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Ethical issues in insurance marketing in the UK



Concern about ethical practices in the marketing of financial services has increased in recent years, despite an apparent strengthening of the regulatory framework. In part the ethical problems associated with the promotion and distribution of financial services may be attributable to specific features of the market such as asymmetric information. From the consumers’ perspective, there is a range of anecdotal evidence concerning ethical problems in the marketing of financial services in general and insurance products in particular. Information concerning the industry perspective on these issues is limited. Presents evidence of the extent to which ethical problems in marketing are identified by those in the industry and the extent to which the views of marketing staff differ from those of non-marketing staff.
Ethical issues
in UK insurance
Ethical issues in insurance
marketing in the UK
Stephen R. Diacon and Christine T. Ennew
School of Management and Finance, University of Nottingham,
Nottingham, UK
The past two decades have witnessed a growing interest in both business and
marketing ethics. The marketing of financial services in general and insurance
products in particular presents an interesting case study of many of the ethical
issues which can arise in relation to marketing. The specific characteristics of
many of the products being marketed (complexity, risk, longevity) pose a
number of ethical problems, particularly when considered in the context of a
market which is characterized by extensive information asymmetry. This
article examines the nature of these ethical problems from a conceptual
perspective and presents empirical evidence on the extent to which managers in
the industry recognize the existence of such problems. The second section
briefly reviews the key ethical issues in marketing financial services and the
following section presents empirical evidence on these issues based on a survey
of UK insurance company executives. Finally, the conclusions and implications
of the study are presented.
Marketing ethics in the financial services sector
The issue of business ethics in relation to marketing is an area of considerable
importance. Because the marketing function provides an interface between the
organization and the environment, marketing activities are highly visible to the
general public and many of the most obvious examples of ethical abuse relate to
the activities of the marketing department (Dubinsky and Loken, 1989; Ferrell
and Gresham, 1985; Laczniak, 1983). Research in this area has followed a
number of strands ranging from general theories of marketing ethics (Ferrell
and Gresham, 1985; Ferrell et al., 1989: Singhapakdi and Vitell, 1990) to studies
of specific situations such as purchasing, the environment, and market research
(Akaah, 1989; Davis, 1992; Davis et al., 1979). The majority of such research has
been positive in nature, although the discussion by Robin and Reidenbach
(1987) focuses on the more normative aspects of integrating ethics and social
responsibility into the strategic marketing planning process. In general though,
the absence of clear and unique moral imperatives, in conjunction with the
recognition that ethical standards are evolving and are not constant across
European Journal of Marketing,
Vol. 30 No. 5, 1996, pp. 67-80.
© MCB University Press, 0309-0566
This article has benefited from the helpful suggestions of both referees and the editor of this issue
of the journal.
of Marketing
individuals or organizations (Ferrell and Gresham, 1985), has led most
researchers to concentrate on examining ethical issues and analysing ethical
behaviour rather than attempting to define what is or is not ethical in
marketing. Thus, rather than considering what is right or wrong, research has
tended to focus on the ethical issues and concerns which may arise in marketing
and the ways in which individuals and organizations may behave when
confronted by such issues.
The extent to which ethical issues have been examined in relation to services
is limited, although it has been argued that certain ethical issues are
particularly acute in the services sector. This may be partly a consequence of
growing economic pressures and partly a consequence of service
characteristics such as intangibility and inseparability which increase the
potential for ethical abuse (Kennedy and Lawton, 1993). In the financial services
sector, it has become apparent that ethical issues are of growing importance
(Davis and Worthington, 1993; Gibbs, 1993) although the marketing of ethical
products (e.g. the Co-operative Bank, ethical investments) has probably
attracted more attention than the ethical issues surrounding the marketing of
the normal range of products. Nevertheless, there are a number of features of
the financial services sector which create the potential for ethical problems in
marketing. In addition to the problems which may be created by generic service
characteristics, the complexity and longevity of many financial services and the
importance of trust and confidence in the marketing process can also give rise
to ethical dilemmas. Although trust is important in any exchange process, it is
arguably of particular significance in the context of financial services (Gibbs,
1993), first because of the problems of information asymmetry and bounded
rationality on the part of consumers and second because of the heavy reliance
within the industry on personal selling. The combination of these two factors
creates an environment in which the development and maintenance of trust
becomes particularly problematic (Oakes, 1990). The providers and sellers of
savings and investment products typically have more and better product
information than the buyers and despite the apparently growing degree of
financial sophistication among consumers, there remains evidence of a
substantial lack of understanding of savings and investment products (OFT,
1992). Furthermore, when many sales forces operate on a commission-only
basis the presence of this type of asymmetric information enhances the
potential for ethical abuse.
The potential vulnerability of consumers in this respect has been recognized
in the existing regulatory regime in the UK. The regulatory principles
embodied in the Financial Services Act (FSA) 1986 dealt explicitly with the
problems created by imperfect and asymmetric information in relation to
savings and investment products. Polarization was imposed to ensure that
consumers were aware of the type of intermediary (tied or independent) with
whom they were dealing. Similarly “best advice” was required to ensure that
consumers would not be sold products which were unsuited to their needs.
Commission disclosure was also introduced to make customers aware of the
Ethical issues
in UK insurance
intermediary’s incentive structure. The evidence to date suggests that the
regulations imposed by the FSA may have been less than successful in
providing the required degree of investor protection (Devlin and Ennew, 1993)
and that customers are becoming increasingly dissatisfied with the standard of
advice they are receiving. While public concern about the extent of unethical
practices in the industry has increased, there is relatively little systematic
research which addresses such issues.
