Claims settlement! A few bad apples

No insurance company (underwriters) has any business being in business if it is not ready to settle claims. Claims settlement is one of the major reasons why insurance companies exist. Non-settlement of claims is also one of the major reasons why a few insurance companies in the Nigerian market are currently distressed. These companies ran into financial troubles as a result of mismanagement and poor corporate governance, amongst others.

Once insurance brokers (insurance industry intermediaries) and the insuring public realised that they are in default of their claims obligations, they stopped giving them business. With decreased premium income their cash flow situation became more acute and their financial challenges increased. Now the Commissioner for Insurance, Mr. Sunday Thomas, has disclosed that the National Insurance Commission (NAICOM), the insurance industry regulatory body, is compiling a list of insurance companies, which are in default of claims payment. Speaking at the 2020 insurance directors’ conference, organised by NAICOM and the College of Insurance and Financial Management (CIFM) recently, Mr. Thomas explained that the move is part of efforts to strengthen the industry and reposition it for growth and sustainability.

Mr. Thomas said “The era of huge backlog of claims should no longer be associated with our (insurance) companies, and while the commission is profiling companies with huge unsettled claims for necessary regulatory action, companies that are responsive to the plight of their clients in prompt settlement of claims are encouraged to sustain the good business conduct.

Mr. Thomas’ pronouncement is music to the ears of many insurance industry practitioners. A few bad apples (insurance companies that are in default in claims payment) have messed up the entire bunch. They have caused other practitioners so much pain, made insurance marketing cumbersome and brought the industry into odium. One frustrated policyholder, whose claim had been delayed for almost two years by one of the troubled insurance companies, recently lamented: “So, I will send my son to school to study (insurance) how to dupe people. God forbid.”

Having a bunch of decent professionals seen as fraudulent people because of a few bad eggs is very distressing, but who will blame the frustrated policyholder? But let it be known that the insurance industry is a noble collection of professionals who play a critical role in the economy. The insurance industry stabilizes the macro and micro economies by ensuring that losses, major or minor, do not cripple corporate organisations, SMEs and private individuals, by restoring entities to the financial position they were before the loss. Insurance also helps to give the insuring public peace of mind, knowing that if the asset they insured is lost or damaged, it will be replaced or repaired by the insurance company. Insurance makes it possible for policyholders to replace or repair lost or damaged assets previously acquired, which the policyholder is no longer in a position to replace or repair on his own because of his current financial situation just because he paid a premium which is a fraction of the asset.

There are weak links in the insurance industry no doubt. No other person than the chief regulator, Mr. Thomas, has admitted that. But he also said that NAICOM is making efforts to strengthen the industry and eliminate companies that cannot pay claims. There is a recapitalization programme going on. Life insurance companies are expected to raise their minimum paid-up capital to N8 billion, N10 billion for non-life insurance companies, while the new minimum paid-up capital for composite companies (insurance companies that underwrite both life and non-life businesses) is N18 billion. There are also market guidelines issued by NAICOM to guide the operations of practitioners. NAICOM is also bringing other innovations, which will make the insurance practice in Nigeria more transparent. The future is very bright. As a practitioner, I look forward to the future of insurance practice in Nigeria with great excitement.

There is another issue, which Mr. Thomas brought up that gladdened my heart. He said: “Our focus must shift to service delivery, which will make our companies to seek more reasons to settle clients’ claims and less reason for repudiation of claims.” Two issues recently highlight why this is very important. Currently, my company is involved in a claim that has dragged on for almost two years. What is the issue? The concerned insurance company is not denying liability, but it is insisting that we get the negligent third party to admit liability so that it can exercise its subrogation rights (the legal right of an insurance company to legally pursue and get reimbursement from a third party that caused the loss to the company’s policyholder).

For the sake of non-insurance professionals, I do not want to go too technical, but insurance companies do not encourage their policyholders to accept liability; the policyholder is only expected to give an accurate account of the incident. From the policyholder’s account, the insurance company will make deductions on liability or otherwise of the policyholder. In fact, it is a policy condition in motor insurance policies not to admit liability. So, how do you want the insured of another insurance company to admit liability and breach a policy condition? Moreover, the police report clearly states that the third party is the guilty party, what else do you want? We are still on the matter and about heading to court.

The second is an insurance company that “suspended” a particular life product. One policyholder, who subscribed to the product for the past eight years ago, was scandalized because his expectations were truncated. I impressed it on the company that its action is morally wrong and a disservice to their brand and the insurance industry, but they were quoting policy condition. Even if the life product is an annual policy, which is renewable every year, it is not like a policy of indemnity. The policyholder had expectations and the reason he bought the product is still there. At the minimum, you call a stakeholders meeting and explain to them why you want to suspend the product and agree on the way forward, not taking unilateral decisions. Even when the company offered to transfer the premium the policyholder had paid to another life product, they did not explain the kind of product they were transferring him to. What should have been a good gesture became a customer service faux pas. It is not right to treat a customer as if he is inconsequential. Such actions diminish the image of the industry. I wrote to them to give us details of the new product they are giving our client. We are still awaiting their response.

Meanwhile, I assure the insuring public that the few bad eggs notwithstanding, the insurance industry is willing and up to its responsibilities. While NAICOM is making efforts to weed out the bad eggs, my advice to policyholders is that they should behave like someone on a night trip: carry a lamp/torch to illuminate your way to avoid stumbling. In other words, get a Registered Insurance Broker (RIB) to handle your insurance placements. They will help, among other services, to ensure that your business is placed with a reputable insurance company (underwriter). And these services come at no extra cost to the policyholder.