The Ethical Challenges of International Insurance Operations

Wed, 06/01/2016 - 12:59
by Kedar Kamalapurkar, MS, CPCU

Editor’s Note

The spring issue of Insights broached the issue of ethics as it relates to business metrics and potentially unrealistic performance goals. This article further considers ethics, this time in connection with international endeavors. The author wishes to extend special thanks to Dr. Andries Willemse for providing expertise and source material on the history and sources of ethical standards as well as guidance and experience for practically applying ethical considerations when operating abroad.

Historically, insurers in Western countries have focused their efforts on optimizing business processes and driving efficiencies through investment in technology in an attempt to create domestically focused growth. However, a review of property-casualty insurers’ performance indicates that overall growth of domestic insurance markets has been limited, forcing them to compete for market share in a relatively stable marketplace. In an effort to achieve sustainable growth in the coming years, insurers have begun—and will increasingly need—to broaden their focus to include global markets. Insurers making this shift toward an international focus will face traditional expansion challenges related to managing a global organization, increased and more complex regulatory oversight, and competition with insurers already entrenched in those markets.

However, perhaps more challenging and more important to success in entering these markets is understanding—and being prepared to handle—the cultural and ethical complexities that are new to most insurers. Without developing an effective operational and cultural response to these challenges, insurers will struggle to be successful.

Why Global Markets? Why Now?

Since the financial crisis of 2008, United States insurers have been facing headwinds from increased regulation and competition while also earning very low returns on investments, a traditional driver of profitability. While North America will likely drive the largest proportion of premiums for U.S. insurers across all lines of business for the foreseeable future, the growth rate from 2013 through 2014 does not foster much optimism. In fact, according to figures from SNL Financial, North American direct written premium grew only 0.7 percent, while growth rates for Asia and Oceania were
6.5 percent and 15.8 percent respectively.

In the U.S. specifically, total direct written premium has remained relatively flat (along with the combined ratio) over the last seven years, and much of the overall premium growth can be attributed to population growth as opposed to further spending on insurance by consumers—according to SwissRe’s 2014 sigma report, “World Insurance in 2014: Back to Life,” spending as a percentage of gross domestic product on non-life insurance remained the same from 2013 through 2014: 4.3 percent.1 For property-casualty insurers, the majority of growth came from already saturated lines of business (for example, private passenger auto insurance, which made up 37.5 percent of U.S. direct written premium, and homeowners and farmowners insurance, which made up 15.8 percent in 20132). An examination of the ten largest personal lines carriers in the U.S. shows that while there has generally been growth since the financial crisis, growth rates have matched the trend for the industry as a whole.

What does this mean? If insurers want to grow at a more accelerated rate and take advantage of the most significant opportunities, they must start to look at global markets as their growth engine.

But where should they focus? Since the financial crisis, emerging markets have led the race for direct written premium growth in the non-life insurance sector,  with approximately an 8 percent growth rate from 2007 through 2014. Emerging Asian markets witnessed the most astonishing average growth rate (nearly 15 percent) in that period, followed by markets in the Middle East and Central Asia (8 percent) and in Latin America (5 percent).3

While those figures represent historic performance, MunichRe Economic Research’s forward-looking projections for growth from 2015 to 2025 do not show a substantially different view, with mature Asian and Western economies driving premium growth at less than half the rate of emerging economies in Asia, the Middle East, Africa, and Latin America.4

What Do Ethics Have to Do With This?

Accepting the idea that most growth opportunities are abroad demands the acknowledgment that significant challenges arise when providing global services. These challenges include the possibility of extended in-country employee deployments to locations with drastically different cultural norms, the necessity of effective collaboration among insurance professionals from multiple countries and with different perspectives, the fact that country-specific operational norms can vary greatly from those of the U.S., and the differing policy interpretations and legal frameworks. These differences can and frequently do require insurance professionals operating in the global market to evaluate and respond to complex moral and ethical situations. To be better equipped to navigate these complicated scenarios, insurance professionals must consider the origin of ethics and what drives these differing ethical and moral viewpoints.

While early Greek philosophers varied their interpretation of ethical obligations, their primary objective was to live virtuous lives. Over the centuries, ideas about the meaning and value of ethical standards have been debated within the context of current events. These debates have resulted in the development of such disciplines as bioethics, environmental ethics and other specialized fields. But perhaps most relevant to insurers is business ethics. So what forms the basis for these ethical standards?

Ethics can be defined as the philosophical study of morality, which can be categorized according to a number of dimensions, but are generally divided into three major schools of thought: metaethics, the theory of virtue and vice; normative ethics, the theory of appropriate behavior; and applied ethics, the theory of values (i.e., the goodness or badness of a thing). These schools of thought are then applied across a spectrum of adherence (absolute to relative). These are the most commonly referenced value systems on which ethical frameworks are built.

The way in which these ethical frameworks are applied can be further divided into deontological and teleological ethics. Deontological (or absolute) ethics refer to a standard that applies to everyone, while teleological (or relative) ethics refer to the idea that ethical standards are relative, as personal and cultural values differ between people and between cultures.

