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Keeping Agents Honest—Legally and Ethically

Carrie Burns July 2007

A former insurance agent from Penn Valley, Calif., was convicted of one felony count of insurance fraud and three misdemeanor counts of petty theft for collecting insurance premiums from clients for commercial general liability and commercial automobile insurance and failed to remit the premiums to insurers. A former Allstate insurance agent was charged with a single count of theft, a Class D felony, after an investigation revealed that he had accepted and deposited his clients' checks without applying the funds toward their policies. A Louisiana-based agent was arrested, transported to jail and booked on four counts of insurance fraud and one count of forgery for altering insurance applications to increase the previously agreed upon premium amount, thereby increasing his commission. In one instance, he forged the client's initials to changes without the client's knowledge or consent.

All three of these stories graced the news within a week-and-a-half, and are just a few that have recently made headlines. Independent agents seem to be finding more ways to commit fraud and practice unethical business--creating false insurance entities, fraud rings, misinterpreting policies and just flat--out stealing policyholders' money.

Fraud isn't new to insurance carriers--they've experienced it with their policyholders. And though insurers may experience more revenue loss with policyholder fraud, agent fraud and unethical practices produce a number of other problems and challenges, starting with the difficulty of managing a number of agents.

"I can see by the fact that the independent agents represent many companies, and an insurance company using independent agents has so many of those relationships--just by sheer volume, having to monitor that many more representatives is another dimension of the challenge," says Pam Ewing, senior product manager in the Insurance Compliance division of Minneapolis-based Wolters Kluwer Financial Services.

Donald Light, senior analyst with Boston-based Celent LLC agrees. "Independent agents have a more limited relationship with more companies than an exclusive agent, so the carrier is going to take a narrow and specific view of the agent's business actions, and whatever else the agent does [outside of business relating to the carrier] is not the insurance company's business," he says. "If the agent is a bad one--bad in the sense of committing fraud--there can be a horns-and tail-effect, and the company could suffer from image problems when an agent is found to be committing this fraud."

"When claimant or policyholder fraud is discovered, the insurance company probably gets a few positive image points--ABC insurance company reports that its doing its bit to hold down its clients' insurance costs by fighting fraud and putting these bad guys behind bars," says Light. "Whereas, they're less likely to say the same thing about their agents."

ETHICS

Unethical business practices on the part of independent agents also sour a carrier's reputation. Warren, N.J.-based Chubb Group of Insurance Cos. found a way to prevent unethical behavior among its 5,000 U.S. independent agencies. Chubb developed an ethics training program for its independent agents and brokers. Bob Hamburger, vice president of Chubb & Son and manager of agency services for Chubb, sits on a subcommittee for Chubb's educational program-the ethics education committee.

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