Business Ethics and Insurance Industry

Kazi Md. Mortuza Ali

Managing Director
Prime Islami Life Insurance Limited

Ethics are applicable in every sphere of life. In the broader sense, ethics provide the basic rules
or parameters for conducting any activity in an acceptable manner. Ethics, thus represent a set
of principles prescribing a behavioral code that explains what is good or bad/ right or wrong.

Ethics are principles of desired human behavior and activities which are recognized in the
society as right for the welfare of mankind. It is a collection of good moral principles and rules
of conduct.

Ethics are standards that govern moral conduct of human being and people’s rights and duties.
Principles of ethics play a great role to form the nature of relationship among people in the
society. Ethics guide human behavior based on reasoned judgments, tradition and religion.
Ethics is a branch of philosophy which basically deals with human conduct from moral point of
view.

What is business ethics?

Business ethics is a specialized area of general ethics. It deals with moral issues in business
more systematically and with better tools. Business ethics is the evaluation of business activities
and behavior as right or wrong. It is the study of what constitutes good and bad conduct in a
business context. These ethics are used by professionals and managers as guideline in making
decisions that affect the organization, employees, consumers, stakeholders and the society at
large. Thus, business ethics is the group of rules of conduct applied specifically to business
activities. Business ethics involves five kinds of activities:

a) Application of general ethical principles in business practices.

b) Actions of individuals in the business organization.
c) Analysis of business from moral point of view.
d) Obligations of business to maintain good relationship with stakeholders from moral point
of view.
e) Obligation of business organizations to perform its social responsibility.

In a nutshell, business ethics is the study of what constitutes good and bad in business. It is
concerned with the day to day behavior standards of business organization towards truth and
justice.

Morality and business

Any action of human being (business or otherwise) can be viewed from moral perspective.
Business activity is human activity, therefore, can be evaluated from the moral point of view.
Morality requires that businesspersons are obligated to be honest, fair, just, trust worthy,
sincere and so on. Morality is an obligation, which need to be used in business and thus,
business transactions can be made ethical. Therefore there is a direct co-relation between
morality, business ethics and social responsibility. In everyday parlance we interchange “ethical”
and “moral” to describe the good qualities and actions of individuals or organizations. However,
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morality and ethics are not necessarily based on law. There can be many actions which are
legal, but not ethical. Legality is not always backed by morality. But ethics are always backed by
conscience and morality. To be successful, in this and the world, hereafter, one should try to
purify himself. In the holy Quran Allah says, “ Indeed he succeeds who purified his own-self and
indeed he fails who corrupts his own-self” (The Quran 91-9.10). Morality is the reflection of
purified soul and courses out of self purification process.

Principles of Islam & business ethics

Islamic principles emphasize accountability of each and every individual to Allah. Individual’s
performance in this world will be judged in the afterworld with the standards set in the Quran
and the Sunnah. Seeking Allah’s pleasure and blessings ought to be the final goal of human
being for each and every action in this world, be it business or otherwise.

In Islam, permissibility or non-permissibility are of five categories:

a) Obligatory (Fard)
b) Desirable (Mustahab)
c) Mubah (Permissible)
d) Makruh (Undesirable)
e) Haram ( Forbidden totally)

Islamic ethics is forceful for the faithful only. Those who are real believers in Allah and Akhirah
are in true sence are the followers of Islamic code, guidelines and the Shariah. For true
Muslims, the success in the life hereafter is the ultimate goal of human being in this world. They
believe that all the good (ethical) deeds in this world are their earnings for salvation in the
world hereafter.

Islam provides various injunctions and guidelines for business persons. Islam provides a unique
and ideal perspective of business ethics. It considers business as a part of one’s worship,
provided that is conducted as per the guidelines of Shariah. The Quran and the Sunnah
contents many verses from Allah and sayings of the great Prophet(s) regarding ethical and
social responsibility of business.

