Ethics and the Credit Insurance Industry
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REPORT ETHICS AND THE CREDIT INSURANCE INDUSTRY by Christoph T.L. Leisewitz [email protected] 1 CONTENT. Introduction Page 4 - 5 PART I: THE THEORY OF ETHICS AND ITS IMPACT ON BUSINESS. Chapter 1: Normative Business Ethics Theory Pages 7 - 27 Chapter 2: Corporate Governance Pages 28 - 32 Chapter 3: Sustainable Development Pages 33 - 40 Chapter 4: The Impact of Ethics on Business Pages 41 - 55 Chapter 5: Cultural Relativism Pages 56 - 61 Chapter 6: The Importance of Institutions Pages 62 - 67 Chapter 7: Trust Pages 68 - 71 Chapter 8: How to deal with Dilemmas in Business Ethics Pages 72 - 81 Chapter 9: Conclusion of Part I Page 82 - 83 PART II: Credit Insurance and Ethics Chapter 10: Introduction to Credit Insurance Pages 85 - 89 Chapter 11: Marketing and Sales Pages 90 - 119 Chapter 12: Underwriting Pages 120 - 159 Chapter 13: Claims Pages 160 - 180 2 Chapter 14: Reinsurance Pages 181 - 191 PART III: Codes of Ethics Chapter 15: Why a Code of Ethics Pages 193 - 197 Chapter 16: The First Decisions Pages 198 - 203 Chapter 17: The Content of a Code of Ethics for a Credit Insurer Pages 204 - 217 Chapter 18: Drafting a Code of Ethics Pages 218 - 222 Chapter 19: Implementation and Management of a Code of Ethics Pages 223 - 232 Chapter 20: Criticisms of a Code of Ethics Pages 233 - 235 Conclusion Pages 236 - 237 BIBLIOGRAPHY AND REFERENCES Pages 239 - 243 References: Direct quotations from others are shown in the text by for instance: (10. Kidder, 2003: 237). This indicates that the quotation comes from the book listed in the Bibliography/References (see pages 238 – 243) as number 10 by R.M. Kidder, page number 237. Where no page number is indicated, the text is not a direct quotation but is based on the relevant book. 3 INTRODUCTION. Ethics and the Credit Insurance Industry. The purpose of this report is to investigate whether ethics is important to the credit insurance industry and to consider the role a code of ethics can play in helping to make better decisions. The conclusions that I reach are that ethics plays a vital role in building and sustaining a healthy credit insurance business and that a well designed and managed ethics policy is an invaluable tool in running an ethical business and in protecting the reputation and long term viability of a credit insurer. The report begins by providing - in part I - a brief outline of the major ethical theories including short reviews of the two closely related subjects of corporate governance and sustainable development. It continues by discussing the impact of ethics on business in general. I commence the heart of the report by examining in part II ethics in the credit insurance industry, by defining credit insurance and describing the special roles it plays in national and international economies. I then focus on the pertinent operational aspects of a credit insurance business, i.e. marketing and sales, underwriting, claims and 4 reinsurance with particular reference to the role ethics can and should play in each of them. By drawing together the outcomes of these various deliberations the basic guidelines for the drafting of codes of ethics in the credit insurance industry will be developed (obviously each company has to design its own code in line with its own corporate culture, values and circumstances). Finally I attempt to show the benefits a well drafted and properly managed code can have for a credit insurer (part III). 5 PART I. THE THEORY OF ETHICS AND ITS IMPACT ON BUSINESS. Chapters 1 - 9 6 CHAPTER 1. NORMATIVE BUSINESS ETHICS THEORY. Standards of business ethics 1 cannot be built on empirical research or business professional thought and experience alone; independent, normative (what ought to be) ethical theory needs to underpin such standards in order to give them legitimacy and objectivity. Actions must be justifiable and such justification cannot be based merely on the self interest of people, their thoughts or experiences, to be morally acceptable. More broadly based standards founded on independent theory will lead to better decisions because they will be fairer. Business ethics is applied ethics which aims to help solve practical problems and which presupposes the existence of valid moral values 2 . The following are very brief descriptions of the main ethical theories that have developed over the past centuries, their shortcomings and their applications to business. Because I believe that Kant’s moral philosophy addresses business ethics in the most appropriate way - for reasons that will become clearer later in this chapter - I shall, in the subsequent 1 In this report I do not differentiate between the word “ethical” and “moral” – they are ascribed the same meaning. 