The previous article about the Insurance Marketplace Standards Association (Broker World, October, 97) provided an overview of what agents might expect from the companies that they represent if those companies intend to become members of IMSA. Remember IMSA is a program for life insurance company home offices that will impact upon agents. But, it is equally important to remember that it is not another program designed to impact only agents, while ignoring the other, often forgotten, source of market conduct woes the home office.

Insurance companies must also shoulder - at least share - the responsibility for how market conduct and ethics issues have risen to the top of a list of consumer concerns. In coming months, we will take an in-depth look at each of the six Principles of Ethical Market Conduct to better understand what changes in behavior it will impose on agents.

Principle 1 cannot be argued. It states that each life insurance company subscribing to these principles commits itself in all matters affecting the sale of individually-sold life and annuity products:

To conduct business according to high standards of honesty and fairness and to render that service to its customers which, in the same circumstances, it would apply to or demand for itself.

This principle is a modern-day interpretation of the biblical Golden Rule. Companies must commit to honesty. Hardly seems that it should be such a great stretch, should it?

This Principle does not pass that responsibility directly to the agent. Rather, it asks for each life insurance company seeking IMSA membership to make the ethics commitment.

But to say that they are committed to honesty and fairness is not enough. Companies must demonstrate that commitment by substantiating that they "walk the talk". How does a company seeking membership in IMSA determine that they are eligible for membership? There are a total of 27 questions which must be answered "yes" before a company may apply to become a member. Principle 1 contains the first five questions, questions that if answered "yes" will indicate support for honesty and fairness.

The questions may appear to be very subjective when first read, but IMSA has tried to place "teeth" into the program by requiring that each of the 27 questions found in the Principles and Code must meet several common conditions:

1. Procedures must be in place
2. Someone must be responsible for those procedures
3. They must be communicated
4. They must be used
5. They must be monitored
6. The results of monitoring should be used for improvement.

So, lets take a look at each of the five questions found in Principle 1, and you will see how it all ties together.

Question1.1 Does the company have policies and procedures that are designed to reasonably assure determination of customers insurable needs or financial objectives in the marketing and sales of its individually-sold life and annuity products?

This question, like all 27 questions, may be met in a number of different ways. The IMSA program is subjective and cannot be placed inside a "box" or supported by "cookie cutter" answers. Every member company must develop responses for the questions which are appropriate for their distribution, product type, size, and culture. For example, a company might provide financial needs training for agents and support this with products designed for specific markets (#1 - "Procedures must be in place."). Materials for customers and agents must then be specific to filling the need for which the product was designed. Some companies may require use of a factfinder in every sale. Some may have detailed product information with which to educate their customers. There are many ways for companies to meet this indicator, but whatever direction the company chooses to take must address the determination of customer insurable needs or financial objectives.

The company must charge a person or department with responsibility for providing training, keeping materials and products current, communicating changes, and monitoring use of these procedures (#2 - "Someone must be responsible for those procedures."). Responsibility may be shown through job descriptions, titles, organization charts, or memoranda communicating responsibility.

That person will be responsible to see that the programs are communicated to the field (#3 - "They must be communicated."). This may be in specific field communications such as bulletins, it may be as a part of a formal training program or in regular field meetings, or in many other ways.

But, just to tell the field and customers that material is available is not sufficient. They must also include a way to ascertain that the materials are being used (#4 - "They must be used."). This might be as part of the underwriting interview process, or by requirement that certain sales materials accompany the application.

The company might employ the LIMRA CAP survey or a company-designed survey form to obtain feedback from customers (#5 - "They must be monitored.").

Results of those feedback mechanisms will be used to make changes to the program which make it easier for the customer to understand and for the agent to use (#6 - "The results of monitoring should be used for improvement.").

This is only one ways a company might demonstrate compliance. IMSA suggests several other ways to meet the intent of this question. There is no single right answer to any of the 27 questions. Each company must determine what the appropriate path might be for them, based on many factors, including their distribution, products, and culture.

While this question is similar to the first question, it is searching for specific tools that the company provides for fact-finding. Some companies do not directly provide such tools but instead, make available a comprehensive list of resources where such tools would be found and encourage the use of those tools.

While it may seem somewhat elementary to require companies to obey the law, this question really goes beyond that. It might be assumed that all companies intend to operate lawfully (although that statement might be challenged by some). This question is focusing on the companys system or process for complying with laws or regulations. Is there a process in place, or is it left to chance? Those processes that are not systematic are the ones that allow inappropriate market conduct activity to flourish.

For companies that are involved in the industry and the numerous associations that stress marketplace improvement, this question may seem inane, but the company must still meet the six conditions outlines above before they are able to answer "yes."

Question 1.5 Has the company adopted and distributed to employees and distributors a written statement which includes full support for the concepts in the Principles and Code?

In Principle 1, this question probably causes more corporate change than any of the others. Companies cannot claim they have the best of intentions, but fail to tell their policyholders and agents. The industry is changing because of this question. Agents and employees have been asked to sign ethics statements. Customers have been told about IMSA and the importance of ethics in the marketplace. Training is being made available about ethics. Agents and employees are evaluated on the basis of ethical behavior more closely. These are positive changes IMSA is creating for our industry.

Can anyone disagree with the concepts supported in this principle? IMSA is intended to be a positive influence for change. As we discuss each of the remaining 22 questions, keep in mind that every question must have evidence that the company meets the six conditions outlines in this article. There must be procedures, responsibility, communication, use, monitoring and improvement.

This first principle places most of the burden on the home office. Beginning with the next article about Principle 2, we will look at a more direct and positive impact for agents.