The Ethical Nature of Insurance

The Ethical Nature of Insurance

Insurance is a means of protection from any unforeseen losses and contingencies. It is a risk-management technique used for hedging against various uncertain losses. Insurance is a contractual agreement between two parties in which one party, the insurer, promises to protect another party, the insured, from uncertainties and losses in exchange for a premium .

But insurance is not just a business transaction. It also involves ethical responsibilities and implications for both the insurer and the insured. Insurance is based on the principles of trust, honesty, fairness, and social responsibility. These principles guide the behavior and decisions of both parties in the insurance contract.

Trust is essential for the insurance relationship to work. The insurer trusts that the insured will provide accurate and complete information about the risk to be insured, pay the premium on time, and report any claims honestly. The insured trusts that the insurer will offer adequate coverage, charge a fair premium, and pay any claims promptly and fairly.

Honesty is also crucial for the insurance relationship to work. Both parties should disclose all relevant information and avoid any misrepresentation or concealment of facts that could affect the insurance contract. Honesty also means that both parties should honor their obligations and commitments under the contract.

Fairness is another important principle for the insurance relationship to work. Fairness means that both parties should treat each other with respect and dignity, and avoid any discrimination or exploitation. Fairness also means that both parties should act in good faith and not take advantage of each other's vulnerabilities or ignorance.

Social responsibility is the final principle for the insurance relationship to work. Social responsibility means that both parties should consider the impact of their actions on society and the environment, and act in ways that promote the common good and prevent harm. Social responsibility also means that both parties should contribute to the development and improvement of the insurance industry and its standards.

Ethics and the insurance industry are not at odds with each other. In fact, ethics can enhance the performance and reputation of the insurance industry by fostering trust, loyalty, satisfaction, and cooperation among its stakeholders. A 2012 Gallup survey showed that the public perception of ethics in the insurance industry is low, with only 15 percent of respondents rating it as high or very high . This perception can be changed by demonstrating leadership support, ethical training and awareness, and adherence to ethical codes and regulations .

Insurance is not a charity or gambling. It is a legal contract that involves ethical responsibilities and implications for both parties. By following the principles of trust, honesty, fairness, and social responsibility, both parties can benefit from a mutually beneficial and respectful insurance relationship.