In order to analyse the nature of ethical issues in financial services marketing
we must first consider the nature of ethics in marketing. At the most simple
level, the role of marketing is to facilitate transactions between buyers and
sellers. Concern about ethical issues in marketing can therefore be translated
into concern about the processes surrounding these transactions. Any
transaction might be considered fair or ethical if both parties have adequate and
appropriate information and both enter the transaction willingly and without
coercion (de George, 1990). This concept can be extended by the inclusion of
notions of product safety and fitness for purpose. Thus an examination of the
ethical issues in the marketing of savings and investment products requires a
detailed consideration of the nature of the products themselves and the ways in
which they are sold.
First, however, there are arguably a number of features of savings and
investment products which create the potential for ethical marketing problems.
As a consequence of intangibility most savings and investment products are
highly complex from the consumer perspective (Donnelly et al., 1985). This
complexity is a function of both the confusing nature of many financial
products and services, as well as the vast choice available. This in turn greatly
increases the complexity of the consumer’s decision making process
(McAlexander and Scammon, 1988). In order to make an informed choice when
purchasing a savings or investment product, consumers must understand the
essential differences between simple products like interest bearing savings
accounts and more complex pooled investment products, as well as being able
to evaluate the relative merits of the different brands available.
This problem is reinforced by the risk associated with most savings or
investment products. The final benefits payable are typically determined both
by the skills of the product provider and by the future performance of the
economy as a whole. Returns for similar product types may vary considerably
according to the time period involved, and returns for different product types
may also vary at any point in time. Thus unlike many goods and services, the
quality of a savings or investment product may, to a degree, be determined by
factors which are beyond the control of the provider. This risk element is
reinforced by the long-term nature of many of the products. The benefits are not
received until some time in the future and there is therefore a risk that a change
in the customer’s circumstances may render a product inappropriate. Thus,
although the original sale may have been conducted in a highly ethical fashion,
the customer is left with an unsatisfactory product. This may create the
appearance of mis-selling when no such mis-selling has actually occurred.
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The key ethical issues which face those involved in the marketing of savings
and investment products can be analysed in relation to the traditional four
elements of the marketing mix. It will be argued that specific and potentially
substantial ethical problems arise in relation to the promotion and distribution
of savings and investment products.
The ethical aspects of a product relate to issues of fitness for purpose and safety
(both to users and others who might be affected). The design of savings and life
insurance products is often the responsibility of actuaries who have clearly
defined standards of professional conduct which generally ensure that the
product itself is fair and equitable. However given the dependence of many
financial products on broad economic performance, there are clear risks that
environmental change will render a product unsuitable for the purpose for
which it was sold. For example, considerable concern has been expressed in
relation to Home Income Schemes (OFT, 1992) because of their vulnerability to
sudden and unpredictable changes in economic conditions. Furthermore even in
the case of ostensibly low risk products, problems may arise when products are
sold in circumstances for which they were not intended. In the UK, the
regulatory authority (the Personal Investment Authority) has indicated its
intention of introducing a system of regular “mystery shopping” in order to
check that products are not mis-sold. Indeed it would appear that many of the
key ethical issues in the context of savings and investment products arise not so
much in relation to the fundamental design of the product but rather to the
ways in which such products are marketed and delivered to the customer.
The issue of pricing is a complex one in relation to savings and investment
products since price is typically neither highly visible nor readily understood.
The purchase of a savings or investment product involves the consumer in
either a single lump sum payment or an ongoing contribution. In either case,
only part of that payment is actually invested on the customer’s behalf with the
remainder covering commission or marketing and other expenses. The funds
not invested represent the price paid by a consumer for a product. Although
commission/selling expenses are often known at the time of sale (so-called hard
disclosure was introduced in the UK on 1 January 1995), the true expenses for
many savings products are not known with certainty until some future date.
(For unit linked policies, expenses are known ex ante, but the same does not
hold for with profits policies.)
The question of ethical approaches to pricing requires, as a minimum, that
pricing is transparent as far as is possible. Under the original regulatory regime
this was not the case. However following pressure, primarily from the Office of
Fair Trading (OFT, 1990), the UK Treasury has required the Securities and
Investments Board to draw up rules to produce full disclosure of commissions
and charges. In principle, this should result in greater transparency in pricing,
Ethical issues
in UK insurance
although such changes have been strongly resisted by the industry. In part this
resistance may be explained by the difficulties associated with defining a price in
monetary terms (for products whose costs will not be fully specified until some
future date); nevertheless these changes should significantly improve the degree
of transparency in pricing. However, it should be noted that regulation can only
provide a partial solution and the extent to which more transparent pricing will
be beneficial depends on the willingness of consumers to use such information.
The ethical aspects of promotion in relation to savings and investment products
have two important dimensions. The first is the promotion of the product and
the second is the promotion of the intermediary providing that product. More
generally, we can think of these distinctions as being between non-personal and
personal forms of promotion. The discussion of ethics in relation to promotional
activities typically focuses on issues of truth (de George, 1990). Truth, it is
argued has two dimensions, at least from a marketing perspective, namely
consumer truth and scientific truth (Davis, 1992). The former is defined as what
the average person might reasonably interpret, while the latter is seen as
anything which can be proved in relation to facts and therefore is not legally
false. The promotion of savings and investment products is regulated by the
terms of the FSA to prevent exaggerated or inaccurate claims and to ensure
that consumers are given sufficient warning of the risks associated with various
products. The emphasis (even with appropriate caveats) on past performance
figures in the promotion of savings and investment products may produce
promotional material which can be justified in terms of scientific truth and yet
is questionable in terms of consumer truth.
