Common Ethical Scenarios and Applications

Understanding ethical principles is important, but applying them to real-world situations is where professionalism shines. Let's explore common scenarios South Dakota producers face.

Scenario 1: The Replacement Dilemma

The Situation

Client: 60-year-old farmer with existing homeowners policy through Agent A You: Agent B, offering to quote Your Quote: 15% lower premium with same coverage Commission: You'll earn first-year commission; Agent A loses renewal

Ethical Considerations

Questions to Ask:

• Is the new policy actually better for the client?
• Am I accurately comparing coverage?
• Are there any disadvantages to switching?
• What costs will client incur to switch?
• Is Agent A providing poor service, or just charging more?

Ethical Approach:

✓ Do: Provide honest comparison showing:

• Premium savings
• Coverage differences (if any)
• Switching costs (if any)
• Service you'll provide
• Acknowledgment that existing agent may match price

✓ Do: Complete replacement forms fully and accurately

✓ Do: Give client time to make informed decision

✓ Don't: Misrepresent current coverage ✓ Don't: Exaggerate deficiencies of existing policy ✓ Don't: Hide disadvantages of new policy ✓ Don't: Pressure client to switch immediately

The Right Answer: Present facts objectively. If your policy is truly better value, client will choose it. If not, accept that. Don't win business through misrepresentation.

Exam Tip: Legitimate replacement benefits client through better coverage, lower price, or better service. Twisting misrepresents facts to induce replacement for producer's benefit.

Scenario 2: The Claims Dilemma

The Situation

Client: Business owner with fire damage claim Damage: $50,000 estimated Adjuster's Offer: $35,000 Client: Asks you to "work with" adjuster for higher settlement Pressure: Client might leave if dissatisfied

Ethical Considerations

Your Roles:

1. Client Advocate - Help client get fair settlement
2. Professional - Maintain honesty and integrity
3. Insurer Representative - Appointed by company

Ethical Approach:

✓ Do:

• Review policy coverage carefully
• Verify damage documentation is complete
• Ask adjuster to explain settlement calculation
• Point out any overlooked damage or costs
• Help client understand policy provisions
• Advocate for fair settlement within policy terms

✓ Don't:

• Inflate damage or exaggerate losses
• Submit false documentation
• Pressure adjuster inappropriately
• Suggest client lie or misrepresent facts
• Guarantee specific settlement amount

The Right Answer: Advocate vigorously but honestly for client. If adjuster's offer is low, explain why based on policy terms and damage documentation. Help client understand what's covered. If offer is fair under policy terms, explain that to client too.

If Settlement Truly Unfair:

• Document your concerns
• Escalate to claims supervisor
• Help client understand appeal process
• Consider legal counsel for client (if significant dispute)

If Client Wants You to Help Commit Fraud:

• Refuse clearly and firmly
• Explain it's illegal and you could lose license
• Document the conversation
• Consider whether to continue representing client

Scenario 3: The Mistake You Made

The Situation

What Happened: Client asked for $500,000 liability on business policy What You Did: Accidentally wrote $300,000 Discovery: Client has lawsuit for $450,000 Coverage: Policy will pay only $300,000 Shortfall: Client personally owes $150,000 Your E&O: Has $100,000 deductible

Ethical Considerations

The Temptation:

• Don't tell client
• Hope client doesn't notice
• Blame insurer's paperwork
• Claim client never asked for $500,000

The Right Thing:

✓ Do Immediately:

1. Admit mistake to client immediately
2. Apologize sincerely
3. Notify your E&O carrier
4. Document what happened
5. Explore options to help client
6. Accept responsibility

✓ Possible Solutions:

• Your E&O policy covers the $150,000 shortfall (minus deductible)
• Negotiate with plaintiff to settle within limits
• Help client understand legal options
• Check if umbrella or other coverage exists

The Legal Reality:

• Client can sue you for professional negligence
• Your E&O insurance should cover damages
• May be required to pay deductible
• Could face license discipline if pattern of negligence

The Ethical Imperative:

• Own your mistake immediately
• Don't make client's problem worse by hiding it
• Do everything possible to make client whole
• Learn from mistake to prevent recurrence

Exam Tip: Ethical producers admit mistakes promptly, take responsibility, and work to fix the problem. Hiding mistakes makes situations worse and violates fiduciary duty.

