Cedric Stephens | Asymmetry as a tool of claims payment avoidance

A person identified as ‘Injured Party’ wrote a 754-word letter and sent it to my Inbox last Monday. She was involved in a collision on the Queen’s Highway section of the North Coast Highway in September 2019.

A speeding vehicle, travelling in the opposite direction, while overtaking, crashed into another vehicle that was in front of hers, causing it to flip and hit her car. She was injured and her vehicle was damaged. Fifteen months later, her claim against the third party’s insurers remains unsettled while she is still incurring expenses associated with the accident.

The aim of the letter was to “tell Jamaicans about what to expect when they have to deal with … Insurance Company”. I was very disturbed by the letter, sought and obtained her permission to send it to the insurer’s CEO. What worried me most was that, despite the rapid and widespread adoption of new technologies, especially in these times, the motor insurance claims process remains the same – slow, ineffective, a source of dissatisfaction and seemingly unresponsive to change. Why?

Working from home, social distancing, insufficient bandwidth, and unreasonable and dishonest claimants, according to one source, have made the management of the claims even more inefficient than it was before COVID-19. While this statement may, in all probability be true, it does not explain why this claim remained unpaid for so long when the facts were not in dispute. Could there have been other issues at play?

Not once during my discussion with the insurer’s CEO about the claim did the subject of the company’s compliance with The Financial Services Commission’s (FSC) February 2019 Market Conduct Guidelines come up. The industry regulator’s laissez-faire approach to market conduct does not appear to be influencing how insurers manage motor claims that affect the lives of thousands of persons each year.

Significantly, ‘Injured Party’ was unaware that she could have filed a complaint about the mishandling of her claim with the FSC. Instead, she complained to the Insurance Association of Jamaica, the industry lobby group. This turned out to be a complete waste of time.

Four months ago, the then new head of the Insurance Association of Jamaica, Vernon James, outlined “some of the things the association would be doing to improve the claims adjudication process and raise some issues that impact its members’ ability to deal with claims”. His comments were the subject of my article, ‘IAJ Falls Short on Claims Strategy’. I interpreted his remarks as PR and expressed doubt that those words would be followed up with action. ‘Injured Party’ and other persons who have come in contact with the system have confirmed my prediction.

The claimant was given eight excuses why her claim remains unsettled. They were:

• The policyholder had not filed the claim;

• He had not provided relevant documents;

• He was tardy in responding to his insurer’s request for information;

• He denied causing the accident;

• He stated that the police report absolved him from fault;

• The police report was outstanding;

• The insurer needed an additional two weeks to get a response from the policyholder;

• The policyholder was dead and therefore the insurer was off the hook.

The insurers of the third party appeared to be putting into practice the theory of asymmetric information. Economists use the phrase to describe a situation where the party that holds more information in a transaction uses that information to its advantage. Put simply: the insurer was using its superior knowledge about the claims process to unnecessarily delay payment.

Motor policies give insurers unlimited rights to settle third-party claims. Insurers do not need the approval of policyholders to pay claims. Only a court of law can force them to pay a claim. Claims department staff know this.

Section 8 of the Motor Vehicles Insurance (Third-Party Risks) Act, which is familiar to all lawyers who work for insurance companies, forces insurers to pay the claims of third parties, even in cases where a motorist fails to report an accident, as is required by their policy. There was, therefore, no justifiable reason for the insurer to wait for a statement from their policyholder to pay, provided that the company was satisfied that the accident occurred.

Happily, the insurance company boss agreed to pay Injured Party’s claim at the end of our telephone conversation. I wonder, how many claims are still in the insurer’s pipeline of claims?

- 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