Issues surrounding the promotion of the intermediary essentially relate to
issues of personal promotion and of particular interest is the distinction
between authorized representative (AR) and independent financial adviser
(IFA). In a legal sense, the IFA is the agent of the consumer while the AR is the
agent of the producer. However, in practical terms both types of intermediary
have agency relationships with consumers and producers, creating at least a
potential conflict of interest. This issue is explored in greater detail in the
section dealing with distribution.
It is in relation to distribution that some of the most serious issues of marketing
ethics arise. Ethical problems in relation to distribution are concerned primarily
with problems relating to the ways in which products are sold. All types of
intermediary have a significant advisory role to play and thus can exert
considerable influence on the final product choice made by the consumer. The
overwhelming majority of intermediaries, including direct sales staff, are
remunerated either by a mixture of basic salary and commission, or by
commission alone. While agency theory would suggest that outcome based
contracts of this nature may be efficient in this type of market (Eisenhardt,
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1989), there is no assurance that such systems are ethical, particularly given the
resultant pressure to sell in a market characterized by considerable consumer
ignorance. Since an intermediary will not receive any payment unless a product
is sold, there is clearly a disincentive to recommend to the client that they do not
need to buy any savings or investment product at all. Equally, despite having an
advisory role to play, it may also be the case that the intermediary is reluctant
to recommend a type of product (for example, a National Savings Certificate) on
which no commission is payable, although such a recommendation may be
consistent with the principle of best advice. (The term best advice has now been
qualified and now refers to the most appropriate advice, given the information
However, it is the management of commission based systems that presents
more immediate ethical problems given that current practice involves both
variations in the rates paid to particular types of intermediaries and variations
in the rates paid on particular types of product. ARs are typically paid much
higher levels of commission than IFAs, in addition to receiving other non
financial benefits from companies, such as stationery and marketing aids. The
fact that by being a tied agent of one company an individual could earn more
than an IFA for selling the same products may influence the structure of the
distribution network in the long term (Knights and Morgan, 1995). Product
providers may argue they are entitled to develop strategies which promote the
system of distribution they feel to be most appropriate, but such activities may
be unethical if it can be shown that they inhibit the competitive process. Indeed,
the gradual reduction in the number of IFAs since the introduction of the FSA
has reinforced concern about the extent to which the current commission
system distorts the pattern of competition (OFT, 1992).
A further question of conflict introduced by the commissions system applies
to IFAs only. This is the concern that different rates of commission paid by
different product providers may skew the advice towards those companies
which pay higher commission rather than those offering the best value
products. A check against this is provided for by the regulators who would
question the reasons for an intermediary placing a large proportion of his/her
business with one company, but the procedure is at best partial. There is also
evidence of considerable variation in commission payments across product
categories. A five year guaranteed income bond results in a commission
payment of between 1.5 and 2 per cent of the initial lump sum premium
invested. A similar investment placed in a Unit Trust would bring a 3 per cent
payment and into a unit-linked investment bond well over 5 per cent. It is highly
likely that such discrepancies in commission payments tend to bias the advice
that consumers receive and raises concerns about whether products are being
sold inappropriately.
Methodology and sample
The previous discussion has highlighted some of the more significant ethical
issues in the financial services marketing mix. In particular, it has been argued
Ethical issues
in UK insurance
that the combination of certain structural features in the market for savings and
investments products and gaps in the regulatory regime suggest that there is
potential for ethical abuses in the marketing of savings and investment
products. While there is a considerable amount of anecdotal evidence on the
nature of this problem from a consumer perspective, little is known about
industry views on the extent to which ethical problems arise in marketing. The
life insurance industry, which constitutes one of the major suppliers of savings
and investments products was selected as an appropriate environment for an
examination of managerial perceptions of the extent to which ethically
questionable practices are employed in marketing.
Data for the study were collected by means of a postal questionnaire
distributed on an anonymous basis to senior management in UK-licensed
insurance companies in September 1993. (The names and addresses were
drawn from the database of UK insurance executives maintained by the
University of Nottingham Insurance Centre.) The questionnaire sought to
collect factual information on the importance attached to ethics within the
respondent's immediate company (which might be a subsidiary of a larger
group) along with attitudinal data concerning perceptions of the ethical
behaviour of UK insurance companies. In particular respondents were asked
how frequently they thought their company, and their main insurance company
competitors, engaged in a series of marketing activities which have a significant
ethical dimension.
A first draft of the questionnaire was piloted on some 16 insurance industry
specialists and the final form was distributed to approximately 400 named
individuals. A total of 115 useable responses were received representing a
response rate of 29 per cent. Of these, 81 were from Life Insurance or Life and
General Insurance companies and these were selected for further specific
analysis. A breakdown of the personal characteristics of respondents is
provided in Table I.
The characteristics of the respondents’ companies are outlined in Tables II
and III. The sample is marginally dominated by joint stock companies, but with
a strong representation from mutuals. A little under half of the sample are
specialist life offices (37) and the remainder are composite insurers. Most of the
leading UK life officers were represented in the sample.
Occupation Number Characteristic
Marketing/sales 25 Male (n)79
Accounting/finance 13 Female (n)2
Planning/strategy 8 Insurance qualification (n)59
Actuarial 13 Average age 41.7
Staff/personnel 4 Average years in insurance 19.1
General management 18 Average time with company 13.1
Table I.
