Unpaid mature policy highlights gap in regulatory system

Cedric E. Stephens, Contributor

Question:  I have several life insurance policies with one company. The premiums are paid monthly by deductions from my bank account. Recently, I visited the insurer's office to ask about one policy. While there I requested the service provider to use the computer to give me information about the other policies. After a long pause, she told me that a policy which had been in force for 20 years had matured in 2006. I was hearing about this for the first time. The company has offered to pay me an amount that is limited to the sum that was due on the maturity? Is this fair? I invest in many financial entities and certainly would not have left the money sitting there for five years without investing it had I known that the policy had matured. Is there any way that I can get interest on the total amount that accumulated? I called the Financial Services Commission (FSC). The person with whom I spoke was not very helpful. I believe that I heard a snicker at the other end of the telephone when I said that I was due interest on all of the funds over the last five years. Do you agree?

HELP-LINE: Crooked and ignorant are the two words that best describe your insurer's proposed action. Their refusal not to credit you with the capital that accumulated under your policy for 20 years plus the interest that was earned on those funds for five years after the policy attained maturity in addition to the return of five years' premium plus interest - after they omitted to notify you of this fact - is wrong. I have no doubt that a court of law would find that action to be contrary to the principle of equity and, in all probability, inconsistent with the spirit, intent and terms of your insurance contract.

Your insurer's behaviour and that of the FSC rep suggest their cultures are similar.

Consumers are not at the centre of the work that they do. Could this be due to the existence of a gap in the regulatory structure for insurance companies, and also banks, to judge from the latter's dissing of the Consumers Affairs Commission's draft code of conduct?

Other countries have taken action to plug this hole in the regulatory system. Trinidad set up an Office of Financial Services Ombudsman in 2009. The aim of that body is to "investigate, mediate and resolve complaints brought in by any member of the public against commercial banks, non-bank financial institutions and insurance companies." Canada has a Financial Services OmbudsNetwork. There are similar entities in Australia, India, South Africa and the United Kingdom.

My favourite regulator, the California Department of Insurance, "aids consumers by regulating how insurance companies market and administer their policies." It also ensures that business is "conducted in an honest, open, and fair manner." Your insurer would get more than a slap on the wrist had a similar incident occurred in that State. It created the legal offence known as bad faith especially for abusive insurers in the 1960s.

Improve consumer protection

Last year the UK government announced plans to scrap its FSC equivalent - the Financial Services Authority. The activities of its ombudsman presumably were considered to be insufficient to improve consumer protection. The FSA is to be replaced by two new regulators. One, the prudential regulatory authority, will be housed within the country's central bank, The Bank of England. The other, the Financial Conduct Authority, will be set up mainly to ensure that "firms' governing bodies, set, embed and maintain firm-wide culture that supports choice and an appropriate degree of protection for consumers."

Professional standards including ethical conduct are expected to form important planks of the new regulatory regime of the FCA.

Our local non-bank regulator, the FSC, on the other hand places emphasis on the prudential functions to the detriment of the market conduct role. In the meantime, consumers are to fend for themselves.

I know some members of the leadership of the FSC. They are aware of many of the problems that a buyer like you face.

The newly appointed deputy director and I were among some participants in this year's Fair Trading Commission's Shirley Playfair Lecture. I have a great deal of respect for this gentleman's honesty, integrity and sense of doing what is right and proper.

He spent many years in the life insurance sector before taking on the job as head of the commission's insurance division. I am quite sure that he will be very disturbed when he learns about the treatment that was meted out to you when you sought the commission's help.

The company's bare-faced attempt to 'tief' you, I am quite sure, will embarrass him. For these reasons, I have sent details of your case and email address to him. I have asked him to use his influence to resolve this matter in your favour. If nothing happens within the next 10 working days, please let me know.

In the meantime, many thanks for bringing this matter to my attention. The lesson to be learned from this experience is do not take anything for granted. Set up a system to monitor your other policies with this company like a hawk. Familiarise yourself with the terms of the contracts. To be forearmed is to be forewarned!

Cedric E. Stephens provides independent information and free advice about the management of risks and insurance. Email: aegis@cwjamaica.com; SMS/text message to 812-7233.