Unethical insurance practices

Unethical life assurance practices
Insurance fraud
Misappropriation of insurance funds
Fraudulent insurance claims
Unfair underwriting practices
Illegal use of insurance
Insurance scandal
Criminal involvement in insurance industry

Nature

Unethical insurance practices refer to actions by insurers, agents, or brokers that violate ethical standards, laws, or regulations, often to the detriment of policyholders or beneficiaries. These practices include misrepresentation of policy terms, denial of legitimate claims, unfair discrimination, excessive premiums, and deceptive sales tactics. Such conduct undermines consumer trust, leads to financial harm, and distorts the insurance market. Regulatory bodies and consumer protection laws aim to identify, prevent, and penalize unethical behavior, but the persistence of these practices remains a significant problem within the insurance industry worldwide.

Background

Unethical insurance practices gained global attention in the late 20th century as consumer complaints and investigative journalism exposed widespread fraud, discriminatory underwriting, and denial of legitimate claims. High-profile scandals in the United States, Europe, and Asia highlighted systemic abuses, prompting regulatory inquiries and international dialogue. Subsequent studies by organizations such as the International Association of Insurance Supervisors underscored the persistence and complexity of these practices, revealing their impact on public trust and market stability worldwide.

Incidence

Insurance companies in the USA estimate that private and government insurers paid US$60 billion in 1989 for health insurance claims that were fraudulent or abusive. In 1992 it was estimated that up to £400 million in bogus claims is sought each year in the UK, whether for items that have not been stolen or by inflating the value of what has been destroyed or stolen. It was also estimated that 40% of the fires, leading to £500 million in claims, were fraudulent. In 1993 there was an estimated £400 million of insurance fraud in the UK. In a survey in the UK in 1993 of people seeking advice on pensions, it was reported that 91% were wrongly advised, despite several attempts in 1992 by regulators intent on eliminating mis-selling of personal pensions. Widespread compliance failure by every single category of financial institution involved in selling personal pensions was noted. In 1994 it was reported that in the UK the number of complaints against insurers increased by 46% to 8,000, representing a threefold increase since 1989. A major source of complaint related to life assurance for which 25% of policy-holders alleging maladministration or poor communication. A further 18% were concerned with motor vehicle insurance.

Claim

The first function of insurance companies is to help individuals protect themselves from the financial consequences of bad luck. At present they are just about doing their job here. The second area is that they are supposed to help us to save so as to provide for our own security. Here the public is being exploited, in that the redemption values on life insurance policies are far too low.

Counter-claim

Frankly, the concern over "unethical insurance practices" is vastly overblown. The industry is already heavily regulated, and most companies operate with integrity. Isolated incidents do not justify painting the entire sector as problematic. Consumers have ample resources and legal protections. Focusing on this so-called issue distracts from more pressing societal problems. In reality, unethical insurance practices are not a significant problem and certainly don’t warrant the attention they receive.