The business men who are true followers of Islam must follow and attempt to perform all
business activities within the parameters of Islamic Sharia. Some of the principles of Islam
relating to trade, commerce and business are as follows:
a) Faithful observance of valid contracts.
b) Abstaining from false promise and misrepresentation.
c) Weighing and measuring be made most accurately.
d) Non-indulgence in hoarding and profiteering.
e) Prohibition of interest, gambling and unlawful trade.
f) Fair and just recruitment process.
g) Payment of fair wages immediately after completion of labour.
h) Brotherly treatment of employers and subordinates.
i) Act as trustee of trust properties.
j) Protection of environmental pollution.
k) Transparency in every business transaction.
l) Accountability of each and every individual.

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 m) Prohibition of discriminatory actions irrespective of race, colour, religion, gender etc.
n) Restriction of deception, falsehood and dishonesty.
o) Carrying others interest over the self.
p) Obtaining pleasure of the Almighty Allah is the final goal of Islamic way of doing any
task, be it business or otherwise.

While conducting business or doing any task in the daily life, a Muslim is supposed to
distinguish between what is prohibited (haram) and what is permissible. It must be rembered
that to make lawful and to prohibit is the right of Allah alone. Prohibiting the halal and
permitting the haram is similar to committing “shirk”. The prohibition of things is due to their
impurity and harmfulness and what is halal is sufficient and what is haram is superfluous.
Falsely representing the haram as halal is prohibited. No good intention can make the haram
permissible. However, necessity dictates exceptions.

Islam does not allow haram act to be used as means to achieve a good end. The moral code of
Islamic ethics is based on the relationship of man and their Creator. Actions must be preformed
by Muslims only the way Allah wishes and only to please Allah. According to Islam each and
every action will be judged by its merits and intentions of actions but the actions must not be
haram or prohibited ones.

Islam actively encourages Muslims to get involved in business and commerce only to earn for
their livelihood which are considered halal in the light of Islamic Shariah. Basis of Islamic ethics
is Shariah. Islam stresses that an individual’s ethical behavior and values should be based on
criteria enunciated in the Quran and the Sunnah.

Why business ethics?

Business ethics are required, because it is beneficial to individuals, stakeholders, society and the
government. Business ethics make one morally conscious, value oriented and just in the
discharge of one’s duties and responsibilities and also to realize one’s rights and privileges on
the other. The purpose of business ethics is to help build a society where every one is conscious
about his/her rights and perform his/her duties. It is necessary to build a duty bound society as
envisaged in Islam. The issues which are relevant in business can bring light as to how and why
business ethics is beneficial to all. The scope of business ethics are as follows:

a) Objective or purpose of business ought to be harmless and beneficial to society.

b) Products, services and business location must not cause any difficulty for the
neighboring people and environment.
c) Price of products and services should be fair and after sales services be ensured.

d) Employees be hired without any discrimination, with fair wages, salary and providing
safe condition of work.
e) Follow all laws, rules, regulations directives and pay taxes as per law.
f) Ensure fair profit earning and disburse reasonable dividends.

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How business is related with society?

Business is interrelated with different interest groups in the society. This involvement of
multiple interest group is known as pluralism. Many of these groups are active participants in
the insurance business environment as shown in diagram below:

Insurance Business Environment

Social Responsibility in Insurance Business

By social responsibility we mean a set of obligations of the business community to protect and
enhance for all the interest groups in which it functions. It is the obligation of the business to
pursue those policies, make those decisions and follow those decisions which are desirable to
fulfill the objectives and values of the society’s expectations of business which are increasing
dramatically.

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A socially responsible company must be responsive to the demands and expectations of the
society. Insurance companies are answerable to the society. It must be realized that the
insurance community need to develop better relations with the social system. There are several
reasons to follow a policy of corporate social responsibility. Some of the good reasons are
stated below:
a) Social involvement reduces need for intervention through regulations.
b) Social involvement helps to prevent creation of social problems.
c) It helps to earn social status and image.
d) It helps to create more innovative ideas.
e) It helps to develop product characteristics relating to quality, and value to customers.
f) It helps to make decisions that provide greatest happiness for the greatest number of
policy holders.

What we need to do?

We need to institutionalize the ethical and social responsibility of an insurance company in order
to ensure mutual benefits for both the owners as well as all stakeholders and members of the
society. In order to institutionalize ethics within the company, the top management should:
a) Articulate the company’s values and goals.
b) Adopt an ethical code.
c) Set-up an high ranking ethics committee to develop, enforce and oversee the code of
ethics.
d) Incorporate ethics training into all employee development programs.
e) Act to fulfill consumer’s rights.

