Business Ethics and Corporate

Governance
 Unit 2
• Ethics in Insurance Companies: Unethical
practices and control of IRDA.
• Corporate Social Responsibility: CSR Provisions
of Companies Act 2013.
 Ethics in Insurance Companies
• Insurance is the spreading of risk- a pooling of
money to provide limited reassurance for a
limited set of assets or circumstances.
• Insurance is perceived as a panacea. When
insurance is purchased, some people think,
“Oh, now I don’t have to worry, everything will
be taken care of for me.”
• With the help of advertising, the insurance
industry has often nurtured this warm and
fuzzy yet incorrect notion.
 Ethics in Insurance Companies
• Insurance does not control the fates. Insurance
does not provide the kind of universal coverage
and assurance that many people look for.
• Ethical concerns about insurance are created
because of this gap between consumer
expectations and genuine insurable risk.
Policyholders are often disappointed, angry or
disillusioned to find that the insurance they
have been paying for does not cover a
particular situation. This can leave consumers
feeling that insurance is a bad bargain.
 Ethics in Insurance Companies
• Insurance is required in most industries and
professions .
• Commercial insurance for industries and
professions has underwriting standards that
require certain practices, safeguards, and
licensing .
 Every day in running an insurance business, ethical
considerations arise-

• 1. What is a fair price to charge? Should we charge as

much as we can, as little as we can, or something in-
between?
• 2. What is the proper level of customer service? Just
enough to get by, more than the customer has bargained
for, or something in-between?
• 3. What kinds of policies and procedures should govern
the running of the company? Should we follow the letter
of the law, the spirit of the law, or both?
• 4. Which laws are we talking about, man’s laws, God’s
laws, or both? When can and should we make exceptions
to our policies and procedures?
 Every day in running an insurance
business, ethical considerations arise
• 5. How should we contract with other companies?
Should we get as much as possible, give as much
as possible, or something in-between?
• 6. What should our benefits and compensation be
for the people working within the company?
Should we pay them as little as possible, as much
as possible, or something in-between?
• 7. What should be done when someone is not
doing the job? Should we help them, get rid of
them, or keep them no matter what? How can we
best address these ethical dilemmas?
Every day in running an insurance business, ethical
considerations arise

• The agent must ask of themselves the following questions:

• How would I want to be treated, not how would someone
else want to be treated.
• Does my decision assume people are good and will do the
right thing, or does it assume that people will act poorly?
• Am I making my decision based upon what I know today, or
am I trying to predict the future?
• Will my decision leave things better than I found them, or
create chaos, instability, or despair?
• Do I feel at peace with the decision, or do I feel unsure or
uneasy?
• Am I allowing myself to be pushed into a decision when no
decision on my part is even needed?
 Every day in running an insurance
business, ethical considerations arise
• Some ideas that can help carry out the mission
of doing business the right way, incorporating
guiding principles into everyday decision-
making-
• Pursue and review every opportunity
• Manage money wisely
• Treat all with respect and dignity
• Follow the letter and spirit of the law
• Lead with your values
 Unethical Practices in Insurance:
Nature and Generation
• Agent and broker play an important role in the
marketing of the insurance plans and policies.
• The life insurance agent is to act, keeping in view the
interest of the policy-holder and the insurance
company.
• An agent has the right to get remuneration in lieu of
his functions, to get commission on the insurance
business secured by him and the amount of premium
due on renewal of existing insurance policies as per
prescribed rules
• (Kothari et. all, 2010).
 Unethical Practices in Insurance:
Nature and Generation
• Insurance sector faces many more unethical
practices such as untrue advertisements, half-
truths and nondisclosure of material information
regarding what the policy covers and what it does
not cover.
• Indian insurer misrepresents competitor's product
to gain a competitive edge.
• Private sector develops and introduces only those
policies/schemes, which involve minimum risk
burden and are more profitable to them. They
overlook the interest of common people.
 Insurance Regulatory and
Development Authority (IRDA)
• Insurance Regulatory and Development
Authority (IRDA) is a statutory body set up for
protecting the interests of the policyholders
and regulating, promoting and ensuring
orderly growth of the insurance industry in
India.
 Insurance Regulatory and Development Authority-
IRDA

