In: Operations Management
let's consider a common ethical problem in dealing with insurance claims. Should an insurance company have a duty to defend its insured when the defense will cost the insurance company more than it would cost to simply pay the plaintiff's claim? For example, should an auto insurance company have a duty to spend $10,000 to defend its insured when the plaintiff's claim is under $10,000. What ethical problems arise when the outcome would affect the insured's driving record and, therefore, the rates that the insured would be charged? What ethical problems can arise with this duty to defend when both drivers are covered by the same insurance company?
We all know that insurance is a subject matter of solicitation and when we deep down into ethical dilemma and ethical consideration of insurance companies when claimed to be payed is smaller than the legal cost of defending the claim. If we analyzed with the perspective of operation of the company and cost rationalization, then such cases should be settled through which the insurance company can save cost as well as maintain goodwill of smooth disbursement. It does have two facets win-win situation for the company. We strongly say that settling all these cases prima facie is unethical and can be considered as moral hazard in ethics. Through this wrong doer can exploit the system and they will take undue favor of the loopholes. It does not check on the plaintiff or the insured on why such circumstances arises. I strongly support that no matter how much the cost as a responsible, ethical company insurance company should defend such cases so that a good lesson can be taught to the offender