Types of consumer’s rights need to be fulfilled are:

a) Right to quality service

b) Right to be informed.
c) Right to be heard.
d) Right to choose.
e) Right to redress.
f) Right to consumer education.
g) Right to healthy environment.
h) Right to be guided properly.
i) Right to be protected from wrong publicity and information.
j) Right to get after sale services.

Considering all these rights an insurance company need to follow the followings:

a) Offer products that raise the quality of life of individual and organization.
b) Offer products to meet the needs and wants of consumers.
c) Maintain ethical and healthy competition.
d) Offer fair prices of products/services.
e) Inform consumers about product, price and process.
f) Recruit agents/employer of agents having ethical qualities.
g) Follow ethical principles in advertising.
h) Follow ethical guidelines for marketing and sales.

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 i) Follow code of ethics.
j) Disclose all facts relating to features, price and benefits of products.
k) Protect environment from pollution.
l) Ensure equity, justice and fair play to all.

One can follow ethics when he/she presseses certain traits or qualities to influence human
behavior. We cannot be ethical unless we desire to be ethical. We will follow ethical principles,
only when we have the will as well as the tools or instruments with the help of which the
pattern of behavior can be made as desired. The first and most important tool is to do one’s
duty accurately for the betterment of those who have rights to enjoy the service for which I am
responsible. Islam wants to build a duty-bound society where each and every person will
perform his duties, so that everyone in the society enjoy their rights. This can be shown from
following diagram.

Business Ethics & Accountability:

Business ethics is essential to meet the expectations of the society at large and expectations of
all the stakeholders. One may or may not act responsibly. However, one should be morally
responsible only when his conscience make him responsible, because he feels that he is
accountable. He is accountable to himself, he is accountable as entrepreneur, as manager as
supervisor, as trader, as employee, as teacher, as master, as subordinate and so on. However,
when it comes to business organization, the corporate body and the people who make them up
must have high moral and ethical standards and monitor their own behavior because they need
to ensure that business behavior is socially and morally acceptable.

It is, therefore, the responsibility of the Board and the top management to ensure that the
executives and staffs act ethically. The company should adopt an ethical code of conduct, set
up a high ranking ethics committee and conduct ethics training in their employee development
programs. A corporate culture of ethics is crucial for institutionalizing ethics inside the fabrics of
organization.

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A human being acts most responsibly when he is a true believer of the Creator. He thinks that
his status and position in the company and in the society is a trust from Allah. He is accountable
to Allah, it he acts improperly and there is a breach of such trusts. Therefore, he must ensure
justice among the people, must not discriminate while recruiting, placing, promoting,
transferring, punishing, rewarding etc. A believer in God, gets strength and courage from his
inner conscience that his acts of trust will be rewarded in this and the afterworld. Therefore, he
is motivated to act ethically and morally.

Professionalism and Ethics in Insurance:

To be a professional one need to be competent in the profession he is engaged. However, to be

a successful professional, one should possess high level of competence, complete adherence to
high ethical standards and follow professional code of conduct. Professional competence
includes two aspects viz knowledge and skills. One cannot be a self declared professional. The
most distinguishing feature of a successful professional is adherence to high ethical standards.
To be a true professional we must put our customer’s (insured’s) interest ahead of our own.

People would like to buy insurance policy, if they have trust and confidence on insurance,
insurers and insurance agents or brokers. People like to do business with those they trust. Trust
and confidence are built by ethical behavior. People buy insurance, be it general, life, health or
takaful based on trust and confidence. Insurance being an intangible product, a customer buys
a promise that may or may not be fulfilled in the future.

Customers trust the agent and the management of an insurance company. Insurance company
and their agents, therefore should follow the general ethical principles to protect their
policyholder’s interest first and foremost. They ought to act ethically to be the best one can be.
They should posses the quality of being outstanding. One should know that ethical behavior
and excellence go hand in hand.

