Thu | Oct 17, 2019

Cedric Stephens | The FSC at 18

Published:Sunday | September 15, 2019 | 12:40 AM

The Financial Services Commission (FSC) was created by an act of Parliament 18 years ago.

This milestone was marked with an anniversary edition of Invested. This is an odd name for a magazine. Isn’t that word the past tense of the verb invest and not a noun?

Frankly, even though I read the electronic version of the publication regularly, I have been unable to understand why this label for an entity that regulates non-bank financial entities.

Anniversaries are marked by celebration and reflection. The magazine editors followed tradition. I was very disappointed that in reviewing the commission’s accomplishments, the editor failed to make mention of its revised market conduct guidelines for insurance companies and intermediaries.

The new rules became effective seven months ago. These regulations have the capacity to fundamentally change how insurers, brokers, and agents treat customers. They also should help to influence the outcomes of insurance contracts. Consumers paid nearly $75 billion in premiums during 2016.

Better customer experiences and policy outcomes are important pillars of the Government’s national financial inclusion strategy, NFIS. Without them, NFIS are simply words.

Because of the failure of the FSC’s technocrats to make a link between their regulatory actions, NFIS and ‘bread and butter’ consumer issues, I conducted a small, informal experiment. I conducted a test during this month to find out the extent to which motor insurers had complied with paragraphs 6.3 and 6.5 of Section 6 of the commission’s February 2019 market conduct guidelines. The section discusses ‘Disclosure of information.’

Paragraph 6.3 reads: “Insurers must give the prospective customer a summary of the policy provisions before finalising the sale of the policy in order to properly disclose the main provisions of the policy but not to overload the customer with detail. The policy summary should include the logo in a prominent position on the top of the policy summary, the name of the insurance company, the type of insurance and cover, significant features and benefits, significant or unusual exclusions or limitations, duration of the policy, contact details for claims handling, procedure for making complaints and a statement that the summary does not contain the full terms of the policy, but such details can be found in the policy document.”

Paragraph 6.5 deals with the important issue of premium. It says: “Insurers must provide information about premium computation in a manner designed to enable the customer to make informed decisions. Information on premiums and premium rates should be provided in writing, in good time and should include the total premium payable and the basis of calculation so that the customer can review the information intelligently. This requirement extends to other fees, administrative charges and taxes payable by the customer.”

Ten insurers are licensed to conduct motor insurance business by the FSC but for practical purposes, only nine trade. Quotations were sought and delivered by four insurers – call them Company A, B, C and D.

The quotations were offered via a variety of platforms, that is, online, customer care and by email. The aim of the experiment was to see how insurers had complied with the FSC’s 10 decision-making criteria for prospective customers seven months after their introduction. It is important to note that the guidelines were enacted after extensive industry consultations.

It was decided for ease of analysis to assign a maximum of 10 points for each of the 10 criteria for a maximum score of 100 points. The following are the scores that were assigned to each of the four companies:

1. Company A – No score was assigned because the service provider (?) behaved as though he was being interrupted from more important tasks and was doing the consumer a favour. The person quoted a premium of ‘x’ but did not offer to send a written quotation by email. The premium that this company quoted was 42 per cent higher than that of the company that was selected.

2. Company B – This insurer was assigned a score of 60 points.

3. Company C – This company was assigned a score of 40 points.

4. Company D – This company was assigned a score of 30 points.

Three of the four companies showed a preference for delivering word-of-mouth quotations even though premiums ranged from $80,000 to $112,000.

It is very evident from the results of this informal survey that motor insurers do not appear to have made any concerted attempt to comply with paragraphs 6.3 and 6.5 of the insurance regulator’s February 2019 revised market conduct guidelines seven months after their enactment.

It is still business as usual. Except for one company, the focus is solely on premium, not coverage. The rules regarding claims and complaints handling were totally ignored. Details of how premiums were computed are still cloaked in stygian darkness.

What about the other 10 sections of the FSC’s new rules? If the Government’s national financial inclusion strategy is so important to the country’s development, why hasn’t it adopted a zero-tolerance approach in relation to non-compliance with the new rules for the insurance industry?

- 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