2 Under moral values in business I understand certain basic values (principles, priorities, or standards) which should be anchored in any business. They have the character of ultimate aims and are the necessary principle elements for harmonious co-operation. They guide the business’s thoughts and actions, e.g., freedom, equality, justice, respect for the individual, health, security and wellbeing. They are the business’s conceptions of desirability, of the quality of reality. Values can be bad or immoral, e.g., the values of the Mafia, the Apartheid or Nazi regimes or al-Qaeda. 7 discussions, examine business ethics and ethics in credit insurance based predominantly on his thoughts. UTILITARIANISM. 3 The morality of an action according to this theory depends entirely on the outcome of that action. An action is right if its consequences produce the greatest happiness (modern utilitarians often say “utility” or “satisfaction” or “preference”) or minimizes overall pain for affected people. The theory is based on the belief that the purpose of morality is to achieve human welfare by minimizing harm and maximizing benefit. Utilitarianism is interested only in the consequences of an action, not the agent’s (actor’s) motive or character or the act in itself. Efficiency, creativity and the right attitude are good tools for optimizing benefits, not merely in the sense of profit maximization but also as far as social welfare is concerned. Many business decisions are therefore influenced by utilitarian theory. Because utilitarianism is interested only in a satisfactory outcome for most of the affected people, this theory is prepared to sacrifice the rights of the minority in the interest of the majority. Being interested only in the final outcome may result in actions that ignore or overrule personal preferences and feeling, rights such as privacy, freedom, religion etc. because such feelings may be in the way of acting so that the utility for the largest number of affected people is maximized. For instance, it would not be ethical in utilitarian terms to allow Muslim staff members to take off on Islamic holidays in a predominantly Christian firm if the absence of the Muslim employees would seriously affect the productivity of the firm and thus reduce the production bonuses of all employees. The minority of the employees would enjoy time off at the expense of the 3 Jeremy Bentham 1748-1832 British philosopher said “pleasure is the only good, and pain the only evil: else the words good and evil have no meaning”. He was the father of the utilitarian moral theory. John Stuart Mill 1806-73 British philosopher was a strong supporter of Bentham’s utilitarianism and revised and refined it. 8 majority. Business cannot act in this utilitarian manner. It needs to find ways which will allow it to respect every individual’s rights and dignity in all its dealings with employees and other stakeholders4. Utilitarianism will allow any means to justify a good outcome. Utilitarianism values an act according to the level of utility it achieves. The act which realizes the highest satisfaction is the right act. Utilitarianism therefore obliges an agent to act to achieve the best consequences even if that means killing an innocent. Negative responsibility means that an agent is just as responsible for things others do as the agent is for his own actions, provided the agent could have prevented the others from doing those thing. For instance: A loves B but knows that B wants to deceive C. If A can prevent B from committing this act, A must stop B from performing this deception, even if that means that as a result of A’s interference, B will thereafter loathe A. Bernard Williams (English philosopher b. 1929) noted that the actions of others may determine how the agent may have to act to achieve the utilitarian aim and could well require the agent to compromise her integrity or abandon her projects. Another difficulty with utilitarianism is to measure the actual utility (the degree of satisfaction or happiness) that will be obtained. It is usually impossible to know this before the action is completed and it makes it therefore difficult to know beforehand whether an action will be right in term of utilitarian theory. In business, tools such as budgeting, cost/benefit analysis, risk assessment or management by objectives are employed to help arrive at a decision to act in a certain manner which is judged to result in a morally right outcome according to utilitarian theory. But to rely on such probable outcomes of an action introduces subjectivity into the decision. Feelings such as love, passion, excitement, pleasure and pain are all important parts of life and must therefore feature in any viable ethical theory. It seems therefore intolerable 4 Stakeholder in this document means anyone who effects or is affected by the business in question. 9 to ignore an agent’s motivation for his action entirely and focus only on the consequences of the action as utilitarianism does.