A conflict of interest exists when the agent's personal, financial, or other interests could compromise -- or could reasonably appear to compromise -- their ability to act in the client's best interest. Common conflicts include:
- Commission differentials: recommending a higher-commission product over a better-suited lower-commission product
- Contingent compensation: receiving a volume-based bonus from an insurer that creates an incentive to direct business there regardless of suitability
- Personal relationships: advising a family member, close friend, or business partner where impartiality may be impaired
- Ownership interests: holding shares in an insurer or managing general agent whose products the agent recommends
The standard approach to conflicts is: avoid, disclose, or manage. Where a conflict cannot be avoided, the agent must disclose it to the client before making a recommendation, so the client can make an informed decision about whether to proceed. In some cases, the conflict is severe enough that the agent should decline to act.
Dual loyalty describes the structural tension where an agent is contracted with an insurer or managing general agent but owes duties to the client. The resolution is straightforward: the client's best interest prevails over the agent's commercial relationship with the insurer. An agent cannot justify recommending an unsuitable product because "the insurer expects us to push this product line."
Common mistake: believing that disclosure of a conflict eliminates the obligation to act in the client's interest. Disclosure is necessary but not sufficient. The agent must still recommend the suitable product.
Recall: Give two examples of conflicts of interest a life insurance agent might face. What must the agent do when a conflict cannot be avoided?