Management and agents have an ethical obligation to accept and fulfill their responsibilities to
the best of their abilities. One must be reliable and trustworthy. To be reliable one must tell the
truth, be honest, fair and must not deceive others. The proverb “Honesty is the best policy” is
known to us since childhood. The professionals should practice it in reality. Honesty is essential
to create trust and confidence. Insurance management and agents must realize that they need
to posses highest degree of honesty, no matter how great the temptation is to be dishonest.

If and when the agent and management understand properly that the prime task and objective
of insurance is to serve people at the time of their need and contribute to the socio-economic
progress of the entire community, they will be motivated to work selflessly. They should posses
a caring attitude to the insured’s interest. If they care about their customers, they would do the
best for their customers and keep their interest properly protected. By protecting customers
interest, the insurers and their agents in reality serve their own interest indirectly. Successful
insurance companies must realize that more they protect customer’s interest; the more their
customers give back to them.

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We must have good intentions to serve our customers and must have courage to follow the
ethical principles. Courage converts ethical or good intentions to ethical and appropriate action.
Ethical people do the right thing, because it is the right thing to do. By doing right thing, ethical
people earn respect, reputation, prestige, esteem and self satisfaction. These achievement can
not be measured in terms of money. However, these make human being perfect in all respect.

Professionalism in life insurance selling

Insurance companies offer their services to people and business community to mitigate risks of
day to day life and trade, commerce, finance, assets, liabilities etc. In order to make effective
marketing and sales, insurance companies market their products through agents, employer of
agents, corporate agents, banker’s, electronic/print media and so on. Insurance companies
have to be fast and accurate in providing services to their customers. They are also supposed to
provide quality products at best price. They are also to comply with laws and regulations. All
the commitments in respect of service, quality, price and compliance depend much upon the
sales force they engage.

The sales people are expected to present the correct facts in the right perspective for the
knowledge of the prospective policy holders in order they can take appropriate decision. The
sales people are generally interested to make a hasty sale and earn more commission/
remuneration. What is very often forgotten that they ought to be ethical in offering products
and achieving sales target. Customer’s interest is to be given the topmost priority over the self
interest of earning money. The sales people often forget that their reputation must not be
shaken.

Long-term success depend mainly on their traits like truthfulness, trustworthiness, honesty,
integrity and caring attitude to their prospects. They should earn reputation by being ethical
and proving their services. Each salesman and the desk executive need to perceive ethical
standards as goals. All should realize that ethics is above law. One could be very much legal but
not always ethical.

Insurance professionals must work to prevent harm to policyholders, the insurance industry and
the economy as a whole. The most important tasks, therefore, are to:

a) Establish ethical standards.

b) Institutionalize ethical standards.
c) Arrange appropriate ethics training.
d) Identify unethical behaviors of desk and sales people.
e) Review ethical policy programme and code of conduct.

Five basic ethical principles need to be followed in every sphere of business. These are:

a) Be true to yourself and be sincere to follow ethical values and norms.

b) Be fair and do justice to all while conducting business.
c) Be good and do not make harm to anybody.
d) Be accountable to yourself, to customer, to company, to industry and to society.
e) Be accountable to your Creator.

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In order to follow the basic ethical principles, a code of conduct need to be followed based on
market situation. First of all, we must conduct insurance business according to high standard of
honesty and integrity to satisfy our customers and meet their needs. Secondly, we should
develop appropriate product, charge reasonable price, minimize overhead cost, engage
professionals, motivate sales force and ensure best after sale service. Thirdly, we need to
advertise and publish customer focused literature, that are clear, fair and honest in content.
There should not be any ambiguity or untrue statement. Fourthly, we need to provide for fair
and expeditious handing of customer complaints and disputes and finally we should maintain a
system of supervision and review compliances with these principles of ethical market conduct.

Few people in our society fully understands what life insurance is all about and how useful it is
in a wide variety of situations. As such sales people in the life insurance industry will have to
help the prospective buyer to indentify the prospective buyer’s needs for protection, savings
and insurance. Selling life insurance is a service to common people by helping them to
understand life insurance and explaining how life insurance can resolve the needs of human
being.

The salesman’s duty does not stop after he has delivered the policy document to his client. A
professional salesman has a duty to meet his clients needs not just at single point of time but
over a policyholder’s life time. It is the responsibility of the salesman to ensure that the
insurance coverage of a policyholder is adequate and appropriate from time-to-time.

