Ethical Practices Lead to Higher Performance for Insurance Companies

August 7, 2006 ( - Life insurance and annuity companies that demonstrate ethical business practices show better financial performance, including a higher return on equity and more efficient use of capital, according to a study released by Georgia State University's Center for Risk Management and Insurance Research.

According to a press release on the study, the research analyzed the value of a company’s qualification in the Insurance Marketplace Standards Association (IMSA) and found IMSA-qualified companies have:

  • Almost two levels higher A.M. Best ratings,
  • 4% higher Return on Equity,
  • 8% increase in cost efficiency,
  • 3% increase in revenue efficiency,
  • 27% lower legal fees and expenses (an average savings of $217,221), and
  • 88% lower investigation and policy settlement expenses (an average savings of $632,602).

By comparison, according to the release, the study found companies that are not IMSA-qualified have:

  • 3.2 – 4% higher lapse rates,
  • 10% higher rate of regulatory discipline, and
  • 67% higher ranking on the study’s Justified Complaint Index.

“Life insurance and annuity companies that invest in a strong ethical infrastructure with verifiable policies and procedures have better financial results shown by higher A.M. Best ratings, higher cost and revenue efficiencies. Shareholders (or policyholders for mutual companies) are rewarded with higher profits. They also have greater cost efficiencies, including lower costs of regulatory compliance and lower expenses,” said, Dr. Martin Grace, one author of the study, according to the release. “These data show that companies with a tangible commitment to ethical business practices and compliance monitoring show strong financial results.”

An executive summary of the study is  here .