Personal characteristics
of respondents
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Some 39 per cent of respondents indicated that their company had a formal
statement of its ethical stance and over half (56 per cent) indicated that the
company’s mission statement included reference to ethical practices and
behaviour. As Table IV shows, staff training, briefings and line managers were the
main media through which a company’s ethical stance was communicated to staff.
The main part of the questionnaire asked respondents how frequently they
thought insurance companies (their own and their main competitors) undertook
activities which, in some circumstances, might be considered unethical.
Participants were presented with a list of 17 activities and asked to place them
on a five point scale (where 1 = always, 2 = most of the time, 3 = sometimes,
4 = occasionally, and 5 = never). The choice of activities for inclusion was based
Method of communication Number citing
Training courses 34
Company newsletters 18
Personal copy of statement 18
Staff briefings 34
Via line managers 36
Not at all 15
Total in sample 81
Table IV.
Means of
communicating ethical
Worldwide net premiumsaGeneral Long-term
(£ million) (n)(n)
0-50 4 7
50-100 4 11
100-1,000 16 40
Over 1,000 20 23
Total number 81 81
(aOf respondent’s company, which may be a subsidiary)
Sample (%)
Mutual 41
UK-quoted plc 36
Non-UK quoted plc 11
Other 11
(n= 81)
Table II.
Legal status of
respondents’ companies
(or of the parent if
company is a
Table III.
Size of respondents’
companies (1992)
Ethical issues
in UK insurance
partly on previous business ethics literature (Murphy et al., 1992; Tyson, 1992)
and on the specific ethical issues that can arise in the insurance industry (some
of which are discussed by Cadogan and Lewis (1992), King (1988) and Light
(1992)). The resulting scale covers a range of product, market and internal
activities and 13 items were identified as relating specifically to marketing.
A comparison of the mean scores for respondents’ own companies and for
their main competitors on each scale item is presented in Table V. The scores
indicate the extent to which respondents believe that their own company
engages in various practices, with higher scores indicating that an activity
rarely happens. The low ranks generally attached to promotion issues suggest
that this is perhaps seen as an area in which there are significant problems. For
example, the scores would seem to suggest that the promotion of products
which are inappropriate for the consumer occurs rather more frequently than
the use of unauthorized gifts or the use of small print clauses. Interestingly the
aspect of promotion which appears to occur least frequently is the use of
misleading information about competitors. The design of biased commission
structures which is a price based factor but which also has implications for
distribution is also identified as an activity which occurs relatively more
Own company Competitors
Mean Mean
score Rank score Rank
Product service issues
Delay payment of valid claims 4.8 2 4.0 2
Not comply with codes of practice 4.6 4 4.0 2
Use small print clauses 4.5 7 3.9 5
Not inform customers about insurance ombudsman 4.6 6 4.1 1
Pricing issues
Charge higher premiums than justified 4.4 8 3.9 5
Fail to design commission structures to avoid product bias 3.6 12 3.1 12
Promotion issues
Promote inappropriate products 3.9 10 3.7 8
Not inform regulators of security problems 3.8 11 3.3 11
Not inform press of security problems 1.8 1.3 1.7 13
Use misleading information about competitors 4.6 5 3.6 9
Distribution issues
Not provide adequate training for sales staff 4.1 9 3.4 10
Authorize deceptive marketing 4.7 3 3.9 5
Offer unauthorized gifts 4.8 1 4.0 2
(1 = always do, 5 = never do)
All differences statistically significant except promoting inappropriate products, not informing
Table V.
Mean scores and
rankings for ethical
issues in marketing
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frequently. The issue of promoting inappropriate products and designing
commission structures which may introduce product bias are perhaps both
issues for which the ethical implications are more subjective and less clear cut
than is the case for activities such as deceptive marketing and offering
unauthorised gifts. Furthermore, it is also apparent that respondents generally
see themselves as more ethical than their competitors, an outcome which is
consistent with studies of ethical attitudes and behaviours in other situations
(Tyson, 1992) In general the rank ordering of the different activities is similar
although respondents indicated that they believed that the use of misleading
information about competitors was relatively less frequent in their own
company than it was among their competitors.
Table VI provides a comparison of the views on ethical behaviour by
marketing and non marketing managers, and there is some evidence of
Marketing Non-marketing T-value
Product service issues
Delay payment of valid claims 4.72 4.87 –1.30
Not comply with codes of practice 4.68 4.60 0.56
Use small print clauses 4.72 4.44 1.70*
Not inform customers about insurance ombudsman 4.84 4.50 2.19**
Pricing issues
Charge higher premiums than justified 4.48 4.30 0.91
Fail to design commission structures to avoid product bias 3.80 3.50 1.12
Promotion issues
Promote inappropriate products 3.88 3.85 0.11
Not inform regulators of security problems 4.43 3.57 2.66**
Not inform press of security problems 1.57 1.90 –1.18
Use misleading information about competitors 4.60 4.62 –0.17
Distribution issues
Not provide adequate training for sales staff 3.84 4.15 –1.32
Authorize deceptive marketing 4.92 4.62 2.50**
Offer unauthorized gifts 4.98 4.81 0.67
Importance of ethics to company 4.40 4.00 2.46**
Importance of personal ethics in appointment 3.40 3.05 1.11
*Significant at p< 0.10
**Significant at p< 0.05
aOn a scale from 1 = not important to 5 = very important
Table VI.
