Cedric Stephens | Part 2: Insurance market conduct rules Version 2.0

There was a significant omission from my May 14 article, ‘FSC Rolls Out Insurance Market Rules, Version 2.0’.

It did not say that I have been preaching for 25 years about the absence of market-conduct practices from the local insurance regulatory ecosystem.

Bryan Wynter, the first executive director of the Financial Service Commission, and, later, central bank governor, invited me to talk with industry leaders about placing policyholders’ interests at the centre of their businesses. This occurred soon after the commission’s formation in 2001, and prudential regulation – supervision requiring financial firms to control risks and hold adequate capital – was the number one regulatory tool.

Buyer feedback and the regulator’s recent actions suggest that most insurers and brokers – life and non-life – may have heard the sermon but believed that prudential and market-conduct regulations could not co-exist. In the wake of the SSL debacle, government policy, expressed by the minister of finance and the public service, signalled that both regulatory models are complementary and benefit consumers.

Five extracts from an article I wrote in October/November 2001 form the backdrop to today’s homily about market-conduct regulation. Even though Version 2.0 is only five months old, British Caribbean Insurance Company, BCIC, a non-life insurer, seems to have anticipated the new rules. The company appears to have started placing customers’ interests at the centre of its business operations before the new regulations came into effect.

The excerpts from the two-decade-old article are summarised as follows:

• Consumers’ negative perceptions about insurance and insurers are usually based on their experiences with motor insurance;

• Consultant World Bank Economist, the late Dr Gladstone Bonnick, said in 2001, “There is enough dissatisfaction voiced by motorists (about the local auto insurance sector) to warrant a careful review before a crisis develops”;

• Some insurers operate on the premise that consumer trust cannot be earned;

• Insurers seldom explain how insurance works; and

• Reliable and objective information about insurance is often unavailable when needed, or if it is, it is always hidden in fine print or legalese.

These were the triggers, I now realise, that subconsciously moved me to visit the government printers on Duke Street, buy copies of the FSC’s December 31, 2022, rules and regulations published in the Jamaica Gazette, for $1,400, read, and then disseminated information about the claims management rules to readers three weeks ago.

An executive from the BCIC shared with me a copy of the company’s new WriteMark Plain Language ‘Standard Home Cover All Policy, Sales Brochure, Application and Motor Accident Claim Forms’ – called retail customer initiatives or RCI for short – a few days before my visit downtown.

She wanted feedback on the documents even though it was obvious that work on them had been finished some time ago.

I did not immediately link the FSC’s new regulations and the insurer’s RCIs with Finance Minister Dr Nigel Clarke’s speech about market-conduct regulation and plan to change the commission’s mission. The penny dropped immediately after I read the insurance contract for the first time.

WriteMark is an internationally recognised quality mark. It is given to documents or websites with a high standard of plain language.

“A document in plain language is easy for the intended reader to read, understand, and act on,” according to the company’s website. Content with the WriteMark trademark tells customers that the writing meets a high standard of clarity and has been checked against pre-established criteria, is focused on the needs of the intended audience, and is easy to read, understand and act on.

High court judge David Batts, a former attorney, quickly learned the lesson in 2017 about plain, easy-to-read language. This was after he asked his young daughter, a university student, to read the first draft of his book, The Law and Constitution for Every Jamaican. Few insurance company CEOs have gained the wisdom of the learned judge.

The introduction to the FSC Market Conduct Regulations Version 2.0 imposes a duty on every insurer and intermediary to establish organisational policy standards and procedures in their dealings with stakeholders to conduct business with “integrity and fairness” and promote a culture in which ‘fair treatment of all customers is paramount.’

Compliance with the market-conduct standards is achieved when eleven qualitative criteria are met. Among them are the processes of exercising due care and skill in dealing with customers, handling complaints, managing claims, and disseminating information to customers. These processes are discussed in more detail elsewhere in the regulations.

When the BCIC’s RCIs are examined in the context of the FSC’s new market-conduct regulations, one gets a bird’s-eye view of the company’s business strategy after it achieved the coveted A.M. Best Financial Strength Rating last year. It is one of the few non-life insurance companies in the Caribbean to have achieved this rating. The ranking is a forward-looking, independent, and objective opinion of its creditworthiness. It also represents a comprehensive analysis consisting of a quantitative and qualitative evaluation of the company’s balance sheet strength, operating performance, and business profile.

Here are some key features of the BCIC RCI:

1. The structure, font sizes, word choices, and appearance of the 32-page contract, application or proposal, claim forms, and sales brochure are easier to read and understand than typical ‘insurance documents’;

2. The company has made a successful attempt – much like its counterparts at the Planning Institute of Jamaica, Statistical Institute and the Ministry of Finance and Public Service – to communicate technical information in ways that an average person will find easy to read and understand;

3. The contract’s ‘question and answer’ and complaint handling section is an industry first;

4. Eight pages, or 25%, of the contract are dedicated to explaining the claims process and how claims will be managed;

5. The contract does not follow the generally accepted practice of giving precedence to the nature of the coverage in legalese and then reciting vague, brief, and opaque technical information about claims. Instead, it adopts a consumer-centric approach by discussing the claims process and describing how claims will be managed before detailing the scope of coverage; and

6. The claim form for the home cover policy is under production. If the design follows a similar process to the motor accident report form, the output will be superior to the existing claim forms. A notable feature: it expresses regret for the claim event – something health and life insurers have consistently failed to recognise even though human lives and well-being are the subjects of those coverages.

The century-old Chartered Insurance in the United Kingdom conducted a 2018 study on the importance of trust in the SME sector. It found that the insurance sector faces a ‘mammoth’ challenge in a country where trust among people and institutions is higher than in Jamaica. “Customers cannot be confident in what they are paying for … ,” it found.

In August 2014, the IDB, Access to Insurance Initiative, and the Multilateral Investment Fund conducted a diagnostic study of the local insurance industry. Its authors recommended a plan to promote trust in the industry and its products.

The BCIC’s management is promoting trust in its brand and products, and at the same time, complying with the regulator’s market-conduct rules. More broadly, its actions are consistent with the state’s natural disaster risk financing policy: encouraging private citizens to insure against natural disasters.

After two and a half decades, a change is under way. Bravo!

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 or business@gleanerjm.com