Cedric Stephens | Elevating the insurance consumer, Part 3

ADVISORY COLUMN: INSURANCE

Most of the requests that I get for information or advice are about claims.

They fall into one of four groups: prospective claimants; persons who have had their claims rejected; those displeased with the offers of settlement; and those who are impatient with the pace of settlement.

All kinds of insurances are involved – life, health and non-life, but mostly motor. If this writer has developed any know-how in over two decades of writing this column, it is about claims.

Could the low rate of compliance with the motor insurance law – which was recently headlined in this newspaper – be partly due to perceptions that insurance mainly benefits insurers and not claimants? That the compensation system treats consumers and claimants unfairly?

When policyholders pay premiums for coverage to insurers and intermediaries, before and after experiences, especially claims outcome, are very important. They influence opinions.

This column has devoted valuable space to the Financial Services Commission’s new Market Conduct Guidelines over the last three weeks. Consumers need tools to get long-overdue industry reforms.

Today’s piece, the third and final, will look specifically at the claim-handling rules that the insurance regulator has mandated that insurers and intermediaries must follow. The rules, about which the industry and others – including this writer – were consulted, go into effect, immediately.

The International Association of Insurance Supervisors, IAIS, is a 25-year-old organisation. Its members are insurance supervisors and regulators from more than 200 countries. Jamaica belongs to that body. It is represented by the Financial Services Commission, FSC.

IAIS members supervise entities that write 97 per cent of the world's insurance premiums. The organisation is responsible for standard-setting, developing and assisting in the implementation of principles, standards, and other supporting materials for the supervision of the insurance sector.

The FSC’s new standards or rules, were derived from IAIS’s Insurance Core Principle 19. It assumes that: “insurers and intermediaries, in their conduct of insurance business, treat customers fairly, both before a contract is entered into and through to the point at which all obligations under a contract have been satisfied”.

FSC claims management rules

Insurers and intermediaries:

1. Should maintain a Claims Procedures Manual for internal use that is maintained and revised when necessary. Senior management is responsible for ensuring that this manual is kept up-to-date;

2. Must ensure that employees in the Claims Department are competent and are qualified to process all claims effectively ongoing internal and external training is required;

3. Should clearly identify and outline claim settlement procedures in the insurance policy and they should be appropriately communicated to the policyholder. Insurers must honour the terms and conditions of claims provisions in the policy;

4. Should provide the policyholder with a claim form and the information necessary to report a claim within a reasonable period of time, in order to satisfy the limit in the policy contract, to ensure that the claims reporting process proceeds as smoothly as possible;

5. Should ensure that the claims department is available within business hours, to the claimant. If an intermediary is an initial contact for claimants, claims should be sent to the insurer to process within five business days, once all the relevant documents have been received;

6. Will contact the claimant or sends an acknowledgement of receipt in writing within five business days of the claim being received;

7. Send to the claimant, within five business days of the claim being received, a list of the specific documents when required to file a claim;

8. Will notify and explain to the claimant at the earliest time and in writing when it appears that the claim is not covered by the policy;

9. Will contact any other insurer that is involved in the claim and resolve any inter-insurer dispute within 40 business days after the receipt of the completed set of claim documents that establish proof of claim. Where claim settlement procedures involve several insurers, indemnifying the policyholder should be a priority while potential disputes between insurers are dealt with at a later date;

10. Will inform the claimants of their rights and duties and treat all fairly.

11. When appropriate, if an insured incurs an insurance loss as a result of a third party, the insurer will inform the policyholder of its right of subrogation and the main principles governing the process;

12. Will ensure that any loss evaluation methods used are reasonable and coherent. The insurer will use internal assessment methods based on the insurance regulations;

13. Notify claimants whenever they employ the services of loss adjusters or other intermediaries whose competence and qualifications the insurers must ascertain. Whenever the damage is assessed, the insurer will send a copy of the written estimate used to calculate the amount of compensation to the claimant;

14. Will not deny a claim without reasonable investigation, hide policy coverage provisions of any insurance policy when they are pertinent to a claim, discourage claimants from seeking an attorney or adjuster, attempt to settle claims for less than the amount to which the claimant is entitled to receive, in line with contract or negotiated amounts, transfer responsibility for the claim to others, except where it is stated explicitly in the policy conditions; and

15. Where applicable, should make every effort to settle legitimate claims with unavoidable delay. Regulation 132 to 139 of the Insurance Regulations stipulate the actions that an insurer and insured should take in the event of a claim. Regulation 135 requires that claims be settled with unavoidable delay if: i) the insured event has been proved; ii) the liability under the policy has been agreed; iii) the amount payable by the insurer has been agreed; iv) and the entitlement of the claimant to receive payment has been established.

Fair treatment

The claim must be paid by the insurer within 30 days when the conditions listed above (i-iv) have been satisfied.

If payment of the claim is delayed for 30 days or more when the four conditions have been met, then the insurer must pay interest to the claimant at the prescribed rate in accordance with Regulation 135.

Unlike the IAIS Core Principle 19.10.1, the FSC does not explicitly say that claims handling procedures should be “fair and transparent”, even though this is implied.

Further, it does not mandate insurers to have claims dispute resolution rules – separate and apart from complaints-handling procedures – in place. This is unfortunate. Dispute resolution is quicker, less expensive and less adversarial than seeking redress using the services of an attorney or by way of court action.

The new standards are the minimum that consumers should expect. Insurers and intermediaries should have no problems in complying with them.

One insurer announced plans last Sunday to spend ‘bigly’ “to make its claims process easier”. This was, I believe, a public response to the FSC’s new Market Conduct Guidelines.

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