Thu | Oct 21, 2021
ADVISORY COLUMN: RISKS & INSURANCE

Cedric Stephens | Profit vs policyholders

Published:Saturday | August 21, 2021 | 12:06 AM

The Association of British Insurers – the United Kingdom counterpart to the Insurance Association of Jamaica, IAJ – calls itself “the voice of the UK’s world-leading insurance (general or non-life) and long-term savings (life insurance) industry”.

IAJ similarly describes itself as “the voice of the insurance industry which encourages sound industry practices and ethical conduct of its members (and) promotes the best interests of the insuring public”.

Are those nice-sounding words that are meant to make members of the association feel good? Are they in harmony with the on-the-ground experiences of the average consumer in their daily interactions with members of IAJ? Does the organisation’s existing governance structure promote the best interests of the insuring public, as it claims?

If IAJ is not just another lobby group, that was set up to represent the interests of its members, can it explain why it failed to respond to last Sunday’s piece – ‘Savvy claimant proves case, but compensation still delayed’ – either in this newspaper or in social media? A well-argued response would probably have helped to reassure consumers like CW.

Last week I came across a book, written about 11 years ago, in the US by a distinguished Rutgers University law professor and insurance expert, Jay M. Feinman, titled Delay, Deny, Defend: Why Insurance Companies Don’t Pay Claims and What You Can Do About It. It should be recommended reading for the senior management and board members of the Financial Services Commission, the industry regulator.

The reviewer wrote: “The author explains how these trends (the delay, deny and defend strategies) developed, how the government ought to fix the system, and what the rest of us can do to protect ourselves. He shows that the denial of valid claims is not occasional or accidental or the fault of a few bad employees. It’s the result of an increasing and systematic focus on maximising profits by major companies.”

While I do not have any evidence that indicates that the strategies described by the professor are being practised by some insurers, probably, they are not unfamiliar with these ideas.

Investment guru Warren Buffett of Berkshire Hathaway, which owns many insurance companies in the United States, according to NPR, was reported in 2010 as making the following comments to his shareholders: “Insurers receive premiums upfront and pay claims later. ... This collect-now, pay-later model leaves us holding large sums – money we call ‘float’ – that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit.”

The folks at the Association of British Insurers got the Feinman memo a decade later. ABI announced on July 1 this year that its board has been restructured “as part of redoubling the industry’s efforts to boost customer trust, enhance reputation, and tackle future risks such as climate change”. The changes include the following:

• The recruitment of a new post of independent chair and an independent non-executive director (NED) to bring fresh, external perspectives, enrich the diversity of experience and reinforcing strong governance; and

• The creation of a new board-level reputation and customers committee to provide more focus on good customer outcomes and a greater collective focus on issues proving harmful to the sector’s reputation.

The responsibilities of the new independent chair will include chairing the ABI board and the ABI Reputation and Customers Committee as well as line-managing the director general. “These changes will enrich our board with new independent perspectives while ensuring industry leaders continue to be the voice of the sector in discussions with governments and regulators,” it said.

The association added that given the “sheer range of challenges the insurance and long-term savings sector faces, our board has to operate more effectively than ever before. The appointment of the independent chair and NED will bring valuable insights and help mitigate the risk of groupthink”.

IAJ’s executive team or board, in contrast, consists of eight persons who head life and non-life insurance companies, an executive director and a corporate secretary.

Even though Section 36 of The Insurance Act 2001 imposes an implicit duty on the part of insurers of set up a governance structure, “to take into account the interests of policyholders”, there is no information on the IAJ’s website to indicate that such a structure exists within the IAJ board. Similarly, there appears to be no code of conduct to which members must subscribe. There are many things that IAJ can learn from the reforms that are now taking place inside the ABI.

Finally, persons in the local industry may well ask what right I have to suggest to the members of the local industry how to run their affairs. My response is to rephrase the ABI’s justification for its ongoing reforms: help the local industry’s efforts to boost customer trust and enhance its reputation, for thousands of persons like CW in last week’s article. This would be a win-win for consumers and the 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