Insurance Helpline With cedric Stephens

Does the Insurance Act, 2001 address the hope of buyers that claims, in particular motor claims, will be settled speedily and fairly? Some insurers had the reputation of "not paying claims." This MAY have improved a bit to "not paying claims to third parties." Underwriting losses can be made up with gains on investments. Can't "fit and proper persons" and well-capitalised companies, in the absence of standards, still use the claims process for their benefit?

- G.M., Toronto, Canada.

Answer: The Financial Services Commission (FSC) is in the news daily - or so it seems. That agency polices companies in the insurance and securities industries. Junior Agriculture Minister, Errol 'Jigs' Ennis, investors and would-be investors in Olint Corporation, FSC head Brian Wynter and even members of the executive arm of Government, (the Cabinet through a spokesman), are all talking about how the regulator discharges its functions. The context: Olint, the investment club that reportedly pays eye-popping returns to members. Your questions give me an opening to add my comments. My knowledge about the securities industry, currency arbitrage, Ponzi schemes and the other issues in the debate is very limited. Hopefully, this will help me to avoid the "fight" about FSC's tactics that appears to be brewing between Mr. Ennis and his fellow comrades!

The short answer to your second question is yes. FSC feels that claims standards are good for the insurance market. It plans therefore to introduce rules in this area. This is according to its discussion paper, "Best Practice Guidelines for Motor Insurance Claims." Details of the principles that will guide settlements were recently sent to members of the industry for comments. Claims should be settled "within 30 days of receipt of complete documentation." Currently, there is no time limit. Failure to settle a "proved claim" within the proposed period will be considered a breach of the Insurance Regulations. The Insurance Act, section 76 (2) (d), gives FSC the authority to suspend the registration (of entities) where there is "unreasonable delay in the payment or settlement of claims." In the case where an insurer cannot comply, the company must "notify the claimant within 3 days of the expiry of the statutory 30 day period, giving reasons for the delay and a (n) [alternative] timeline for ... settlement."

The Aims of the Guidelines:

The commission says that the proposed measures are designed to ensure:

Predictability in the time needed for pre-settlement activities.

Standardisation of information required to settle claims.

Improvements in the quality and the speed of communication between parties in the claims process.

The promotion of equitable settlements without undue litigation.

The settlement of claims on a cost-effective basis.

Prompt responses to reasonable claimants' requests, the provision of claims support, guidance and documents, timely progress reports and, speedy settlement once liability has been established, are some of the other things these guidelines are expected to promote. A second phase will bring about more changes in the claims process.

Will Minimum Standards Work?

Best practices are cool, but will they reduce the amount of time claimants now have to wait to get their claims paid? Will the FSC enforce them? The answers to those questions are: probably. Why? FSC wields a very big regulatory stick. It is not shy about using it "to promote public confidence." This weapon was used when Dyoll failed. Critics say, and the FSC admits, that it was also used against Olint.

History and public opinion support the FSC's moves to set claims standards. Settlement delays have been the single most frequent complaint against insurers for a long time. When the hapless Minister Ennis was at the Finance Ministry a few years ago, he led a parliamentary committee that studied the matter. In June 2001, consultant economist and former FINSAC chairman, Gladstone Bonnick, termed some of those issues "sub-sector concerns" that needed fixing. More recently, data from the six-year-old FSC covering the period January 2005 to March 2006 shows that delays are still a major area of concern. Finally, the FSC had no choice but to take action. Its overseas counterparts are using the same principle-based approach to guide the conduct of business.

Let us hope that the interval between the submission of the proposals to industry interests for comments and their implementation does not last another six to seven years!

Cedric E. Stephens is an independent insurance consultant that provides free information and advice about risks and insurance. Contact him directly at aegis@cwjamaica.com.