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The insurance industry is very important in ensuring that other industries and businesses survive, but there are very many ethical challenges that threaten the existence of the industry itself. Ethical challenges in simple terms refer to principles that depend on moral merits of hard work and attentiveness. Although the insurance industry is currently facing very many ethical challenges, industry players who are unable to strike a balance between financial gain and customer contentment majorly bring about the main problem. The ethical challenges are in four major categories that include legal challenges, moral obligations, the emerging trends, and self-inflicting issues.
According to Burke (2000), the insurance industry has a regulatory board that governs all its operations and practices. This board is in place in order to streamline the industry's activities; however, it can also cause some hindrance through the specific minimum capital required. Capital specifications may be a barrier to investors who are willing to enter in to the industry but are unable due to inability to raise the minimum capital required. The cost of operating the insurance business is very high due to inconsiderate laws of taxation and the tough regulations put in place by the courts hence limiting entry. The government, which sets up these boards, requires insurance agents to engage in immense procedures and exhaustive paperwork in order to sell policies. The insurance agents find this to be very tedious, and many tend to overlook these procedures with some agents even going to the extent of bribing their way to the top. This can be hazardous because it puts the trust of the client at risk (Burke, 2000).
Since it is, the duty of the insurance companies to make profits while at the same time maintaining lasting relationships with their clients, the insurers should follow the compliance regulations to the letter. This is important because once clients fail to trust an insurance company losses may occur. Another solution is for insurers to work hand in hand with the government. This would ensure that the laws formulated are favorable to the industry's growth and that the interpretation of rules and regulation is accurate. In addition, the insurance companies should work closely with civil organization in order to assist in lobbying against government laws and policies that do not favor the insurance industry (Burke, 2000).
Success in this industry is a very vital aspect that ensures expansion and extensive growth. However, clients thrive best in honest environments. Once clients' sense dishonesty from any insurance company word spreads and client numbers dwindle. This ultimately causes a company to experience immense losses. Majority of insurance companies literally battle with honesty issues by allowing clients to sign up to policies that are expensive and not very relevant. Such companies do not employ the aspects of morality and are more interested in making money. The companies also close their eyes to client respect that is very vital (Sorell, 2009).
Honesty in the insurance industry is again tested through the adverts and marketing strategies that are employed. The advertisements offered to the market may not offer a client a clear picture with adequate information. Sometimes, the information may contain more benefits than it does. Although their sole intention for this is to attract as many clients as possible to sign up policies with the respective companies, it sometimes works in the opposite way. This particularly happens when a customer buys the policy advertised, and it turns out to be disappointing. Eventually, the buyer may withdraw from the policy and the company may suffer from this in terms of losses incurred (Sorell, 2009).
On the other hand, if the customer goes to court, the insurance company may incur losses through compensation and to some extent; it may lose its operating license. Insurance agents experience the lack of adequate knowledge about the products and services they are selling to consumers. This may ultimately result in customer dissatisfaction and even confusion. The agents also come across clients with different needs and requirements. This poses a challenge because it is difficult have policies custom made for every client. Because of this, the customers usually end up purchasing policies that are not fully relevant to their needs and requirements and others end up not purchasing the policies. This is a very big blow to the insurance companies and it may cause them many losses (Burke, 2000).
To ensure that this does not happen, the insurance agents should find it important to educate themselves fully about the different policies and the requirements of the consumers. Having adequate knowledge about the products automatically boosts their confidence and job satisfaction. The companies should also find a way to come up with a variety of policies, which specifically meet the needs, and requirements of different customers. It is also important for insurers to be aware that clients are more aware of industry practices; therefore, they tend to be more cautious. This should in turn cause the insurance industry players to ensure that insurance agents offer efficient goods and services to potential clients (Burke, 2000).
Emerging trends are proving to be a great ethical challenge to the insurance industry. These emerging trends include increasing financial crisis, poverty, wars, piracy, fraudulent claims etc. All these trends have a very significant impact on the global economy and the insurance industry is not an exception. The financial crisis is causing increased unemployment with minimal credit allowances. This may in turn cause financially desperate individuals to turn to insurance companies with fraudulent claims. Poverty, diseases, hunger, and migration follow up very closely; as a result, the insurance companies suffer in terms of fewer consumers of their products and services. Another emerging trend is global warming, which gives rise to natural disasters and risks, for example, earthquakes, floods, hurricanes etc. From this, the insurance companies may be tempted to provide special premium rates for the areas prone to natural disasters, which is not ethical (Taylor, 2000).
Flanagan (2007) suggests that for insurance companies to cope with emerging trends they should work on reformulating their strategies, which include their cost of operation, so that in case of these emerging trends no restructuring is required. The human resource should train on how to handle risks and management of investments. In the case of natural disasters, the insurance companies should work at ensuring that they give back to the society. This may be achieved by embracing social responsibility; for example, they can engage in tree planting, or cleanup activities. Through micro-insurance development, the insurance companies can tackle problems of diseases, unemployment, hunger, and migration thus increasing their number of potential customers. The insurance sector should work closely with the government to assist in reducing poverty levels and empower low-income earners (Flanagan, 2007).
The insurers to the market bring about the self-inflicted pressure that injures companies hence causing major ethical challenges. One of these self-inflicted problems is that the insurance industry is surprisingly very reluctant to change even with evolving market trends. These insurance companies tend to resist change due to the urge to remain in their comfort zones; however, these zones in the end are not necessarily comfortable. It is important to note that the needs and requirements of the consumers of insurance products and services keep changing from time to time. Therefore, it is the responsibility of the insurance companies to keep updating their products and services in order to meet the changing needs of their customers. Resisting embracing change by the insurance industry leads to the output of goods and services that are of poor standards hence poor sales are experienced (Sorell, 2009).
In this industry, change is a vital aspect due to its dynamic nature that requires the formulation of new strategies and procedures every now and then. The insurance companies should ensure that they offer advanced policies and updated contracts in line with current market trends. Some insurers in the industry do not take time out to advertise their products and services to the market. They expect clients to be willing to buy their policies. These companies are usually blind to the fact that marketing is a vital tool for the success of any business; instead, they force their products to consumers. Another problem is that other insurance companies may also decide to trash competitors with damaging remarks about their products and services and their employees. Furthermore, insurers should be careful about other ethical problems like the lateness and lack of interest in settling of claims and the lack of dependable statistics showing the insurance gap between different regions (Taylor, 2000).
In order to curb this, the industry should ensure that they engage themselves in constructive competition. Another important thing is to work together to obtain dependable statistics, conduct the survey of products in order to establish the satisfaction of the customers. In addition, the insurers should always review their policy contracts to suite their customers' changing needs. The insurance companies should ensure that they conduct effective marketing procedures. They should first carefully identify the various market segments and then establish their respective needs and requirements. The companies should then come up with the necessary products that fully suite the specific market segments. Finally, affordable yet effective advertisement with reliable information is carried out via the different available media, for example, newspapers, television etc (Burke, 2000).
In conclusion, every player in the insurance industry should be keen in following the work ethics put in place by the governing bodies and failure to comply should lead to punishment. Although these insurance companies are profit-making organizations, financial gain should not be their only driving factor; instead they should put more emphasis on the needs and satisfaction of the customers. For success and immense growth, financial gain and the customers' preferences should go hand in hand. Morality also plays a major role in the insurance industry, even though it is difficult to uphold, and honesty is the core for the insurers' policies and practices. The emerging trends in the market are very important in directing a company in the way that it is to operate, and the human resource to employ.