By Cedric E. Stephens
QUESTION: You say that we should always read policies. That is BEFORE we take out insurance. Buyers are never shown them before business is concluded. We get them months later. And yet, we are expected to comply with policy terms. The courts allow insurers get away this practice. Where is the uberrimae fidei? Clients are always getting shafted!
- lukong@colis.com.
ANSWER: Buying insurance is a process. It has several stages. Several persons are involved. They include the buyer, possibly an intermediary (a broker or an agent), and the insurer. Other factors add to the problems. Examples are language, product information, buyer expectations and the know-how of sellers. Insurance buying is difficult. This is why I believe it occupied the 8th spot of The Fair Trading Commission's 'Top 10 Complaints Chart' for April 1, 2000 to March 31, 2001. Don't get me wrong. Reviewing (and understanding) the policy before signing on the dotted lines is important. It is, however, only one part of the process.
Insurance buyers must accept the blame sometimes when things go wrong. They tend to make decisions solely on price. They often ignore the adage that one always gets what one pays for. Corporate buyers in the private and public sector are beginning to learn this. Premiums have risen sharply since the start of this year. Brokers now seem to have no ideas how to combat rises in property insurance premiums. The situation would have been quite different had buyers used a range of measures to select brokers - instead of placing their account with the broker with the lowest price. Many insurance problems can be avoided if buyers do their homework.
Buyers are not without power, as you seem to be suggesting. Section 37 of The Fair Competition Act, 1993 imposes a duty upon insurers (among others) to act in good faith. It says [section (1)], 'A person shall not for the purpose of promoting the supply or use of goods or services or for the purposes of promoting any business interest, by any means "[a] make a representation that is false or misleading in any material respect." (A representation is the legal word for statement).
Why is this clause of significance to insurance transactions? Insurers must disclose all material information to consumers/customers. This allows buyers to make informed decisions and/or avoid harmful ones. Three conditions must be present for a claim to be made under section 37. 1. There must be a representation or the omission of one that is likely to mislead the buyer. (The statement can be explicit or implied). 2. The representation will be interpreted from the perspective of consumers. 3. The representation must be material. The test of materiality is whether the representation (or its omission) would have affected the consumer's decision. If it would have influenced the decision, it would be regarded as material.
In my opinion, the industry insurers, agents and brokers have not grasped the import of section 37. Few appear to have realised that if material information was not disclosed to a consumer that they would be in violation of the Act. Fewer have changed their business practices to ensure that they always comply, even though the Act is nearly 10 years old. Insurance consumers have also been asleep during the last decade. The most they seem prepared to do is complain. I agree with you. Clients are being shafted. To change the status quo consumers should begin by exercising their rights.
Cedric E. Stephens is the founder of Insurance Help-Line, a telephone-based advisory service and co-host of a radio programme, Risky Business. If you need free advice, write to the Financial Editor or contact Mr. Stephens at aegis@cwjamaica.com
