By Chief Yemi Soladoye
Technical Adviser, Insurance Consumers Association of Nigeria (INSCAN)
The supremacy of the Consumer as the reason for any business is not in doubt in all commercial activities including Insurance. The Insurance Laws in Nigeria, The Regulators, The Insurance Market Associations (NIA, NCRIB, ILAN etc) all work together to maintain the paramountey of the Consumers interest in Insurance Transactions in Nigeria. To this extent, the Insurance Consumers Association of Nigeria (INSCAN) does not ascribe to the 2 extreme positions of King or Servant as it believes that the Insurance Consumers in Nigeria is being treated as King. However, the only question agitating the minds of Insurance Consumers in Nigeria since 1921 is what category of King are we – 1st class, 2nd class, or 3rd class.
In selecting this topic, the Editor of Business Journal might have been encouraged by the negative perception of Insurance business in Nigeria and the impressive levels which sister industries like Banking and Pension have attained in the past 10 years in terms of Customer Satisfaction and Protection.
Point blank, this audience needs to be advised that even we, the – Insurance Consumers – recognise the following special nature of Insurance contract compared to other Financial services –
- In Insurance, we are not exchanging things of equal value. We pay as little as N1,000.00 (GPA Policy) in some cases to receive N1.0m compensation from Insurance – in banking it is N1.0m deposit for N1.0m withdrawal.
- In Insurance, though the Insurance company carries the liability 100%, the subject matter of Insurance (car, house, factory, life) still remains under the absolute control of the Insured whereas N1.0m placed in your bank account cannot still be under your control and;
- Insurance is a business that rewards mainly the bad customers. It is those whose properties are damaged that get rewarded by Insurance companies – in banking a bad customer (the debtor) gets his properties confiscated and his name published by AMCON.
Do the above therefore suggest that the Nigeria Insurance Customers are Kings? Nothing can be farther from the truth. The fact of the matter is that the Nigeria Insurance industry basically has no Consumers. It only has Indirect Consumers because the market concentrates mainly on the Government and Corporate Accounts dealing with public servants and corporate executives whose definition of good customer service is predicated on other parameters.
- TREATING THE CUSTOMER AS KING
Treating the Consumer as King is a concept embedded in the Insurance laws of each African country. e.g. Ghana Insurance Act 2006
Objects of the National Insurance Commission (NIC) Ghana.
Objective – 1 – Protect Insurance Policyholders.
Objective – 2(e) – Provide Complaint Bureau.
Objective – 2(g) – Arbitrate on Insurance Claims.
Objective – 2(i) – Undertake sustained and methodical public education on Insurance.
Objective – 3 – Have high regard to the Protection of the public against financial loss arising out of the dishonesty, incompetence, malpractice or insolvency of Insurer/intermediaries.
At international level, one of the Core Principles of International Association of Insurance Supervisors (IAIS) states: “The key objectives of Insurance Supervision is to promote the maintenance of efficient, fair, safe and stable insurance markets for the benefit and protection of policyholders”. And Ray Hodgin in his Book “Insurance Law” wrote: “The greatest calamity a man can face is to suddenly realize that his Insurance protection is a worthless piece of paper”.
- THE MEETING POINT FOR THE CUSTOMERS AND INSURERS
Treating the Insurance Consumer as King will achieve the following in Nigeria.
- Consumer Trust and Confidence
- Consumer Trust will build Market Growth
- Insurance Market Growth will generate savings, investment and employment.
- Insurance Market will Stimulate growth of other sectors like Mortgage, SME and generate funds for projects of national development
Treating the Consumer as King is therefore the basis, the purpose and the essence of Insurance operation in any country.
- THE PROCESS
The process of treating the Consumer as King usually manifest in 5 areas:
- INSURANCE LAWS AND REGULATIONS THAT WORK
- CORPORATE GOVERNANCE RULES
- CONSUMER EDUCATION
- CONSUMER PROTECTION
- GRIEVANCE REDRESS MECHANISM
- INSURANCE LAWS OF A COUNTRY
- Before the contract = protection of Policyholders Interest – India as best example in the world.
