Fiduciary Responsibility in Insurance

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on December 20, 2023

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What Is Fiduciary Responsibility in Insurance?

Fiduciary duty is a legal and ethical obligation that requires insurance professionals to act in the best interests of their clients. Insurance professionals are expected to exercise a high level of care, loyalty, and good faith in their dealings with clients.

This means they must put the client's interests ahead of their own and avoid any conflicts of interest that could compromise their ability to act in their client's best interests.

Examples of actions that breach fiduciary duty in insurance include recommending insurance products that are inappropriate for the client's needs.

It can also be in the form of failing to disclose material information about insurance products, misrepresenting the terms and conditions of an insurance policy, and mishandling client funds.

Fiduciary Responsibilities of Insurance Professionals

Insurance professionals have several responsibilities when it comes to fulfilling their fiduciary duty to clients. These responsibilities include:

Understanding the Client’s Needs and Goals

Insurance professionals must take the time to understand their client's financial and insurance needs and goals. This means asking questions and listening carefully to their clients' responses.

Only by understanding their client's needs can insurance professionals recommend appropriate insurance products.

Providing Accurate and Complete Information About Insurance Products

Insurance professionals must provide their clients with accurate and complete information about insurance products, including the terms and conditions of the policy, the premiums, the deductibles, and any exclusions.

This information must be presented in a way that is clear and easy to understand.

Recommending Products That Meet the Client’s Needs

Based on their understanding of the client's needs and goals, insurance professionals must recommend insurance products that are appropriate for the client.

This means selecting products that provide the necessary coverage while being affordable and manageable for the client.

Handling Client Funds With Care and Transparency

This includes providing regular statements and accounting for any fees or commissions earned from the sale of insurance products.

Acting in Good Faith When Dealing With Clients

This means being honest, fair, and transparent in their dealings and avoiding any conflicts of interest that could compromise their ability to act in their client's best interests.

Fiduciary Responsibilities of Insurance Professionals

Importance of Fiduciary Responsibility in Insurance

Fiduciary responsibility is important in the insurance industry for several reasons.

Building Trust and Credibility With Clients

When insurance professionals act in their client's best interests, they establish themselves as trustworthy and reliable partners committed to providing high-quality service.

This can lead to long-term relationships and generate referrals, benefiting the insurance professional's business.

Reducing the Risk of Legal and Financial Liability

When insurance professionals act as fiduciaries, they are less likely to face legal action or financial penalties for misconduct or breach of fiduciary duty. This can help to protect the insurance professional's reputation and financial well-being.

Promoting Transparency and Accountability in the Insurance Industry

By acting in the best interests of their clients, insurance professionals help to create a more transparent and trustworthy insurance market.

This can lead to increased consumer confidence and greater trust in the insurance industry as a whole.

Benefits for Consumers in Working With Fiduciary Insurance Professionals

Consumers who work with fiduciary insurance professionals can benefit in several ways. First, they can enjoy the peace of mind that comes with knowing that their insurance needs are being handled by a professional who is committed to acting in their best interests.

This can help consumers to feel more confident in their insurance coverage and less anxious about potential risks.

Second, fiduciary insurance professionals can help consumers to find the insurance products that are best suited to their needs and goals.

By providing personalized service and advice, fiduciary insurance professionals can help consumers to make informed decisions about their insurance coverage and feel more in control of their financial future.

How to Identify Fiduciary Insurance Professionals

Identifying fiduciary insurance professionals can be challenging, but there are several things consumers can look for when selecting an insurance professional. Here are some tips on identifying fiduciary insurance professionals:

Credentials and Certifications to Look For

One way to identify fiduciary insurance professionals is to look for certain credentials and certifications. For example, Certified Financial Planners (CFPs) must adhere to a fiduciary standard when providing financial advice.

Other certifications indicating a commitment to fiduciary responsibility include the Registered Investment Advisor (RIA) designation and the Accredited Investment Fiduciary (AIF) certification.

Questions to Ask When Selecting an Insurance Professional

Another way to identify fiduciary insurance professionals is to ask potential insurance professionals about their fiduciary responsibilities and how they fulfill them. Consumers can ask questions such as:

  • Do you act as a fiduciary when providing insurance advice?

  • How do you ensure you act in my best interests when recommending insurance products?

  • Can you provide examples of how you have fulfilled your fiduciary responsibilities in the past?

Insurance professionals who are committed to acting as fiduciaries should be able to provide clear and detailed answers to these questions.

Resources for Finding Fiduciary Insurance Professionals

Finally, there are several resources available for consumers who are looking for fiduciary insurance professionals. For example, the National Association of Personal Financial Advisors (NAPFA) provides a directory of fee-only financial advisors who adhere to a fiduciary standard.

Other resources include state insurance departments, which may be able to provide information on insurance professionals who have been disciplined for misconduct or breach of fiduciary duty.

Examples of Best Practices for Fulfilling Fiduciary Responsibilities

To fulfill their fiduciary responsibilities, insurance professionals should follow best practices such as:

Documenting All Communications With Clients

Insurance professionals should keep detailed records of all client communications, including phone calls, emails, and meetings. This can help to prevent misunderstandings and disputes down the road.

Continuing Education

Insurance professionals should stay up-to-date on changes in the insurance industry, including new products and regulations. Continuing education can help insurance professionals to serve their clients better and avoid any missteps.

Regularly Reviewing Insurance Policies

Insurance professionals should review their clients' insurance policies regularly to ensure they are still appropriate for their client's needs and goals.

Changes in the client's life circumstances, such as marriage, divorce, or the birth of a child, may require changes to their insurance coverage.

Final Thoughts

Fiduciary responsibility is an important concept in the insurance industry that all insurance professionals and consumers should understand.

By fulfilling their fiduciary responsibilities, insurance professionals can build trust and credibility with clients, reduce the risk of legal and financial liability, and promote transparency and accountability in the insurance industry.

Consumers who work with fiduciary insurance professionals can benefit from the peace of mind that comes with knowing that their insurance needs are being handled by a professional who is committed to acting in their best interests.

By following best practices and staying up-to-date on changes in the insurance industry, insurance brokers can fulfill their fiduciary responsibilities and provide high-quality insurance services to their clients.

Fiduciary Responsibility in Insurance FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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