Cedric Stephens | Shedding light on critical-illness insurance

The headline of my November 11 article, 'Lifting the veil on life-and-death claims decisions' was inaccurate. Part of the veil remains.

The mistake was solely mine. Even though I had a specimen copy of the insurer's critical-illness insurance policy, when I wrote about Mr Kinte Mendez's difficulties, the contents were of little importance.

Today's piece sheds extra light on the subject. It will take an in-depth look at the contract of insurance, which is being promoted by full-page print advertisements and sold daily by employees across the island.

I am not anti-critical-illness

insurance. It plays a valuable role in the society. My problem is the contract terms. They are very difficult to understand. I have over five decades of experience in reading insurance contracts. If the terms of critical illness, or CI, insurance are obscure to me, what about a Treasure Beach resident, for example, with four or five years of primary education?

Senators Longmore and Frazer-Binns should be discussing bread-and-butter issues like these when they talk about insurance in the Upper House.

 

POLICY FEATURES

 

1. The contract is a 2,732-word 10-page document. My first attempt at reading it took 20 minutes. My average reading speed was therefore 136.6 words per minute (wpm). Reading research in the US suggests that the average adult there reads at the rate of 300 wpm. The average local consumer would probably take about 60 minutes to read and understand it. Most persons, I suspect, would not read it.

2. Even with my level of familiarity with the contract language, the read was not easy.

3. The Text Readability Consensus Calculator, which uses seven popular US readability formulas, which I checked after my read, graded the contract as "difficult to read". One formula said the grade level was "college graduate and above". Some US states mandate a maximum grade-level score for insurance contract at nine. The score assigned by one formula of the consensus calculator was 17.2.

4. The part of the contract that deals with the payment of claims devotes most of the space to listing what information will be required and what the claimant must/must not do but offers no guidance about what will happen when there is a dispute or details the process for dealing with complaints.

5. The definitions of the policy benefits were written for persons with advanced medical degrees and not the average reader. Two examples: 'Kaposi's sarcoma' and 'transient ischaemic attacks'.

A few questions: Is it reasonable to expect an average critical-illness insurance buyer in Jamaica to invest one hour ,in addition to the time spent in listening to the sales talk, in trying to read and understand what he is purchasing? How likely is it that the buyer will end up with 'puss in a bag', given the challenges in understanding the exact nature of the contract? Does the seller have an ethical duty to draft the contract in a way that it can be more easily read and understood by the average person? Is the prospective buyer aware that 'x' per cent of each $1,000 of premium paid ends up in the pocket of the salesperson? Is the marketing and the sale of this product supervised in any way by the insurance regulator?

 

FAIR-TREATMENT DOCTRINE

 

There are qualitative benchmarks - also called best practices - that can be used to examine this kind of contract. Here are few from the International Association of Insurance Supervisors. Jamaica is a member.

The general principle on which these benchmarks rest is that insurers, "in their conduct of business, treat customers fairly, both before a contract is entered into and through to the point at which all obligations under a contract have been satisfied".

- Insurers, in their dealings with retail customers, have more information than retail customers. It is important that proper policies and procedures are established to ensure that fair treatment is an integral part of the business culture.

- Remuneration and reward strategies of insurers should take account of the fair treatment of customers. Reward structures need to reflect quality issues and not encourage or reward the unfair treatment of customers.

- Insurers should take into account the interests of different types of consumers when developing and distributing insurance products.

- Products should be promoted in a manner that is clear, fair and not misleading.

- Arrangements for handling policyholders' complaints, which might include an insurer's internal claims dispute mechanism or the existence of an independent dispute resolution mechanism should be clearly stated.

There was little evidence when I visited the company's website to suggest that it has adopted the 'fair treatment of customers' doctrine. I am not surprised by the experiences of Mendez in getting his claim settled.

- Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to aegis@flowja.com.