Lawmakers and the complexities of the insurance market
READER: I have worked in the insurance industry for about five years. It is my impression that in your zeal to help persons with claims problems, you end up unfairly criticising insurance companies and brokers who, in general, are doing a good job in protecting their customers.
Insurance contracts, as you said in your May 10, 2015 article, are built on foundations of utmost good faith. Difficulties, in my experience, are mainly due to the fact that buyers act in breach of that duty. Seeking the involvement of lawmakers to solve market problems is a waste of time. Wheel and come again!
- W. C., Kingston 6
INSURANCE HELPLINE: I do not intend to get drawn into a debate about whether insurers and brokers are generally doing a good job in protecting their customers. I do not have any evidence to say yeah or nay.
There is, however, lots of evidence to support the argument that insurance contracts are complex agreements. They are often entered into with insufficient preparation on the part of buyers. Ignorance of the basic principles that govern their operation - sometimes even on the part of the seller - is another feature of the insurer-insured relationship.
Closing the sale often takes priority over finding an appropriate solution to the customer's problems. The fact that unpleasant things are discovered when claims occur should, therefore, come as no surprise.
Customers are definitely not the root cause of insurer-insured problems.
Your "doing a good job" comments were made during the same week that six of the world's largest banks admitted to breaking US laws. The banks, who supposedly are pillars of honesty and integrity and members of the global financial establishment, have agreed to pay fines of US$5.9 billion for their unlawful activities. By agreeing to pay those fines, these companies have admitted, to quote the US attorney general, to activities that "tilt the economic system in their favour, ... subvert the marketplaces and enrich themselves at the expense of the consumer".
I have absolutely no evidence of wrongdoing on the part of insurance companies or, for that matter, banks in Jamaica or elsewhere. Lawmakers and persons in other institutions have important roles to play in balancing the scales between these companies and ordinary citizens, in righting the wrongs that they perpetrate against consumers and in protecting the society from their unlawful and unethical practices.
Lawmakers in the United Kingdom have taken a number of steps to reform their laws relating to insurance. The Law Commission of England and Wales and the Scottish Law Commission spent about 10 years "undertaking a root and branch review of the underpinning law of insurance contracts". Jamaican insurance law was built on the foundation of the UK law.
According to an August 2014 briefing published by the London-based Chartered Insurance Institute, "the current UK law is based on principles such as 'utmost good faith', which were developed in the 18th and 19th centuries and codified in the Marine Insurance Act 1906".
That piece of legislation, according to the same report, "was arguably designed to protect a then-fledgling insurance market from exploitation by long-established client firms: at a time when customers knew their business while the insurers did not. It gave insurers wide-ranging opportunities to avoid insurance policies at any sign of wrong-doing by the customer".
The commission decided to recommend to UK lawmakers that changes should be made to the laws that governed how insurance was conducted. It found that the old law "undermined market trust and confidence". Also, that it "threatened the credibility of UK business law" because it was "so antiquated ... and out of line" with the insurance laws in the international marketplace.
Jamaica enacted its Marine Insurance Act in August 1973, eleven years after it gained Independence. Our law resembles the United Kingdom's law. It is, therefore, very clear that some of the old foundational principles of insurance that you learnt - and that you hold so dear - need to be revised.
As other countries have shown, they are not appropriate for the 21st century. Our lawmakers have lots of work to do.
Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: firstname.lastname@example.org