Perceptions of ethical
problems for marketing
managers and non-
marketing managers
(1 = always do,
5 = never do)
Ethical issues
in UK insurance
different perceptions regarding ethical activity in their own companies. In
general, marketing managers have a more positive view of their companies
as they believe that they are less likely to undertake actions which are
ethically questionable. In particular, marketing managers have a
significantly more positive view in relation to failure to draw customers’
attention to the existence of an Insurance Ombudsman, failing to inform
regulators, using small print and authorizing deceptive marketing.
Furthermore, marketing managers identify ethics as being more important
to their company overall.
One possible interpretation of these results would be that they reflect a
cynical view of marketing ethics by non-marketing staff and a rosy view of
ethics by marketing staff. However, the pattern is not entirely consistent with
instances in which non marketing staff take a more positive view than
marketing staff. This may indicate that the results are not solely based on
prejudice but rather give perhaps some indication of both differences in
experience and differences in ethical priorities.
The importance of ethical considerations in the marketing process is based on
the lack of perfect information and the consequent need for trust within
exchange relationships. Although all markets are characterized by imperfect
information, the requirement for trust in exchange relationships is enhanced
in service industries because of the additional uncertainty created by service
intangibility. The market for savings and investment offers a particularly
interesting case study of ethical issues in relation to marketing. The product is
clearly highly intangible and trust is of particular significance in this market
because the imperfect information (which is a feature of all markets) is
particularly acute in the market for savings and investment products.
Imperfect information can be attributed to two underlying problems, namely
information asymmetry and bounded rationality, and both of these are of
considerable significance. While there is scope for regulation within the
industry to reduce the extent of information asymmetry through
requirements for various forms of information disclosure, the problem of
bounded rationality remains as a real constraint within which providers of
savings and investment products must operate. The presence of bounded
rationality places a premium on trust in order to market products effectively
and thus requires that consumers can be confident about the ethical standards
of the organizations with which they deal.
Given the nature of the information problems which exist in the market for
savings and investment products, it is possible to identify a number of areas
in which there are ethical problems in relation to marketing. In particular,
promotion and distribution are identified as areas in which difficulties will
arise because of the impact that these activities have on information flows to
consumers. Although there is anecdotal evidence of ethical problems in
promoting and distributing savings and investment products, systematically
of Marketing
measuring the extent and nature of these problems is difficult. A survey of
senior managers in UK insurance companies does give a indication that there
is a general awareness of the existence of a range of ethical problems in
marketing. For generic (i.e. non-product specific) marketing activities, such as
offering unauthorized gifts or engaging in deceptive marketing, the
perception of managers is that unethical behaviour occurs rarely. Equally rare
are certain product-specific actions such as delaying payment on valid claims.
However, it is clear that there are a number of product specific activities for
which the situation is less clear cut; in particular, when considering issues
such as bias in commission structure and the promotion of inappropriate
products, it is apparent that managers recognize that such problems do occur,
even if they only do so occasionally. This would suggest that such behaviour
has a greater element of ethical ambiguity than is the case with other
marketing activities.
In common with previous studies of manager’s perceptions, there is clear
evidence to suggest that insurance managers perceive that their competitors are
less ethical than their own organization; unethical activities are thought to
occur but are more likely to be initiated by a competitor than by the
respondents’ own organization. Within their own companies, there is also
evidence to suggest that there are significant differences of opinion between
marketing and non-marketing managers. However, there is no real evidence to
suggest that these differences reflect any systematic pattern in the perceptions
of the two groups of managers, although marketing managers seem to be
slightly more sanguine about the existence of unethical behaviour in their own
In overall terms, the results indicate that certain types of ethically
questionable behaviour are in evidence in the marketing of savings and
investment products. The design of commission structures and the promotion
of inappropriate products are the two issues which cause most concern. It is
also apparent from the conceptual discussion that these are areas in which
consumers may be particularly vulnerable as well as being areas in which the
design of effective regulations may be difficult. Indeed these concerns raise a
more general problem with respect to the ethical governance of marketing
activities. Clearly, in the case of the marketing of savings and investment
products, it is the combination of commission-based selling and imperfect
information which creates many of the most significant opportunities for
unethical or ethically questionable behaviour. As a result of the recent bad
publicity (in relation to the mis-selling of personal pensions in particular)
many UK life offices are moving away from relying solely on commissions for
their own salesforces. However it is difficult to see how the reliance on
commission can be avoided in the case of appointed representatives and IFAs,
although there is an ongoing discussion about how the structure of
commission could be changed in order to reduce the incentives to mis-sell (for
example, by reducing the proportion of front-end lump sum commission).
Whether regulators could or should elect to restrict the use of practices such
Ethical issues
in UK insurance
as commission-based selling which have a clear economic rationale, is much
more debatable.
An alternative approach to controlling mis-selling may be to improve the
training of company salesforces (and those of their appointed representatives)
and imbue higher standards of professionalism and ethical behaviour. In this
respect, the recruitment of suitably qualified salesmen, and the rigour and
intensity of their subsequent training is crucial. This is an issue in which the
regulatory authorities (for example LAUTRO) have taken a close interest, and
there is certainly circumstantial evidence emerging of wide disparities among
companies in the quality of training programmes for salesmen.
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... Some common external factors are the monopoly of agents, unawareness of customers, poor compensation policy (Diacon & Ennew, 1996), demography, top management, peers, corporate code of ethics (Eastman et al.,1996), organisational policy, environment towards ethics and focus on short-term benefits. These factors directly influence agents' ethical intentions (Kurland, 1996). ...