It is to his own interest the salesman should ensure that all the sold policies are kept in force.
By doing so, the salesman would continue to receive renewal commissions. After-sales service
could also be looked upon as an opportunity for additional sales. Professional salesmen need to
follow code of ethical conduct while selling. Salesmen should conduct business according to
high standards of honesty, integrity and fairness. They need to provide competent and
customer focused sales and service.

One of the most effective ways of developing ethical principles in insurance sector is by
developing code of ethics and setting the rules that are to be followed by sales people. In this
respect, Bangladesh Insurance Association can play an important role. Written codes should be
developed in order to define purpose, establish an uniform ethical climate within the industry
and provide guides for consistent decision making. This first step is to ensure creation of ethical
atmosphere in the insurance sector. Association should make a real effort to encourage all the
members to take moral responsibilities to conduct insurance business ethically. Members
commitment to ethical behavior should be unequivocal and highly visible from top management
to agents/sales people.
Mere framing a code of ethics is not enough. A high powered committee is required to monitor
the implementation of the course of actions as per the code. The committee should have full
authority and responsibility to:
a) Review, update and upgrade the code, wherever necessary.
b) Provide clear guidelines for implementation of the code.
c) Clarify and interpret the code when need arises.
d) Establish an independent auditing agency to check unethical acts of the members.
e) Conduct frequent and surprise audits.
f) Investigate grievances and violation of the code.
g) Discipline violators be taken into task with exemplary punishments.

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Furthermore, a well thought out training program should be developed and for this purpose
training modules be developed as per need of the time. Workshops, seminars, conferences be
arranged periodically. Based on the guidelines provided by the Ethics Committee of the
Association an insurance company should develop its own philosophy and set the goals of the
ethical conduct of the business.

How Insurance Industry will be benefitted?

The most distinguishing feature of a professional is an adherence to high ethical standards. This
is because, professionals put their clients interest ahead of their own. A true professional
follows ethical principles and code because he knows that ethical people are more successful
than unethical people. This is not a paradox. It is true in the long run, because people in
general, like to deal with people they trust. Trust is built on ethical behavior. People buy
insurance on trust. In no other industry is the element of trust more important than in the
insurance business. They trust the agents of a life insurance company. If wrong advice is given
by the agents, it may lead to a costly mistake for the clients. Unethical behavior of agents will
impair the company’s status and reputation. Agents will lose his client and referrals.

To ethical people, self respect is more important than any award or reward. Therefore, a true
professional does the right thing because it is the right thing to do. The true ethical professional
thus earn recognition from his profession. Honesty, integrity and sincerity of a professional
helps him to achieve prestige and esteem in the society. By demonstrating ethical behavior and
building up good reputation, agents, employer of agents, brokers, executives help to develop a
sense of respect and trust from the insurance community and from the public.

Conclusion

There may always be a few bad people in the insurance industry as there will be in any other
industry. But we cannot let that be an excuse for complacency. Awareness about ethics,
business ethics and the basic principles of religion will certainly help professionals to do always
good things because human being has been created to do good deeds in this world for which
they will be rewarded in the afterworld. In fact, good deeds ( Amalus Salih) are the premium
for ensuring salvation, eternal peace and secured life in the heaven.
If the true believers always remember that they will be rewarded in the after world and they
will earn Allah’s blessings by doing all the good for humanity, they will be certainly ethical,
professional and perfect human being. The purpose of ethics & religion is to purify oneself for
the betterment of humanity and make one a perfect man. When, we make our selves perfect in
this world in all spheres of our life, we can be complacent, that we will earn Allah’s mercy in the
great Day of Judgment.
The objective of all actions in Islam is nothing but to seek the pleasure of Allah. To achieve this,
we need to establish a very balanced or just society. It is important to note that the
establishment of justice is one of the principal aims of Shariah. The whole universe and the
human being has been created for just ends. In the Quran Allah says, “And We created not the
heavens, the earth and all between them, but for just ends.” (15:85)
In order to establish justice and to word off the evils, we need to provide a conducive
environment for it, by removing all impediments to its establishment. The Islamic Shariah
principles are the guidelines and framework within which the whole gamut of business can be
conducted morally and ethically.

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