Scenario 4: The Unaffordable Coverage

The Situation

Client: Young family, tight budget Need: Homeowners, auto, and life insurance Budget: $300/month maximum Full Coverage Cost: $500/month Client Says: "Sell me whatever we can afford"

Ethical Considerations

The Wrong Approach:

• Sell whatever fits budget
• Don't explain what's missing
• Get the sale and move on
• Figure they can upgrade later

The Right Approach:

✓ Educate About Risks:

• Explain what full coverage would be
• Show gaps if buying less coverage
• Discuss consequences of being underinsured
• Help prioritize based on greatest risks

✓ Explore Options:

• Higher deductibles to lower premiums
• Reduce coverage on lower-risk areas
• Phased approach (buy most critical first, add later)
• Multiple companies to find best rates
• Discounts they might qualify for

✓ Provide Guidance:

• "If I were in your situation, I'd prioritize..."
• "The biggest risk you face is..."
• "Here's what I'd do first, then add..."
• "Let's revisit in 6 months as budget allows"

✓ Document Everything:

• What you recommended
• What client chose
• Coverage gaps explained
• Client's acknowledgment

The Right Answer: Help client make informed decision. Don't oversell beyond budget, but don't undersell without explanation. Sometimes "no coverage right now but educated about risks" is better than "inadequate coverage client doesn't understand."

Scenario 5: The Competitor Criticism

The Situation

Prospect: Shopping for insurance, has quote from competitor Competitor's Price: Lower than yours You Know: Competitor cuts corners, poor claims service Temptation: Bash competitor to win business

Ethical Considerations

Unethical Approach: ✗ "That company denies every claim" ✗ "They're going bankrupt" ✗ "Their agents are incompetent" ✗ "Everyone leaves them within a year"

Ethical Approach:

✓ Focus on Your Value:

• "Here's what we provide..."
• "Our claims service includes..."
• "We're available 24/7 when you need us"
• "Let me explain how we differ..."

✓ Objective Comparison:

• Compare coverage side-by-side
• Point out any coverage differences
• Explain service differences factually
• Discuss financial strength ratings (A.M. Best, etc.)

✓ If Asked About Competitor:

• Stick to facts you can verify
• Don't speculate or exaggerate
• Focus on differences, not attacks
• "I can't speak to their specific service, but here's what we provide..."

The Right Answer: Win business on your merits, not by tearing down competitors. If you provide better value, demonstrate it. Clients see through mudslinging and it damages your reputation.

Exam Tip: Ethical producers compete on their own merits. Disparaging competitors is unprofessional and may violate unfair competition laws.

Scenario 6: The Family Discount Request

The Situation

Who: Your sister-in-law Request: "Can you give me a discount? We're family!" Reality: Policy is already competitive Pressure: Family awkwardness if you refuse Problem: Company doesn't allow agent discounts beyond filed rates

Ethical Considerations

Unethical Options: ✗ Falsify application to get discounts she doesn't qualify for ✗ Return part of your commission (rebating - illegal in SD) ✗ Offer "family special" not in filed rates ✗ Provide free services as inducement (may be rebating)

Ethical Approach:

✓ Explain Honestly:

• "I'd love to help, but insurance rates are filed with the state"
• "I can't give unauthorized discounts - I'd lose my license"
• "Let's make sure you get all legitimate discounts..."
• "The price is the same whether from me or anyone else"

✓ Provide Value Instead:

• Thorough review of coverage needs
• Help maximize legitimate discounts
• Excellent service and availability
• Claims advocacy if needed

✓ Set Boundaries:

• Family doesn't entitle special illegal treatment
• Professional ethics apply to everyone
• Long-term license > short-term family pressure

The Right Answer: Treat family members as valued clients but follow same rules. Provide excellent service, not illegal discounts. Real family supports your ethics, not pressures you to violate them.

Scenario 7: The Confused Elderly Client

The Situation

Client: 80-year-old widow Situation: Doesn't understand insurance terms Tendency: Agrees to whatever you recommend Opportunity: Could sell unnecessary coverage Right Thing: Make sure she understands and gets appropriate coverage

Ethical Considerations

Red Flags for Elder Abuse:

• Client confused, can't follow conversation
• Signs documents without understanding
• Has unnecessary policies
• Family uninvolved or excluded
• Frequent changes to coverage

Ethical Approach:

✓ Extra Care:

• Speak slowly and clearly
• Use plain language, no jargon
• Check understanding: "Can you explain that back to me?"
• Provide written summaries
• Encourage family involvement

✓ Appropriate Recommendations:

• Don't oversell coverage she doesn't need
• Simplify rather than complicate
• Focus on essential protections
• Consider budget constraints

✓ Documentation:

• Document conversations thoroughly
• Note client's questions and understanding
• Keep family members informed (with permission)
• CYA: Document that you acted in her best interest

✓ When to Involve Others:

• If client seems confused or unable to make decisions
• Suggest family member or trusted advisor join meetings
• Consider power of attorney if client lacks capacity
• Don't proceed if client can't provide informed consent

The Right Answer: Vulnerable clients deserve extra protection, not exploitation. Take extra time, ensure understanding, involve family, and recommend only appropriate coverage.