This case study is about misselling of insurance policies and associated ethical challenges in a leading insurance company. Pro-organisational ethical violations mostly remain unnoticed and are often protected by implausible explanations. In the long run, persistent rationalisation makes malpractices a norm. The present work describes the interventions applied by a consulting firm to bring behavioural integrity. The consulting firm found that socialisation, rationalisation and institutionalisation considerably influenced people’s behaviour at the workplace and normalised unethical behaviour of insurance agents. It architected the behaviour of salespeople by specifically designed interventions through self-control mechanism and nudges. These interventions developed integrity in employees and reduced the number of cautions, warnings and terminations.
... (Berry, 1995). Instead of measuring what is right or wrong, the research has examined the ethical issues and concerns that occur in marketing and how customers and firms behave when they encounter such issues (Diacon & Ennew, 1996). Bartels (1967) developed the first conceptualisation of the factors affecting marketing ethical decisions. ...
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The issue regarding the transition of members from their current medical schemes to the National Health Insurance (NHI) in South Africa has erupted in much debate. This study, modelled on enlightened marketing philosophy concepts, measures the effects of the perceived costs classified by type (procedural, financial, and relational) and direction (positive and negative) of this switch in terms of Customer Satisfaction. It also measures the impact on the perceived marketing ethics of current medical schemes in South Africa. Data were collected using a face-to-face survey from 250 consumers of medical schemes in South Africa. An 83.2% response rate was entered into SPSS Version 26, and AMOS Version 26 to test a two-step modelling approach (SEM). The results reveal positive significant effects of personal relational loss costs and benefit loss costs on Customer Satisfaction, which in turn, negatively affects currently perceived marketing ethics of medical schemes. For customers paying high and medium medical scheme contributions, and those who have prior switching experience, the results show that the costs of increasing benefit loss enhance Customer Satisfaction. Increasing satisfaction then enhances perceptions of marketing ethics for customers who do not have switching experience. The practical implications and recommendations explain marketing strategies to medical scheme practitioners to enable the enhancement of personal relationships with customers and increase the service benefits, which in turn, removes the current negatively perceived marketing ethics. This paper, therefore, links articulation of the disconfirmation Expectation Theory and the General Theory of Marketing Ethics in the context of medical schemes in South Africa. Limitations and relevant future research avenues conclude the discussion of the research study.
... Customers behave in a different manner in financial service contexts compared with non-financial ones, for example, being more passive (Diacon and Ennew, 1996;Hauff, 2014). Bank customers arguably have higher expectations and behave in a more sophisticated manner than do other types of customers (Foscht et al., 2009). ...
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This thesis investigates young bank customer (YBC) perceptions of loyalty in the context of mobile bank applications (MBAs), including loyalty antecedents and the consequences of loyalty. A first study investigates the relationships between cognitive, affective, and conative antecedents, on one hand, and loyalty, on the other. A second study investigates the relationships between usability, responsiveness and reliability, and customer satisfaction, on one hand, and loyalty, on the other. The thesis employs a theoretical framework describing customer loyalty in the MBA context. An electronic questionnaire was sent to 500 YBCs in the Mid Sweden region (146 completed questionnaires were received), and confirmatory factor analysis and structural equation modelling were employed to test and develop a measurement model from the responses. Synthesizing the results of the studies performed suggests a model of MBA loyalty from the YBC perspective. The model indicates that cognitive and usability antecedents are significantly related to customer satisfaction, which in turn is significantly related to attitudinal and behavioural loyalty. Despite some limitations, the thesis has novel implications for theory and practice regarding YBC perceptions of MBAs.
... Heskett et al. (1997) provide a similar perspective about the frontline employee empowerment termed "employee's capability". Moreover, the role of trust in the development and maintenance of successful relationships is likely to be of particular significance in the service sector, especially in the banking sector because of the complexity of many of its products (Diacon and Ennew, 1996). The degree to which a customer trusts a particular salesperson will be positively influenced by the belief that the salesperson or the front-line employee is operating in the customer's best interests (customer-oriented), and negatively influenced by the belief that the customer-contact employee is operating in their own best interests (sales-oriented) (Bejou et al., 1998). ...
... A RELAÇÃO ENTRE SATISFAÇÃO E LEALDADE EM MULTICANAIS: uma reavaliação dos fatores confiança, valor e custo de mudança no setor bancário brasileiro Diego de Sousa Guerra, Alice de Freitas Oleto, Verónica Peñaloza Neste trabalho, optou-se por utilizar "confiança" e "valor percebido". O fator confiança é fundamental na construção e manutenção de relacionamentos (Morgan & Hunt, 1994;Oakes, 1990), especialmente no contexto de serviços financeiros, devido à intangibilidade, complexidade e assimetria de informações (Ennew & Sekhon, 2007;Bejou Bejou, Ennew, & Palmer, 1998;Diacon & Ennew, 1996;Gibbs, 1993). ...
