When is churning considered unethical?

Churning is considered unethical primarily when there is no reasonable basis for anticipated benefits. This situation arises when an agent encourages a client to replace an existing policy with a new one without a legitimate reason that would benefit the client financially or in terms of coverage. The core principle behind ethical insurance practices is ensuring that clients receive value and protection from their policies. If there is no sound rationale for the changes, it indicates a potential disregard for the client's best interests, prioritizing commissions or personal gain over the client's financial well-being.

In the context of insurance, every policy change should ideally enhance the client's situation, such as improving coverage, providing better benefits, or reducing costs. When these criteria are absent, and the action is merely a means for the agent to earn a commission, it stands as a clear violation of ethical standards within the industry. This understanding reinforces the importance of protecting consumers from possibly harmful practices in the insurance field.