Agents (PIA)

South Dakota Values in Insurance

Agricultural Heritage

South Dakota's Character:

• Hard work and integrity
• Word is bond
• Helping neighbors
• Personal responsibility
• Long-term relationships

Applied to Insurance:

• Do what you say you'll do
• Stand behind your recommendations
• Be there when clients need you
• Own your mistakes
• Build trust over time

Small-Town Values

Know Your Clients:

• Not just transactions - relationships
• See clients at church, store, school
• Reputation matters
• Everyone knows everyone
• Integrity essential

Accountability:

• Can't hide in small communities
• Poor service becomes known
• Ethical behavior expected
• Long-term reputation matters

Exam Tip: South Dakota's agricultural heritage and small-town values emphasize integrity, personal responsibility, and long-term relationships. Apply these values to ethical questions.

Summary: Ethics and Consumer Protection

Core Principles: ✓ Apply the Golden Rule - treat clients as you'd want to be treated ✓ Act as fiduciary - put client interests first always ✓ Maintain competence - know products and laws ✓ Provide full disclosure - reveal all material facts ✓ Avoid conflicts of interest - prioritize client benefit ✓ Protect client privacy and confidentiality ✓ Treat all clients fairly and equally

When Making Ethical Decisions: ✓ Ask: Is it legal, honest, fair, and client-focused? ✓ Document your reasoning and recommendations ✓ Seek guidance when unsure ✓ Choose long-term reputation over short-term gain

Remember: ✓ Your license is a privilege, not a right ✓ Trust takes years to build, seconds to destroy ✓ Ethical behavior leads to long-term success ✓ Do right even when no one's watching