Cedric E. Stephens Question: When the new Act comes into operation insurance companies will have 60 days in which to settle claims. This seems like a very long time. My experience is that insurers are not in the habit of paying claims promptly. Is my information correct? What is your opinion on the limit?
-mmack2001@hotmail.com.
Answer: You made my day. I get very few questions from eastern Jamaica. It is also very encouraging when topical questions are posed. The draft Insurance Act was laid before Parliament recently. Many persons have complained about the slow pace of claims payments by insurers. A few years ago a parliamentary committee investigated the matter. This issue, in my opinion, affects many more persons than the much-hated average clause!
What the draft Act and regulations say:
Section 15 - (2) of the Act deals with delays in claims settlements. The regulatory body, it says, may stop any insurer from writing business if it "is satisfied that the company has been guilty of unreasonable delay in the payment or settlement of any claim." Section 94 of the regulations deals with the time frame for payment. "All monies payable under the contract, other than benefits for loss of time," it says, "shall be paid by the insurer within 60 days after it has received proof of claim." The clock starts ticking after the proof of claim has been submitted. Note also, that it makes no distinction between 'calendar' or 'working' days. Sixty 'working' days is the equivalent of almost three calendar months!
I agree with the intent of section 15 - (2). Section 94 of the draft regulations is another matter. The 60-day limit is too long. I suspect that now at least 80 per cent of claims in Jamaica are paid within this time limit. The claims settlement process is opaque to most persons. Consumers are not on par with insurers in claims transactions. These factors coupled with the 60-day statutory limit will erode confidence in the industry. Loss of consumer confidence, says a World Bank report, could "undermine the system just surely as insolvencies." The proposed limit gives the dishonest insurer opportunities to stretch out the settlement process. It is also saying to insurers that it is business as usual. Another point against the proposal is that it goes against what is happening inside and outside of the insurance industry.
Last year, the Association of British Insurers [ABI], launched a claims code for general insurers. It set minimum standards for claims handling. The code became effective at the start of this year. ABI members will have to comply with the code as a condition of membership. Members have agreed to pay claims within 10 working days after they have been agreed. The local regulations are silent on how quickly one can expect a response and action from insurers after a claim has been reported. The ABI code imposes a limit of five working days. Third party claimants are not mentioned in our regulations. Unscrupulous insurers can delay payments to them in the case of motor insurance claims. ABI members have to apply the same benchmarks to third party claimants as policyholders.
In the case of insurers in California, they are obliged - under section 2695.5 (e) of the Claims Settlement Practices Regulations - upon receiving notice of claim [to] immediately, but in no event more than fifteen calendar days later acknowledge receipt of such notice to the claimant..." Section 2695.7 sets out the standards for prompt, fair and equitable settlements. Among them is one that insurers, upon receiving proof of claim shall "immediately, but in no event more than forty calendar days later, accept or deny the claim--"
Local health insurers are paying claims in less than 10 working days. What is it about non-life insurance that is so different? Cable & Wireless has recognised the importance of speed in providing service to its customers. Delivery times in its customer service charter range from 15 seconds to 14 working days. Years ago, this would have been unthinkable. In my opinion, the FINSAC technocrats have made an error on this one. They are dragging the local insurance industry into the 21st century on several fronts. On the matter of claims settlements, however, they seem content to allow insurers to remain in the Stone Age. Why? Your guess is as good as mine. It's now up to our representatives in Parliament to bring this part of the regulations into the E-Age.
Cedric E. Stephens is the founder of INSURANCE HELP-LINE, a telephone-based advisory service, and the co-host of "Risky Business," a radio programme that deals with risks and insurance. If you need free advice write to The Financial Editor or directly to Mr. Stephens at aegis@cwjamaica.com.
