Thu | Nov 15, 2018

Cedric Stephens | The fairness doctrine has a consumer bias

Published:Sunday | December 31, 2017 | 12:00 AM

Is this column biased towards consumers? Is it unfair to the insurance industry? The unfairness argument suggests that the things I write about are mostly anti-insurance industry.

The feedback was a passing comment from a former industry employee.

"My friends in the insurance industry don't like you," she remarked.

The statement was made in the context of a discussion about an article I wrote a few weeks ago. Political opinion writers face similar problems. They are either pro-JLP and anti-PNP at one time, or pro-PNP and anti-JLP at another.

The choice of the label often provides clues about the perspective of the person who assigns it. There are only two colours: green or orange. The choices are always binary.

If this column has an orientation, it is pro-consumerist. Unashamedly. Former head of Canada's insurance regulatory agency Lawrie Savage offers the reasoning for my point of view.

He puts it this way: "contractual complexities tend to put the insurer in a position of strength when it comes time to settle a claim. The insurer has the legal and financial resources to dispute a claim, even if on a technicality. Also, the insurer has possession of the funds, and the policyholder is dependent on the insurer to gain access to them. By unfairly resisting claims, an irresponsible insurer can, therefore, retain funds rightly due to policyholders, and it can be difficult for policyholders to protect themselves against such abuses."

Mr Savage's comments are based on his experiences in Canada and his study of insurance practices in Latin America and the Caribbean.

"Putting fair treatment at the heart of insurance" was the headline of the article that I wrote on December 17. The subtext: an admission by an Insurance Association of Jamaica official that some insurers charge honest customers for fraud committed by dishonest persons as the sole strategy to combat the problem.

This was not the default "solution" in pro-consumer jurisdictions.

My piece omitted to ask two important questions: Is the insurance industry subject to the provisions of the Consumer Protection Act, the CPA? Is its practice of charging honest consumers or policyholders for fraud committed by dishonest persons in the absence of strategies to combat the problem consistent with the aims of the legislation?

Many persons, including insurance industry employees, are unaware that Parliament passed a law in 2005 it was updated seven years later to protect all consumers of goods and services in Jamaica. Also, that the insurance industry is not exempted from that law.

Part I, Subsection 3(1) of the CPA, says it "shall apply to all persons involved in trade or business, whether through the purchasing or vending of goods or services".

Consumer, in relation to services, means any person who employs or wishes to be provided with the service, and services are defined as "the supply to a consumer of anything for a consideration".

Consideration is a legal term for money.

The law defines 'provider' in relation to any service as "a person who provides such services".

The intention is crystal clear. Our lawmakers intended for it to apply to insurance transactions. The persons who do not like me - supposedly, unbiased insurance company employees - presumably, have not taken the time to read the writings of Mr Savage and carefully thought about their significance against the background of the CPA.

The CPA is administered by the Consumer Affairs Commission. Subsection 6(1)(a) empowers the commission to "carry out at the request of a consumer who has been adversely affected, such investigations in relation to ... the provision of services as will enable it to determine whether ... the services were provided in contravention of the Act".

Subsection 3(b) says that the "commission shall investigate any action alleged in a complaint ... to have been taken by a provider, which adversely affects the complainant".

Finally, the CPA says in Subsection 7(1): "A complaint to the commission may be made by any person or body of persons who claims to have suffered a disadvantage in relation to the acquisition of goods or service."

It is, therefore, possible for any insurance consumer like me to file a complaint against his insurance company with the CAC. It would have to show that the consumer suffered an economic disadvantage in terms of higher motor insurance premiums over the last five to 10 years, for example, as a direct result of his insurer's strategy.

That argument could be strengthened by referring to the exact words of IAJ vice-president Peter Levy, published in this newspaper on May 1, 2015.

"To the extent that fraudulent claims occur, and we are unable to prove them to be fraudulent, we ultimately have to collect premiums to pay for them and so it does impact on the ordinary consumers and innocent consumers, have to pay," Levy said.

If fair treatment of consumers was at the heart of insurance, the practice would have been abandoned a long time ago.

Is the practice of charging honest insurance consumers for the estimated $10 billion losses due to fraud between 2008 and 2012 yet another example of what Mr Savage calls insurers abusing their "position of strength" against all honest consumers? Should the authorities intervene? Or should insurers act in their own self-interests and formulate a fairer strategy to combat fraud?

Since this is my last article for 2017, I extend best wishes to all my readers, including those in the insurance industry, for a happy and prosperous 2018.

- Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: