In February 2019, the Financial Services Commission, FSC, released its 13-page ‘Revised Guidelines on Market Conduct for Insurance Companies and Intermediaries’. Even though the insurance industry – and people like me – participated in writing them, the same professionals operated like the rules did not exist.
The regulator inexplicably chose not to enforce them.
I wrote 20 articles about the lack of enforcement between September 2018 and April 2023.
Minister of Finance & the Public Service Dr Nigel Clarke spoke about market conduct and prudential regulation – called twin-peaks regulation – in the context of the SSL d?b?cle, the FSC leadership change, and other things earlier this year.
A few days ago, I learned that on December 31, 2022, the regulator introduced a new system of rules, ‘The Insurance (Amendment) Regulations 2022’, under the Insurance Act 2001. Part XII-A of the new regulations cancelled the earlier market-conduct guidelines, IR-GUID-19/02/-0018. Given the scope of the new rules and the fact that the market-conduct provisions only apply to the insurance industry – not the securities industry of which SSL is a part – it seems that the changes were in the pipeline long before the SSL fiasco was made public.
Market conduct refers to all strategies, policies, activities, systems, practices, and measures executed or performed by insurance companies and intermediaries in the ordinary course of business before parties enter a contractual arrangement, and they continue until all obligations under the contract have been satisfied. Market-conduct regulations are developed to ensure that ‘all customers are treated fairly’. The new rules can potentially upend how insurers and intermediaries – that is brokers, agents, and others – conduct business and improve the quality of service provided to consumers.
The FSC’s market-conduct regulations, version 2.0, have the force of law. The commission assumes that these rules, plus the imposition of monetary penalties, will force insurers and intermediaries to change how they conduct business. The Bank of Jamaica, the banking regulator, which will be taking over the FSC’s prudential regulatory functions, describes one of the things it is doing in regulating the banking industry in newspaper advertisements as the establishment of a consumer protection framework. The FSC is now making a second attempt to do the same in the insurance industry after its failed attempt four years ago.
Today’s article will highlight Sections 142M, 142N and 142O in the new rules. They deal with how claims are to be managed. These sections do not exist in a vacuum. They were preceded by Section 142A, which describes general principles that buttress the concept of market conduct and defines the minimum criteria the operations must satisfy to meet the market-conduct standards. Section 142D, for example, focuses on the ‘duty of care to customers’ by insurers and intermediaries.
Under the new rules, insurers and intermediaries are required to implement and maintain “an efficient, fair, and transparent process for the settlement of claims”.
The procedures are to set out in writing for the guidance of customers and prospective customers, the parties to the settlement, employees of the insurers and intermediaries and include processes for resolving any grievance or dispute arising about the claim.
The claims settlement procedure requires that on receipt of the claim, insurers, and intermediaries: effect all communication with the policyholder in writing; explain limitations in coverage to the claimant; advise the policyholder about subrogation and its relevance to the claim; explain the loss adjuster’s role and how the involvement of that professional will likely impact settlement of the claim; provide the claimant with a copy of the damage estimate applied to calculate the amount payable in the satisfaction of the claim; if other insurers are involved, engage with them without delay to resolve differences; designate suitably qualified and trained persons to perform claims functions; and not decline to settle a claim unless a thorough investigation is conducted, all relevant facts have been determined, and the policy’s specific terms have been studied.
Some motor insurers have for years exploited the ignorance of claimants by refusing to settle claims because the third party (driver or owner) did not report the accident or a police report was not submitted. These practices are inconsistent with Section 8(1) of the Motor Vehicles Insurance (Third-Party Risks Act) – a point I have made in this column for over a decade years. Regulation 142N now prohibits them.
This summary of the regulations about the claims settlement rules should be interpreted within the broader context of the market conduct standards generally and the one that applies specifically to claims. It reads, for the purpose of these regulations, that market-conduct standards are satisfactory if “policyholder insurance claims are settled fairly, and payments are made without undue delay, utilising transparent and effective claims procedures”.
The FSC has shown a reluctance to communicate with members of the public. This is a mistake. The new market-conduct rules offer an opportunity for the commission to engage with an important stakeholder group and to help repair the damage to its reputation caused by the meltdown at Stocks & Securities Limited.