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O mercado bancário brasileiro vem sofrendo transformações, em especial, com as mudanças impostas pela adoção de multicanais de relacionamento com os clientes. Assim, o objetivo desse trabalho foi revisitar a natureza e intensidade da relação entre satisfação e lealdade no contexto bancário muticanal. Além disso, foi avaliado qual o impacto preditivo da inclusão dos mediadores confiança e satisfação nesta relação. Para isso, foi realizado um estudo de abordagem quantitativa. A fase de coleta resultou em 198 questionários de consumidores multicanal, sendo 125 deles validados. Os dados foram tratados através de um modelo de equações estruturais baseado em variância. Os resultados sugerem que a satisfação tem papel importante na explicação da variabilidade da lealdade. Além disso, a satisfação mediou completamente a relação entre valor e lealdade, mas não teve sua relação com a variável dependente mediada pela confiança. Como implicação gerencial, a importância atribuída à satisfação gera uma orientação distinta a de Kumar, Pozza e Ganesh (2013), que entendem existir uma ineficiência de investimentos maciços em satisfação dos consumidores como forma de atingir maiores índices de lealdade. Desta forma, o consumidor preocupa-se apenas com aspectos pragmáticos da relação e, consequentemente, há pouca ou nenhuma diferenciação percebida entre as instituições. Por fim, esse trabalho sofre de limitações próprias de estudos conduzidos com amostras de natureza não probabilística. Apesar dos resultados serem bons indicativos da natureza e intensidade das relações, faz-se necessária a realização de estudos complementares que ratifiquem as relações aqui apresentadas.
... The context chosen for this study is the relationship between UK consumers and financial advisers as trust has been shown to be a significant influence upon the willingness to purchase higher risk financial services products (Inderst and Ottaviani 2012) and of increased importance in situations where the product or service being purchased is both high risk and high credence as is the case of financial services products purchased through a financial adviser (Diacon and Ennew 2007). Consequently trust has been described as playing a central role in the relationship between a consumer and their financial adviser (Ennew 1992;McKechnie 1992). ...
Conference Paper
Responding to calls for research into the drivers of environmental or system trust this study examines and identifies factors that foster consumer trust in the environment within which the UK financial services industry operates against the background of the 2008 financial crisis and other scandals that have affected the industry. The findings suggest that consumers hold a generally positive perception of both statutory and self-regulation and draw considerable reassurance from regulations related to the industry itself and wider data protection regulation. Consumers are also shown to hold expectations concerning both the attire and condition of the business premises of financial advisers which if not met can adversely affect the formation of trust and disrupt transactions. A finding not suggested in the existing academic literature links consumer needs for privacy, confidentiality and data security to premises design and indicates that consumers also hold considerable expectations in this regard.
... Furthermore, the purchase of complex long term financial services products is an infrequent if not once in a lifetime purchase for many consumers (Ennew, 1992, Gough andNurullah, 2009) which carries the implication that many consumers will purchase financial services products without the benefit of previous experience. This has been found to cause information asymmetry between consumers and their financial advisers (Diacon and Ennew, 2007). Consequently, it would also effectively be impossible for the principal (consumer) to use an information system mechanism to judge the performance of the agent (financial adviser), as often the principal would not have enough information to make that assessment, or in circumstances where the information was available, given the inherent complexity of financial services products and the financial services industry, may not be able to comprehend that information to the extent needed to judge the performance of the agent. ...
Conference Paper
This developmental paper addresses one of the key dilemmas of Agency Theory, specifically how does the principal in a relationship evaluate and assess that the agent in the relationship is conducting themselves in an appropriate manner and behaving in their best interests and with integrity utilising the context of the purchase of a high risk credence product where information asymmetry exists between the principal and the agent.
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Due to COVID-19, incomplete sales so called mis-selling of telemarketing channels, which mainly perform non-face-to-face insurance sales activities, are steadily increasing under various regulations and supervision. Insurance products are intangible products and have complexity and variety of products themselves, so it is difficult for sellers as well as consumers to understand the details of insurance products. In this study, product factors and organizational factors were set as factors affecting mis-selling in telemarketing insurance sales channels. In detail, the authors set the complexity and diversity of insurance products were set as product factors, and tranining and empowerment as organizational factors, we tried to investigate the relationship between job satisfaction of insurance salespersons and mis-selling. As a result of surveying 193 telemarketing salespeople working for 5 domestic life insurance companies and securing the number of mis-selling for them and validating them with a structural equation model, the complexity and diversity of insurance products, which are product factors, negatively affect job satisfaction, and organizational factors such as training and empowerment were found to have a positive effect on job satisfaction. Moreover, job satisfaction was found to have a negative effect on mis-selling. In summary, in the absence of empirical studies on factors affecting mis-selling of insurance products, this study identified factors affecting job satisfaction of insurance salespersons. It provides practical implications that can contribute to reducing mis-selling if job satisfaction is increased.
This study will help researchers, developers, and managers to understand the major determinants of customer acceptance of mobile banking that can help banks to improve the rate of mobile banking adoption in developing country context. This study seeks to investigate the underlying factors of mobile banking in Vietnam and Korea. Thus, this study tries to analyze the underlying factors of the adoption of m-banking and the differences between developed country (Korea) and developing country (Vietnam) in terms of the adoption factors of mobile banking. The results indicated that environmental responsibility affect behavioral intention stronger than social responsibility. Therefore, Vietnamese companies as well as banks should incorporate CSR initiatives in their integrated marketing communication strategy in particular branding strategy to attract more customers. The results of the hypotheses testing showed the differences between Vietnam and South Korea and technology infrastructure difference between the two countries were the driving forces behind these different results. Managerial implications and the limitations of the study were also discussed. Keywords: Trust, Vietnam, Korea, Technology adoption, CSR, Mobile banking
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In the present article, the way asymmetric information emerges in purchasing process has been investigated. The existence of asymmetric information and the insurers and policy holders benefits affected by which have been analyzed and tested practically through interviews and participant observations. The interviewees included 42 life insurance experts in Central Insurance of Islamic republic of Iran. The interviews information was extracted through content analysis and the results were finally tested through participant observation in real market in 9 insurance companies' branches (27 branches). The findings of interviews analysis are indicative of the fact that asymmetry of information in the process of purchasing life insurance in Iran is very obvious and this asymmetry mainly stems from the insurers not giving transparent and correct information to policy holders. This affects policy holder's choice of life insurance type and insurance company and also policy holders' future benefits. Besides, this challenge has been recognized as the main reason of complaints filed in Central insurance of Islamic Republic of Iran in this realm.
