By Cedric E. Stephens, ContributorQUESTION: THE charging of fees for no claims bonus letters is fairly common. Last year I paid a few hundred dollars to my brokers to get one. In some cases, the insurer gets the fee. In others, the broker pockets it. I believe it is wrong when brokers or insurers start to charge consumers for services that were once free. What is your take on the matter?
- B.R., Kingston 10.
Answer: I seem to have stirred up an ants nest with the piece I wrote last week. The general manager of an insurer told me that some brokers are using the "fee strategy" to boost their income. A consumer named another insurer who she claims to have paid $450 last year for a no claims bonus letter. Another said she paid the insurer that I referred to last week as Company X $575 for her no claims letter. You have backed up what the insurance company head said about some brokers. I agree with you. The practice of charging fees for services that were once free seems to have become the norm for some players in our insurance market.
The development is not limited to the insurance industry. Examples that spring to mind are public hospital services, education and the police. Public hospitals provided free service for many decades. A few years ago, they began to impose user fees. During 2001, hospitals collected more than $800 million in fees. In spite of all the "chat 'bout" education during the 1970s, today, neither secondary nor tertiary education comes without a price tag. In the past, the police supplied accident reports free. Today, you will get nowhere if you don't have the money to pay for one. Don't be surprised if the prices for all these services increase when Omar Davies tells us how he plans to finance the budget. Insurers and brokers, like banks and other private sector companies, are following a popular trend.
BACKDOOR IMPLEMENTATION
There is nothing wrong with the insurance industry following the crowd. What bothers me is the back door implementation. Insurers fed us a diet of "utmost good faith" for years. Insurance contracts are different from other types of agreements. Consumers should be models of honesty and integrity when buying insurance. [If we do otherwise, they refuse to pay claims]. This legal fiction leads us to believe that insurers will treat us the same way. The reality is often quite different; one hand can indeed clap. Fees are imposed [by some insurers] simply by executive order. If consumers can't find the funds, then tough.
Brokers who introduce fees for service without telling their customers are on questionable ethical and legal grounds. Brokers normally earn their keep from commissions. This is calculated as a percentage of the premiums buyers pay. The practice is centuries old. If brokers decide to add to their commissions by charging fees for certain services, consumers should be told about this up-front. Insurance transactions are not excluded from The Fair Competition Act. Brokers are therefore under a legal duty - in my layman's view - to tell consumers about their fee structure when entering into agreements with customers.
Can brokers justify charging a fee for a no claims bonus letter? I doubt it. After all, the letter is written by the insurer. The broker simply asks for the letter. All it takes is a telephone call. Those that pocket $400-$500 for this service where insurers provide the letter free will reap their rewards, sooner rather than later.
Consumers have an important role to play in solving this problem. They can bypass the broker and go directly to the insurer. In cases where the insurer has charged a fee, without prior notice, buyers can file complaints with the Financial Services Commission. One of the roles of the FSC is to implement measures to ensure that the insurance business is conducted fairly. Finally, consumers should make more informed decisions when buying insurance. The watch words should be caveat emptor [let the buyer beware].
Cedric E. Stephens provides advice on risks and insurance. If you need free information or advice to solve a problem, write to The Financial Editor or contact Mr. Stephens directly at aegis@cwjamaica.com