Exam Tip: Exploiting vulnerable populations (elderly, disabled, non-English speakers) is particularly serious ethical violation. Producers must provide extra care and protection.

Scenario 8: The Pressure from Above

The Situation

Company: Pushing new product hard Incentive: Bonus for top sellers Problem: Product expensive and not suitable for many clients Pressure: Manager wants everyone to meet quota Dilemma: Push product vs. do right by clients

Ethical Considerations

The Pressure:

• Company and management want sales
• Bonus would help your income
• Peers are selling it
• Don't want to appear uncooperative

The Right Thing:

✓ Sell Product Appropriately:

• When genuinely suitable for client
• After thorough needs analysis
• With full explanation of costs/benefits
• Because it's right fit, not to meet quota

✓ Don't Sell Product Inappropriately:

• Just to meet quota
• To clients who can't afford it
• Without explaining disadvantages
• Through high-pressure tactics

✓ Communicate with Management:

• "I'm committed to appropriate recommendations"
• "I've sold it to 3 clients where it fit well"
• "I won't jeopardize my license or reputation"
• "Long-term client relationships are my priority"

The Right Answer: Your license and reputation are yours, not your company's. Sell products appropriately. If company pressures unethical sales, find another company. Don't sacrifice ethics for short-term income or approval.

Scenario 9: The Known Fraud

The Situation

Observation: You suspect another agent is twisting policies Evidence: Clients tell you they were misled about their current coverage Dilemma: Report and create animosity, or stay silent Consideration: Clients are being harmed

Ethical Considerations

Reasons Not to Report:

• Don't want to be "snitch"
• Might be mistaken
• Could hurt your reputation in community
• Not your problem

Reasons TO Report:

• Clients are being harmed
• Illegal activity
• Damages profession's reputation
• You have fiduciary duty to profession
• Could prevent future harm

Ethical Approach:

✓ Gather Facts:

• Don't jump to conclusions
• Document specific instances
• Verify information
• Be objective

✓ Report Appropriately:

• South Dakota Division of Insurance
• Company compliance if affects their policies
• Professional association if member
• Provide factual information, not speculation

✓ Don't:

• Spread rumors or gossip
• Make public accusations
• Use situation to win business
• Act vindictively

The Right Answer: If you have credible evidence of illegal or unethical conduct harming consumers, report it through proper channels. Protecting consumers and profession's integrity is part of your responsibility.

Building Your Reputation

The Long Game

Short-Term Thinking:

• Maximize each sale
• Close quickly
• Move to next client
• Hit monthly goals

Long-Term Thinking:

• Build lasting relationships
• Provide excellent service
• Earn trust and referrals
• Create sustainable business

How Reputation Is Built

Reputation = Consistency Over Time

One Ethical Action: Doesn't make a reputation Consistent Ethical Actions: Build strong reputation One Unethical Action: Can destroy reputation

Math of Referrals:

• One satisfied client refers 2 others over time
• Those 2 each refer 2 more
• Exponential growth from doing right

Math of Complaints:

• One dissatisfied client tells 10 others
• Social media amplifies negative experiences
• One scandal can end career

South Dakota Is a Small State

Everyone Knows Everyone:

• Population under 1 million
• Close-knit communities
• Word travels fast
• Reputation precedes you

You'll See Clients:

• At grocery store
• At church
• At kids' school events
• At community gatherings

Can't Hide From:

• Poor service
• Unethical behavior
• Broken promises
• Reputation

Success Requires:

• Consistent ethical behavior
• Treating everyone right
• Building trust steadily
• Living your values

Summary: Ethical Applications

Key Principles Applied:

✓ Replacements: Compare honestly, disclose fully, benefit client ✓ Claims: Advocate vigorously but honestly, don't commit fraud ✓ Mistakes: Admit immediately, take responsibility, make right ✓ Unaffordable Coverage: Educate about risks, help prioritize, document ✓ Competition: Compete on merits, don't disparage competitors ✓ Family: Same ethical rules apply, no illegal discounts ✓ Vulnerable Clients: Extra care and protection required ✓ Company Pressure: Ethics over quotas, find better company if needed ✓ Fraud: Report through proper channels to protect consumers

The Consistent Theme: Put client interests first, act with honesty and integrity, build reputation through ethical behavior, think long-term, live the Golden Rule.

Your Career Depends On: Your license, your reputation, your integrity. Protect them by doing right, even when it's hard.