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It is widely acknowledged that the "law of insurance contains a number of doctrines which can in theory operate against the interests of the innocent insured person." The courts on numerous occasions have accused the law of operating harshly and of favouring the insurer. This view has been endorsed by academic lawyers, the Law Commission and consumer organizations. Even insurance companies themselves recognize the potential unfairness of the law and have admitted that "in practice they do not take advantage of their full legal rights." Parliament has taken an interest in the manner in which insurance companies have operated ever since 1870. But the major area to escape reform is the insurance contract itself. The explanation often put forward to justify this is that the insurance industry has been prepared to regulate itself. In recent times the Statements of Insurance Practice have provided the most noticeable examples of such self-regulation. These take the form of two documents drafted by the Association of British Insurers (ABI) with one relating to general insurance and the other to long-term business. They were forced upon the insurance industry as the price of keeping insurance contracts out of the otherwise wide scope of the Unfair Contract Terms Act 1977. Introduced in the same year as that Act, the Statements aim to mitigate the severity of the law and set out "normal insurance practice" to be followed by the 839 registered UK insurance companies in their dealings with policyholders. It has been claimed that the Statements work well in practice. Certainly, as will be seen, they represent an improvement upon the strict law of insurance. However, there has been almost no investigation of how the Statements actually operate: no empirical evidence has been published as to how they are viewed by the industry, and whether they are complied with in practice. It is the aim of this article, by using the results of a small-scale survey of insurers carried out by the authors, to assess whether the Statements of Practice are working effectively and to determine whether they represent a satisfactory substitute for reform of the law. In particular, it looks at the problems caused by enforcing the Statements. A series of interviews were conducted with representatives of the Association of British Insurers, the Insurance Ombudsman Bureau, the former Law Commissioner responsible for insurance and five insurance companies. During the structured interviews questions were asked with the aim of obtaining a realistic picture of the way in which the self-regulatory scheme is implemented. In addition, correspondence was conducted with the Department of Trade and Industry concerning the enforcement of the Statements. The overall result of this study offers an indication of the extent to which insurers adhere to their undertaking not to apply the strict laws of insurance. In addition, by comparing present-day practice with what would have been the position had the proposals for reform been enacted, conclusions can be drawn as to whether the Statements provide adequate protection for the insurance consumer and whether legal reform is needed.
Policymakers recognize that investments and investment decisions are vitally important to the financial stability of many families. Poor investment advice may result in decisions which may, in a literal sense, financially cripple a family. With the importance of investment decisions in mind, the purpose of this research is to explore the potential efficacy of public policy proposals designed to remedy the problems consumers have with the investment and financial services markets. To accomplish this purpose, this research takes a micro look at how consumers evaluate and choose investment services, a unique perspective for an impact evaluation.
The authors review the concepts of social responsibility and business ethics as well as some of the reasons why their adoption by marketing practitioners has been somewhat limited. An approach is developed to integrate these concepts into the strategic marketing planning process.
This article addresses a significant gap in the theoretical literature on marketing ethics. This gap results from the lack of an integrated framework which clarifies and synthesizes the multiple variables that explain how marketers make ethical/unethical decisions. A contingency framework is recommended as a starting point for the development of a theory of ethical/unethical actions in organizational environments. This model demonstrates how previous research can be integrated to reveal that ethical/unethical decisions are moderated by individual factors, significant others within the organizational setting, and opportunity for action.
One of the criticisms leveled against previous ethics research in marketing is the lack of systematic manipulation of ethical issues (practices) that underlie "scenarios," the primary research methodology. To correct for this, the present paper illu-strates the use of conjoint analysis as an alternative research methodology. As the paper demonstrates, not only does the use of conjoint analysis help overcome the problem of lack of systematic manipulation of ethical issues underlying scenarios but it also allows for the statistical explication of the ethicality of these issues.
The authors review the concepts of social responsibility and business ethics as well as some of the reasons why their adoption by marketing practitioners has been somewhat limited. An approach is developed to integrate these concepts into the strategic marketing planning process.
This article addresses a significant gap in the theoretical literature on marketing ethics. This gap results from the lack of an integrated framework which clarifies and synthesizes the multiple variables that explain how marketers make ethical/unethical decisions. A contingency framework is recommended as a starting point for the development of a theory of ethical/unethical actions in organizational environments. This model demonstrates how previous research can be integrated to reveal that ethical/unethical decisions are moderated by individual factors, significant others within the organizational setting, and opportunity for action.
This article discusses three ethical frameworks drawn from moral philosophy which can bring ethical insight to marketing decision-making. The frameworks will not provide"the" ethical answer, but rather can help marketing managers better systematize their thinking when dealing with marketing problems having ethical implications. Some of the factors necessary in building a are also presented.
This article provides a partial test of the emerging descriptive theories in marketing ethics. The data were obtained from a mail survey of American Marketing Association members. The results tend to support the hypotheses that ethical policies of organizations and Machiavellianism influence many aspects of the marketer's ethical decision making.