- During the contract = Fund & Premium Guarantee Initiatives – USA as best example in the world.
- After the contract = Grievance Redressal Mechanism – South Africa and U.K as best examples in the world.
- THE CORPORATE GOVERNANCE RULES IN A COUNTRY – NAICOM.
The Insurance Regulator in Nigeria (NAICOM) is a good example of evolving Good Corporate Governance Rules in Africa as a way of making the Customer the King.
The Corporate Governance Rules in Nigeria Insurance market are predicated on 3 Issues:
- Insurance is a business guided by Public Policy.
- Most economies run properly only when insurance is able to safely pull the funds of the masses to the masses.
- There is the need to ensure that a commercial wealth is managed in a way that there is accounting to everybody.
It is about Ethics, Setting the policing system, Patrolling the fence and Strengthening the industry in all sectors
NAICOM manifests its powers in strict directives on issues like:
- Minimum share-capital
- Statutory deposit of capital
- Risk-based solvency rules as against volume-based
- Solvency-based supervision as against Audit-based
- File and approve condition on products as against file and use
- Addition of off-site inspection to on-site inspection
- Advocating use of independent directors.
- Monitoring both technical and financial ratios of insurance operators and
- Focus on the Internal Risks of the operators
- CONSUMER EDUCATION
- In practice, insurance contract is guided by its principles and practice.
- The principles of insurance are only known and understood by the practitioners.
- The meanings ascribed to perils e.g. riot, flood, are not as understood by the Consumers in their day to day usage.
- The consumer does not pay the premium to buy the principles, the perils or the jargons.
- The consumer pays the premium to buy peace of mind, confidence, assured future, security, happiness, protection and compensation.
Making the Customer King starts from translating the principles, the jargons and the contract into simple language with the consumer and his benefits in mind.
Misconception about Consumer Education
Consumer education is not the same as Advertisement, Social responsibility Initiatives, Media Relations or Capacity and man-power development.
Consumer Education requires deliberate Industry programme and budget on Insurance Education, Financial Education, Uniform Contract Terms, Widening the avenues to secure redress and Financial Inclusion – All directed at the public, the Law Enforcement Officers, the Judicial Officers, the Governments, the Law makers and the Policy makers.
- CONSUMER PROTECTION.
Causes of Radical Approach to Policyholder Protection in the U.K
A number of Insurance companies crashed in the 1960s and 1970s,
- thousands of policyholders exposed to great financial losses.
- membership of the European Union resulted in the application of Directives, with the solvency of insurance companies being important to EU.
The Policyholders Protection Act 1975 was promulgated.
Duties and Mode of Operation in the Board
Protect the interest, of any policyholder or others who have or may be prejudiced by inability of an insurance company to meet its liabilities.
The Board takes Subrogation rights of the policyholder into consideration
- The Board’s rescue plans is not limited to an insurance company being in liquidation.
- Possible to classify a company as being in financial difficulties and safeguard the policyholders’ position.
The Financial Services and Markets Act 2000 was promulgated and the PPA of 1975 was repealed.
The FSMA established the Financial Services Compensation Scheme to widen the scope of Consumer Protection Schemes in the U.K.
The FSCS has the power to:
- Transfer part or whole of the insurance business of a firm to other firms
- Secure the issuance of substitute insurance policies by another firm to eligible claimants
- Give assistance to Insurance Undertakings in difficulty to enable them to continue business
- Compensate eligible claimants.
The Nigeria Experience
In law, there are strict rules on Consumer Protection in Nigeria, but in practice we, the Consumers are not well protected. Thousands of our members lost their Life Savings in the Recapitalisation Exercise of 2007 (Amicable Assurance etc.) while others still lose their savings on daily basis due to abscondment of their agents.
Cross Country Experience:
- Protection of Policy holders Interest – Regulation 2002 of IRDA 1999 – India.
