Advisory Column: Friendly societies and their insurance activities

QUESTION:

I have been a policyholder of a friendly society since July 1, 1997. I have never made a claim nor have any of my premiums ever been in arrears over these years. I am on pre-retirement leave and will commence early retirement on April 1, 2015. I made visits to the Ocho Rios and Kingston offices to arrange for premium payments to be made over the counter so as not to lapse my account. Employees at both places said that the life of the policy ends on the commencement of retirement and, most disturbingly, that money paid over the years is not refundable. When I challenged this, the response was: "That's how insurance is".

My questions to you are:

1) Can the company refuse my wish to make premium payments over the counter?

2) Can the company simply take my hard-earned funds paid over the years when I am clearly willing to continue my policy and they are the ones reneging on the arrangement?

3) Can the policy automatically terminate at retirement when it says nothing about retirement?

Persons like me who have sacrificed and invested in this scheme are extremely worried by this information. Can you throw any light on the subject?

- T. R., Lydford, St Ann.

INSURANCE HELPLINE:

After I read your email, I visited the website of the Financial Services Commission (FSC) - the insurance industry regulator. I wanted to see if the company you named was listed among the registered life insurers. I then spoke with an FSC official.

My quest was to find out why the company's name wasn't listed there. I am now awaiting written information from that source.

My next move was to conduct research about the origin, history and functions of friendly societies. I then read our Friendly Society Act of 1968. These activities provide the context for examining the contracts that you sent me.

Friendly societies pre-date life insurance companies. Encyclopaedia Britannica says a friendly society is a "mutual-aid organisation formed voluntarily by individuals to protect members against debts incurred through illness, death, or old age. Friendly societies arose in the 17th and 18th centuries and were most numerous in the 19th century. Friendly societies had their origins in the burial societies of ancient Greek and Roman artisans. In the Middle Ages, the guilds of Europe and England extended the idea of mutual assistance to other circumstances of distress, such as illness. The friendly societies went a step further by attempting to define the magnitude of the risk against which it was intended to provide and how much the members should contribute to meet that risk." It adds that offshoots of the friendly societies include trade unions and life insurance companies.

The Friendly Societies Act of 1968 was enacted three years before Jamaica's first major law governing the operations of the insurance industry, The Insurance Act 1971, was passed.

Section 3(1) of FSA 1968 reads: "This act shall apply to the following societies ... for the purpose of providing by voluntary subscriptions of the members thereof with or without the aid of donations for: (i) the relief or maintenance of the members, their husbands, wives, children, fathers, mothers, brothers, sisters, uncles, aunts, nephews or nieces, or wards being orphans, during sickness or other infirmity, whether bodily or mental, in old age (which means any age after sixty) or in widowhood, or for the relief or maintenance of the orphan children of members during minority; or (ii) insuring money to be paid on the birth of a member's child, or on the death of a member, or for the funeral expenses of the husband, wife, child, ward, father, mother, brother, sister, uncle, aunt, nephew or niece of a member, or on the death of the widow of a deceased member or on the death of such other relation of the member's family as is wholly or in part dependent upon the earnings of the member for the ordinary necessaries of life."

Sub-section 1 of section 10 of the act allows "every registered society to make rules ... for all such things as are necessary or desirable for the purpose for which such society is established."

Sub-section (2) says that "rules made under this section shall bind the society and every member thereof".

You have not sent me a copy of your rule book.

Section 46 of the Act deals with how disputes are to be handled. It reads: "Disputes touching on the business of a registered society shall be referred to the Registrar of Friendly Societies".

Friendly societies are regulated by an agency in the Ministry of Industry Investment & Commerce called the Department of Co-operatives and Friendly Societies (DCFS).

According to the DCFS website, it oversees the functions of 688 entities.

Part II of this article will examine the insurance provisions of the contract between you and your friendly society.

n 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