Common misconceptions about the application of these ethical frameworks lead to decisions based on flawed premises, such as the argument that something is ethical because everyone does it, because it isn’t illegal, or because it worked out for the best. Furthermore, given all the different ways to evaluate and apply ethical standards, it is easy to see why people sometimes handle situations very differently.

Regardless of your worldview, there are some common dimensions on which ethical systems are formed, including tradition, which is thought to be the most significant influence, and the influence of politics and community on one’s worldview. A key aspect of understanding the balance between these factors is to identify the relevant weighting of each that a given subset of people applies at a given period in time.

To illustrate, below are summaries of the ethical norms and characteristics that underpin the business ethics frameworks of six countries with the most significant insurance premium volume or projected growth:


  • Managerial culture is characterized by paternalism, which can be defined as a relationship between superiors and their subordinates in which supervisors provide protection and guidance in exchange for loyalty and deference.
  • Personal relationships guide business relationships.
  • Brazil has a unique ethical factor called jeitinho, which is the middle path between rigid rules/regulations and practical application of business ethics.


  • Business ethics are driven strongly by Confucian values (paternalism, collectivism and guanxi). They rely less on formal contracts and more on a preference for informal agreements and personal assessments of trustworthiness.
  • It is acceptable to break rules or prior arrangements if the decision is viewed as good judgment.
  • China has two unique ethical factors. Guanxi involves enhancing social harmony, maintaining one’s appropriate role, and addressing the sensitive issue of “face,” or social status. It also involves a reciprocal obligation to respond to requests for assistance, which might be difficult to differentiate from corruption. The other, mianzi, refers to the image a person strives to maintain before others.


  • Business ethics are focused on intuition in decision making, setting them apart from more analytical, rules-based approaches. Additionally, culture, education, and gender play big roles.
  • Premium is placed on favors for friends and others in one’s larger social group.
  • The Western concept of conflicts of interest does not align cleanly with the Indian value of loyalty to ones’ group.
  • Government rules and regulations result in slow approvals, complex bureaucracy, and even corruption. Connections play a pivotal role in overcoming challenges.


  • Business ethics are focused on collective rather than individual rights in relation to privacy and intellectual property.
  • Morals are grounded in virtue.
  • A very specific process governs how business interactions take place.
  • Japan’s consequentialist view of ethics means that ethics are changeable based on the circumstances.

United Kingdom9

  • The UK’s universalist view of business ethics means that norms tend to be focused on the greater good of a community/society.
  • The foundation of ethical norms is corporate responsibility (how you run your business) as opposed to corporate citizenship (how you do business in a community).
  • Compliance with existing regulations can be used to shield a company from litigation.

United States10

  • America’s universalist focus drives business ethics, resulting in a formal set of guidelines that can be used to identify ethical behavior.
  • The contract is the basis of formal business relationships, and the expectation is that contracts will be adhered to and the terms honored as written.
  • Business and personal relationships can be separated (with business relationships tending to be short term or transactional).
  • Very strict laws govern how business is conducted both within and outside the U.S.

Practical Application of Ethical Considerations When Operating Abroad

A number of practical tips can be applied when working abroad to overcome the difficulties in understanding and working with people from different countries. Here are some noteworthy examples to consider to obtain optimal business results and maintain optimal ethical conduct:11

  • Proceed with caution. Be sure that the factors that drive business ethics in the target country are well understood.
  • Acknowledge that differences in culture and interpersonal relationships exist, and make a concerted effort to identify them in advance.
  • Be aware of your cultural, political, linguistic and religious influences and the impact they have on your worldview.
  • Be true to yourself. Across cultures, you are bound to commit faux pas, but being genuine will go a long way toward bridging any gaps.

Many thanks to the the Ethics Committee and the International Insurance Interest Group for their contributions to this article.


1.    Swiss Reinsurance Company Ltd., “World insurance in 2014: back to life,” sigma, 2015, p.42, (accessed March 15, 2016).

2.    SNL Financial, extracted on Dec 3, 2015.

3.    Swiss Reinsurance Company Ltd., “World Insurance in 2014: Back to Life,” p. 13.

4.    MunichRe Economic Research, “Insurance Market Outlook,” May 2015, p. 2,
/6_Media%20Relations/Company%20News/Munich-Re-Insurance-Market-Outlook-2015-en.pdf (accessed March 15, 2016).

5.    Alexandre Ardichvili, Douglas Jondle, Jack Wiley, Edgard Cornacchione, Jessica Li, and Thomas Thakadipuram, “Building Ethical Business Cultures: BRIC by BRIC,” The European Business Review, March 10, 2013, (accessed March 15, 2016).

6.    Ardichvili et al., “Building Ethical Business Cultures: BRIC by BRIC.”

7.    Ardichvili et al., “Building Ethical Business Cultures: BRIC by BRIC.”

8.    Balász Réka Blanka, Britt Mekel, Judit Kormos, Michal Malcek, Sjur-Olaf Bendiksen, “Japan: Ethics—Cultural View,” April 8, 2010, (accessed March 15, 2016).

9.    Angry African, “On Corporate Responsibility,” The New Black Magazine, March 30, 2009, (accessed March 16, 2015).

10.   Angry African, “On Corporate Responsibility.”

11.   Dr. Andries Willemse “Ethical Challenges of International Insurance Operations,” September 2014, (accessed March 16, 2015).

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