Ethics and Performance

There have been a number of high-profile ethical lapses in the insurance business, primarily by the larger insurance brokers, and most insurance agents and brokers have been tarred with the same regulatory brush in response (see related prior posts here, here and here).  There is a reason to operate ethically, beyond it being the right thing to do, and it is superior financial performance. A study by Dr. Robert W. Klein and Dr. Martin F. Grace (see his excellent blog here) concludes that companies that demonstrate an ongoing commitment to ethical business practices generate better financial performance (see here for article, and here for a summary).

The study is entitled The Economic Consequences of Voluntary Quality Certification Programs, and is an economic analysis involving life and annuity consumers of the value of a company’s qualification in the Insurance Marketplace Standards Association (IMSA).

IMSA-qualified companies are associated with:

• Almost two levels higher A.M. Best ratings
• 4% higher return on equity
• 8% increase in cost efficiency
• 3% increase in revenue efficiency
• 27% lower legal fees and expenses
• 88% lower investigation and policy settlement expenses

Companies that are not IMSA qualified have:

• 3.2- 4% higher lapse rates
• 10% higher rate of regulatory discipline
• 67% higher ranking on the study's Justified Complaint Index

Bid rigging and other unethical practices are not good business.