• IRDA has played a very important role in the growth and

development of the sector by,
• protecting policyholders' interests;
• Registering and regulating insurance companies; licensing
and establishing norms for insurance intermediaries
• Regulating and overseeing premium rates and terms of
non-life insurance covers; specifying financial reporting
norms, regulating investment of policyholders' funds and
ensuring the maintenance of solvency margin by insurance
companies.
• ensuring insurance coverage in rural areas and of
vulnerable sections of society; promoting professional
organizations connected with insurance and all other allied
and development functions.
 Unethical Practices and Control of
IRDA in Indian Insurance Market
• Insurance Regulatory and Development
Authority- IRDA
• Health Insurance plans may be improved and
attractive plans for solving the real content of the
concept of insurance but the complexities cause
possibility of unethical practices.
• It has required tight vigilance of IRDA for
calculation of premium, appointment of middle-
person, presentation of plans and policies to
customer.
Regulation of Entities: Insurance Intermediaries
• Types of Intermediaries:
1. Intermediaries as Channels of distribution :
2. Insurance agents
3. Corporate agents including banks Brokers
4. Micro insurance agents
5. Web-aggregators
• Others like Common Service Centers
1. Third party administrators
2. Surveyors and
3. loss assessors Insurance Repositories
 The regulatory framework for intermediaries
• The regulatory framework for intermediaries
includes –
1. Licensing / Renewal / Cancellation of licenses
2. Capital and Fee requirements
3. Qualification and Training requirements
4. Code of Conduct, On site & Off-site monitoring
5. Policyholder protection requirements
6. Other Regulations/circulars/guidelines Market
conduct based on complaints and Market
intelligence
7. Penalties for non-compliance or violations
 Important Role of IRDA in the Insurance Sector in
India:
• To protect the policyholder’s interests.
• To help speed up the growth of the insurance industry in an orderly
fashion, for the benefit of the common man.
• To provide long-term funds to speed up the nation’s economy.
• To promote, set, enforce and monitor high standards of integrity, fair
dealing, financial soundness and competence of the insurance
providers.
• To ensure genuine claims are settled faster and efficiently.
• To prevent malpractices and fraud, the IRDA has set up a grievance
redress forum to ensure the policyholder is protected.
• To promote transparency, fairness and systematic conduct of
insurance in the financial markets.
• To build a dependable management system to make sure high
standards of financial stability are followed by insurers.
• To take adequate action where such high standards are not
maintained.
• To ensure the optimum amount of self-regulation of the industry.
 Functions of IRDA:

1. Below are the important functions of the IRDAI in the

insurance industry in India:
2. Grant, renew, modify, suspend, cancel or withdraw
registration certificates of the insurance company.
3. Protecting the interests of the policyholder in matters
concerning the grant of policies, settlement of claims,
nomination by policyholders, insurable interest,
surrender value of the policy and other terms and
conditions of the policy.
4. Specify code of conduct, qualifications and training for
intermediary or insurance agents.
5. Specify code of conduct for loss assessors and
surveyors.
 Functions of IRDA:
6. Levying fees and charges for carrying out the provisions of
the Act.
7. Undertaking inspection, calling for information, and
investigations including an audit of insurance companies,
intermediaries, and other organizations associated with
the insurance business.
8. Regulate and control insurance rates, terms and
conditions, advantages that may be offered by the
insurance providers.
9. Apart from the above-mentioned core functions of the
IRDA, there are several functions that the regulator
performs keeping the policyholder’s interest as its priority.
 Policyholder Protection
• Regulatory Framework IRDA (Protection of Policyholders'
Interests) Regulations, 2002
• Redressal of Public Grievance Rules, 1998 Guidelines for
Grievance Redressal
• Channels of Complaints Insurer channels Portal, emails,
letters, call centre etc.
• IRDA channels IGMS (Integrated Grievance Management
System)
• Registering a complaint at www.igms.irda.gov.in IGCC (IRDA
Grievance Call Centre) Calling Toll Free Number 155255 or
1800 425 4732 E-mail to complaints@irda.gov.in Letter to
Consumer Affairs Department, Insurance Regulatory and
Development Authority, 3-5-817/818, United India Towers, 9th
Floor, Hyderguda, Basheerbagh, Hyderabad - 500 004 Fax 040-
66789768
 Policyholder Protection
• Insurance Ombudsman –
• Complaint in writing to the concerned Ombudsman as
per the jurisdiction under RPG Rules,1998
• Complaint on grounds as per RPG Rules, 1998 Any
partial or total repudiation of claims by an insurer Any
dispute about premium paid or payable in terms of the
policy Any dispute on the legal construction of the
policies as far as it relates to claims Delay in settlement
of claims Non-issue of any insurance document after
payment of premium IRDA facilitates resolution of
policyholders' complaints through insurers but does not
adjudicate.
 Corporate Social Responsibility
• CSR is a process by which an organization thinks
about and evolves its relationships with
stakeholders for the common good and
demonstrates its commitment in this regard by
adoption of appropriate business processes and
strategies. Thus, CSR is no charity or mere
donations.
• CSR is a way of conducting business, by which
corporate entities visibly contribute to the social
good. Socially responsible companies use CSR to
integrate economic, environmental and social
objectives with the company’s operations and
growth
 Definition of CSR
• “Corporate Social Responsibility” (CSR) Means and
include but not limited to :-
• 1) Projects or programs relating to activities specified
in the schedule VII of the Act; or 2) Projects or
Programs relating to activities undertaken by BODs of
the company in pursuance of the recommendations of
the CSR committee of the Board as per declared CSR
Policy of the company enumerated in schedule VII of
the Act. • “CSR Policy” relates to the activities to be
undertaken by the company as specified in schedule VII
of the act and the expenditure thereon, excluding
activities undertaken in pursuance of normal course of
business of a company
 Definition of CSR
• Corporate Social Responsibility is a process that is
concerned with treating the stakeholders of a company
or institution ethically or in a responsible manner.
‘Ethically or responsible’ means -
1. Treating key stakeholders in a manner deemed
acceptable according to international norms.
2. Social includes economic, financial and environmental
responsibility. Stakeholders exist both within a firm or
institution and outside.
3. The wider aim of social responsibility is to create
higher and higher standards of sustainable
World Business Council for Sustainable Development

“The continuing commitment by business to

behave ethically and contribute to sustainable
economic development while improving the
quality of life of the workforce and their
families as well as of the local community and
society.”
 CSR Principles & Strategies.
• Respect for human rights.
• Respect for the differences of views.
• Diversity & non-discrimination should be the
guiding principle.
• Make some social contribution.
• Enter into e dialogue Self-realization & creativity.
• Fair dealings & collaboration. Feedback from the
community.
• Positive value- added Long term economic & social
development.
 Arguments for the CSR
• Corporate should have some moral & social
obligations to undertake for the welfare of the
society.
• Proper use of resources, capability &
competence.
• The expenditure on CSR is a sort of
investment.
• Company can avoid many legal complications.
• It create a better impression.
• Corporate should return a part of wealth.
 Applicability : (sec. 135(1))
To all companies that have either of the
following in any financial year:
►Net worth of INR 500 core or more
►Turnover of INR 1000 core or more
►Net profit of INR 5 core or more
 LIST OF CSR ACTIVITIES
• Eradicating extreme hunger and poverty;
• Promotion of education;
• Promotion of gender equality and empowering women;
• Reducing child morality and improving maternal health
• Ensuring environmental sustainability
• Employment enhancing vocational skills
• Social business projects
• Contribution to the Prime Minister's National Relief Fund or
any other fund setup by the Central Government or the State
Governments for socio-economic development and relief and
funds for the welfare of the Scheduled Castes, the Scheduled
Tribes, other backward classes, minorities and women
• Such other matters as may be prescribed. (Corporate Social
Responsibility) Companies act, 2013
 Corporate Social Responsibility:
• Section 135 of the Companies Act, 2013
Schedule VII of the Act and Companies (CSR
Policy) Rules, 2014