Sun | Feb 16, 2020

Cedric Stephens | Insurance 101: A case refresher for service providers

Published:Sunday | January 26, 2020 | 9:37 PM
The mangled wreck of the Nissan March motor car and Island Routes King Long bus that collided on Sunday, January 19, along the North Coast Highway in Trelawny.

ADVISORY COLUMN: INSURANCE HELPLINE

The chairman of a local broking company recently called my writings ‘academic’.
The use of that word by the former businessman was an attempted put-down. It showed, in my opinion, his ignorance of this column’s mission: to inform and educate. 

Did the critique apply to all my articles, or only to one? Was it a subtle response to my frequent ‘bawling out’ of brokers who fail to properly discharge their duties to clients?

My critic has apparently forgotten that the industry to which his company belongs is being required to adopt and maintain international standards of competence, efficiency, and competitiveness. The last seven words are not mine. They are from the Financial Service Commission’s Market Conduct Guidelines for Insurance Companies and Intermediaries.

Today I will use recent and randomly selected articles from this newspaper about the real-life impact of motor accidents. I will link employee dishonesty with corruption and the Caribbean Maritime University, CMU, scandals. These things are directly connected to this column’s mission. This is lesson number one of Insurance 101 for the broking company’s chairman. I hope that it will demonstrate to persons like him the value that other readers – like the gentleman who introduced himself to me in a pharmacy in Kingston 8 last week – attach to the information that I try to offer. 

Case No. 1
Leon Jackson from the Western Bureau reported last Monday on a two-vehicle collision. It occurred on January 19 on the Falmouth leg of the North Coast Highway. Six persons were injured.
The driver of one vehicle, a Nissan motor car with five passengers, crashed into a coach travelling in the opposite direction. The car was overtaking a line of traffic. Four of the car’s passengers, including the driver, were killed. The other was hospitalised. The bus driver was taken to hospital and later released. The bus was extensively damaged, and the car was wrecked.

What are the practical insurance implications of this accident? Was the Nissan – which caused the collision − insured as required by law? Was the driver the policyholder? If not, was he authorised by the policyholder to drive? Was he appropriately licensed? Is the injury/property damage compensation system that is envisaged by the Motor Vehicles Insurance (Third Party Risks) Act, MVITPRA, enough to provide adequate financial resources to pay the survivors and the dependents of the five or six innocent victims for their losses? Will these persons receive compensation from the government if they do not get insurance money?

In last week’s article – which was published the same day that the Falmouth collision took place   − I wrote: “Motor policies must comply with MVITPRA. Section 5(2) lists two minimum compensation standards for third parties that these policies must meet. They are:

A. Death or bodily injury claims – a sum of not less than $1 million any one person and $3 million any one accident; and
B. Property damage claims – a sum of not less than $500,000 any one person and $1 million any one claim.
It is therefore not rare for victims of road accidents, especially, to end up ‘sucking salt’ despite insurance coverage in the face of sizeable court awards. 

“The Janet Edwards case speaks specifically to the need for adequate insurance coverage. II a local court awarded $560 million to one claimant who suffered grave injuries in a work-related accident, the statutory limits in the Motor Vehicle Insurance (Third-Party Risks) Act are scandalously low. Some motor policies have limits of between $5-10 million for items A and B. Others, depending on the insurer, offer the minimum.” Is the preceding information of academic interest to the innocent victims, survivors, dependents and the families of the Falmouth tragedy, the thousands of persons who lives are shattered each year as a result of motor vehicle accidents and to the hundreds of thousands of motorists who believe that their policies offer protection in the event of serious accidents? Are these matters of interest for our lawmakers?

Case No. 2
Legal writer Shena Stubbs-Gibson’s November 22, 2019 article, ‘Big win for BNS! The case of Iberostar Beach Hotel v BNS’ and the ongoing brouhaha about the Caribbean Maritime University are connected. Both topics involve, to use an understatement, the misuse of money. ​

Iberostar Rose Hall Beach Hotel in Montego Bay is part of the global Iberostar Hotels & Resorts Group. The latter operates more than 120 luxury hotels in Europe, Africa and the Americas. Its local hotel sued the Jamaican subsidiary of the Canadian bank to recover losses of J$34.3 million (approximately US$250,000 approximately). Hotel employees used forged signatures on the company cheques over a three-year period which the bank honoured. The case, which the hotel lost, offers important lessons for big, medium-sized, small and aspiring business operators.
Multinationals like Iberostar, unlike most local companies, generally hire risk professionals. Their job is to ensure that unexpected losses of the US$250,000 and more never happen. Employee dishonesty insurance is one tool they use to get protection.
The fact that the company spent hundreds of thousands of dollars to pay lawyers to pursue a claim against BNS in court raises many questions. 

Why did the company’s systems of control take over three years to detect the forgeries? Was there insurance coverage? Was it triggered? Why was the bank sued? These are issues that I believe, would be of interest to broking company’s clients and others. It would help them to better manage these kinds of losses.
Fraud experts say that employee dishonesty accounts for revenue losses of six per cent annually. The website of the broking company referred to earlier discusses fidelity guarantee – the same thing that I call employee dishonesty coverage – in 21 words. The details appear to have been taken from a dictionary. Absolutely no value-added was offered.

Case No. 3
Reputational damage is one of the intangible fallouts from the CMU scandals. So, say some students and the MP for Manchester Central. This is something that is very difficult to quantify and may take many years to repair. Reputational harm insurance is available to provide resources to mitigate against the loss of brand value.
Even though the misuse of money is at the centre of the scandal, none of CMU’s overseers, including the Education Ministry, Auditor General and the Public Accounts Committee, have offered any estimate of the monetary loss that has occurred and if it will be the subject of insurance claims.

Does CMU have insurance to protect itself from alleged corporate misdeeds and the reduction in its brand value? If not, why not? The buying of insurance and insurance services falls squarely within the government’s procurement guidelines. Is CMU’s insurance spending likely to provide any compensation now that it appears sorely needed?
Despite all the controversy and posturing, answers to these simple and real-world questions remain unanswered.

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