Ethical Culture

The MGAA, in common with the Chartered Insurance Institute (CII) and other professional bodies, have a member's Code of Ethics.

MGAA members are of a corporate nature and when a senior employee of that firm agrees to be a member of the association, they are signing up to the code.  Moreover, they are lso agreeing to cascade the code down to their employees.

The CII being an individual membership organisation expects their members to sign up and adhere to their code.

Both of these codes, and others not mentioned here, are designed to ensure that firms and the individuals behaviour towards their client and or supplier base is of an ethical nature.  It is not designed to ensure compliance with any regualtory requirements, but is like the insurance doctrine "uberrimae fidei" or utmost good faith towards those with whom we trade, or where we trade on their behalf.  Whereas conduct can be defined as being centered around standards of behaviour, especially within the work environment, ethics is much wider.  It does address standards of behaviour but it looks at how corporate decisions are taken.  This was identified by the FCA in TR15/7 when they looked at the distribution of products via an MGA.  They were concerned with how the distribution mechanism worked, who had overall authority, where it was sold nd the services surrounding that product.

Ethics is driven by the main board of the firm they they cascade down to "grass roots level".  It is supported by strong monitoring and controls and embrases a culture of conitnued education.  It is expected that firms will be transparent in their dealings both interally and externally and to uphold the good name of their carriers.

A firms ethical practice is more of a cultre than a set of rules.  It is about the actions of a firm in respect of an individual's behaviour rather than the precise behaviour of that individual.  It should focus upon how the organisation deals with areas such as control framework to ensure any lapse against a code of ethics might occur and to ensure that this does not happen in the future.

Should MGAs view the case against N Brown as a signal that storm clouds are ahead for “add-on” products?

By associate member Duncan Minty.

How likely is it that the mis-selling of a General Insurance “add-on” reported by fashion retailer N Brown is a one-off? Probably not, although at £35-£40m the anticipated scale of the cost which it faces may not often be repeated.
The lesson for MGAs is that the FCA will be expecting underwriters to take on board that there needs to be a connect, for the consumer, between price and value. Of course some lines will be more volatile than others, but let’s be honest, it’s not usually a problem in the “add-on” market. The FCA is one regulator that generally shies away from price regulation. But what it could be saying here is that too much profit is an ethical issue when it creates ‘group detriment’.
In other words, the price/value differential per policy may be small, but the cumulative effect is significant. This is not news: it was the same message the regulator sent out in 2012 with identify theft insurance.
So the lessons are: exercise control over your product and communicate your expectations.

 One concern is that oversight, at the MGA underwriter, should have been tracking this problem and asking questions. A sharp regulator will be looking for the reasons why this didn’t happen, using tools such as influence mapping.
This may seem intrusive but let’s put it into perspective. Every insurer in the US is price regulated on a pre-approved, state by state basis. And rate increases have to pass a near universal test of US insurance law: “rates shall not be …excessive…”.
Is this a possibility in the UK?

When the FCA appears to be in a political corner, as seemed to be the case with the short term credit market, then it is prepared to introduce price and cover regulation. If the “add-on” market is to avoid such a storm, then clearly new schemes need to be shaped with fairness and value in mind from the heads of agreement onwards, and established schemes scrutinised for unethical legacies. These should be joint exercises, involving all parties to the value chain.
 These are issues that fit within the wider framework of marketing ethics. Last year, the CII published a guidance document on the ethics of insurance marketing and you can download it here.