Cedric Stephens | Risks and insurance

TWO WOMEN contacted me last week about their motor insurance claims. One is a small business operator. She lives in the capital of a mid-island parish. Her route taxi was destroyed in a collision in which her driver was knocked unconscious. The other was injured while riding in a public passenger vehicle (PPV). She suffered soft-tissue injuries to her neck and back. The PPV was rear-ended by another car.

The problem-solving approaches of the women could not have been more different. The small business owner/operator was not insurance-savvy, despite spending thousands of dollars to buy her vehicle and paying thousands more in premiums. She could not recall the name of her insurance company and did not know that she could face financial ruin without adequate motor insurance.

The other claimant rejected the insurer’s lowball offer for her injuries. Even though she has retained the services of an attorney to negotiate a settlement, she is now thinking about ending the contingency fee arrangement because of poor service and managing the process without legal representation. She is insurance literate.

The penny dropped when I read the blog post of a San Francisco insurance broker: ‘What is insurance literacy and why does it matter?’

The Ministry of Finance and the Public Service, Bank of Jamaica, Financial Services Commission, and others, often speak about financial literacy. Insurance literacy is never discussed. Is this so because it is considered part of financial literacy?

I had always assumed so before reading that blog. My assumption was wrong. Financial literacy and insurance literacy are separate. The former is understanding and effectively using various financial skills, including personal financial management, budgeting, and investing.

Insurance literacy was initially developed and applied to health insurance. Experts now say that the term can be used for all kinds of insurance. I agree. Insurance literacy is the degree to which people have the knowledge, ability, and confidence to find and evaluate information about their (insurance) plans. They use this knowledge to select the best plan for their circumstances, use the risk transfer process to protect themselves at appropriate premiums, and negotiate the settlement of their claims.

Insurance illiteracy is the opposite of insurance literacy. Most Jamaicans, from my experience, are anti-insurance and need help understanding the risk transfer (insurance) process.

The island’s location and long history of natural disasters demand that the government, individuals, and companies move into the light from the darkness of insurance illiteracy.

- Cedric E. Stephens provides free counsel and advice on managing risks and insurance. If you need free information counsel to help you solve a problem, write to The Business Editor at business@gleanerjm.com. Or contact Mr Stephens directly. Letters and e-mails will be edited for clarity and length.