Point of Sale – Prospectus to clearly state the scope of benefits.
- Ridders to bear the nature and character of the main policy
- Agents / Intermediary to provide all material information.
- Must be evidenced by a written document
- Must be made available in language recognised by the constitution of India
- Proposal to be processed with speed and efficiency.
Grievance redressal Procedure.
- Efficient and speedy internal grievance procedure to be put in place by each
- Information on Ombudsman to be communicated along with policy document.
- Fourteen (14) salient information on life and sixteen (16) on General business concerning the contract to be clearly stated in the policy.
- Policy document to contain all required claim documents
- Additional documents to be raised all at once
- Claim to be settled within 30 days of full documentation
- Surveyor to be appointed within 72 hrs of notice of claim
- Facility of calling for additional report from surveyor shall not be used more than once
- Claims payment to be made within 7 days of acceptance of offer.
- Communication from the policyholder to be responded to within 10 days
- National Consumer Protection Act 1986 – India
– A consumer has about 12 channels to his grievances. 3 tiers of Grievance handling: District, State, National
- Insurance Ombudsman – 1998
- IRDA – Protection of Policyholders interest
- Quasi-Judicial Power – < $40, 000.00
- Award binding on insurer not insured
- Award to be honoured within 3 months
- 17 Ombudsman across the country
- Power applicable to both public and private sectors
- Simple filling procedure
- On-line registration / redress
- Consumer can lodge grievance against Poor Service
- Regulator under duty to educate consumers.
- GRIEVANCE REDRESS MECHANISM
Another process of making the Consumer King in Insurance is the use of OMBUDSMAN
1) Insurance Ombudsman – U.K.
- The Insurance Ombudsman Bureau (the 1st of its kind in the Europe) was established in 1981 by three (3) underwriters – General Accident, Guardian Royal Exchange and The Royal
- Ombudsman has since spread to many other areas of conflict such as banking, building societies, personal investment: and even funeral.
In 1982, the first year of full operation, 1,053 enquiries relating to member companies were received.
Further 1,272 enquiries relating to non-member companies were noted of the cases adjudicated, the Ombudsman confirmed the members’ decision in 79% and revised 21%.
Insurance Ombudsman was established in 2003 while Complaints handling started in 2004
22 Complaints were handled in the 1st month and now at the rate of 10,000/month.
Consumer Protection act of South Africa was promulgated in 2009 with the United Nations Guidelines on Consumer Protection as the base.
Focus is to see that Consumers have the right to choose and to be informed and that consumers are properly educated and not misled.
- OTHER MARKET INITIATIVES – SELF-REGULATION
Tanzania – The Insurance Act 2009 – Association of Underwriters
A new development in the involvement of the operators in Consumer Protection
Terms of the Associations Operations
- Premium received to be held in trust
- Specified sums or securities to be deposited by the Association members
- Evidence of annual audit of Accounts to be furnished by the members
- Auditor of the Association to certify the level of solvency of each member
- Chairman of the association to certify that all members have complied with the requirement of Insurance law in Tanzania.
Insurance Ombudsman – Tanzania
- Ombudsman appointed by the Minister
- To resolve disputes arising between insurance consumers and operators in Tanzania
- Jurisdiction excludes large and special risks
- Complaint must not be an unsuccessful issue with the operator within the past 12 months or pending before a 3rd party dispute resolution forum
- Has power for direct losses and damages up to 15.0m shillings
- His power of investigation as wide as that of the Insurance Commissioner.
- Funds of the Ombudsman services appropriated by the Parliament.
Judging from the insurance performance of countries like the U.S.A, the United Kingdom, India and Malaysia, it appears that the history of growth of any Insurance Market (no matter the size of the economy or population) is the history of her making the Consumer the King and essentially 1st class King.
The evidence of being an effective regulator is also on the supremacy of the Consumers and not necessarily the amount of fines and sanctions imposed on the operators.
Finally, we thank the Regulators and the operators for making us Kings, but we are 3rd Class King at the moment.