ADVISORY COLUMN: Are Insurance Consumers Being Treated Fairly? - Part 2
QUESTION: Are there any local or international best practices that speak to how insurance customers are to be treated generally, and more specifically, how claims are to be dealt with (by insurance companies)?
- D.H.L., Kingston 7
INSURANCE HELPLINE: Today's article is the second in a two-part series. Last week's article examined the local regulatory framework. Are insurance customers being treated fairly? That question was posed against the background of a reader's enquiry and the International Association of Insurance Supervisors (IAIS) Insurance Core Principle 19: Conduct of Business.
Jamaica is a member of that organisation. The Financial Services Commission (FSC), the country's non-bank financial services regulator, represents the island on that body.
Information from a January 18, 2015 Jamaica Observer article is the starting point for part II of this piece. It was about an insurance consumer who lives in Trelawny and works in Westmoreland. His vehicle was involved in a two-car collision. Both vehicles are insured with the same company. The third party driver was solely at fault.
The article implies that were it not for that newspaper's intervention some four months after the mishap, the writer's claim would have been reduced by at least $750,000. The policyholder's loss would have been the insurer's gain. Is this evidence of a culture in which the unfair treatment is a random event, or is it the norm?
That experience is similar to others that I have written about many times in the past on single-insurer accidents. The last time was only three weeks ago. That case involved the same company named in the other newspaper's article. The insurer sought to play the roles of police, judge and jury!
The Financial Conduct Authority (FCA) in the UK regulates financial products and services (like insurance). It says that "putting consumers first is at the heart of what we do".
The FSC could well emulate FCA's mission. It could apply parts of the theory of behavioural economics, on which the FCA's regulatory approach is built, into practice locally and benefit thousands of insurance consumers. The FCA's modus operandi, by the way, is in keeping with the insurance core principles of the IAIS.
A best practice is a standardised process to achieve a desired outcome. In the context of your question, it is about what policies and procedures are in place to ensure the fair treatment of insurance customers. Last week's article reviewed some of the more general provisions relating to the conduct of business. Today's highlights IAIS's 10 specific guidelines regarding how claims are to be handled by insurers and intermediaries. These are:
n Insurers should maintain written documentation of their claims-handling procedures which include all steps from the claim being raised to settlement. Such documentation may include expected timeframes for these steps which might be extended in exceptional cases;
n Claimants should be informed about these procedures, formalities and timeframes for settlement;
n Claimants should be given information about their claims in a timely and fair manner;
n Claims determinative factors such as depreciation, discounting or negligence should be illustrated or explained in comprehensive language. The same applies when claims are denied in whole or in part;
n Sometimes intermediaries serve as initial contacts for claims which may be in the common interest of the policyholder, intermediary and insurer; however, this does not diminish the insurer's responsibility;
n A fair claims assessment requires appropriate competence of insurers', and where appropriate, intermediaries' staff who are involved in the claims settlement procedures as well as ongoing training;
n Competence requirement for claims assessment differ depending on the type of insurance policy and generally include technical and legal expertise;
n Staff handling disputes should be experienced in claims handling and be appropriately qualified. Adjusters should be able to make recommendations independent of insurers' instructions on individual claims;
n Dispute resolution procedures should follow a balanced approach bearing in mind the legitimate interests of the parties involved. Procedures should not be overly complicated such as having burdensome paperwork requirements. Decisions should include the reasoning in clear language relating to the specific disputable issues; and;
n Supervisors (for example the FSC) may encourage insurers to ensure that relevant policies are in place by establishing a claims review committee acting as an appellate body within the insurer to promote fair play and objectivity in the decisions.
Some of the persons who occupy senior positions in claims departments and top positions in insurance companies and intermediaries have ethical obligations to treat customers fairly. This is in spite of the fact that IAIS best practices are being locally ignored.
These professional duties are similar to some of the IAIS conduct of business guidelines. Members of the Chartered Insurance Institute, for example, are required according to its code of ethics "to act in the best interests of each client".
Acting in the best interests of clients includes, but is not limited to: 3.1 - encouraging your organisation to put fair treatment of clients at the centre of its corporate culture; and 3.2 - basing decisions on clear understanding of clients' needs, priorities, concerns and circumstances.
Insurance consumers paid over $50 billion in premiums for all types of insurance last year. Some of that money was spent by insurers to fund the operations of FSC in the form of fees to cover the costs of regulation. Is it too much to ask the regulator to implement the IAIS best practices in order to ensure that insurance customers are treated more fairly in Jamaica?
I found an International Monetary Fund report about staff review conducted on the Italian economy. One area of investigation was to assess whether that country's insurance regulator operated in compliance with IAIS best practices.
Will Jamaican insurance consumers have to wait for fair treatment until this topic gets on the IMF radar in the future, or will we exercise our sovereign responsibility and decide that it is the right thing to do?
n Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: email@example.com.