AD­VI­SORY COL­UMN: IN­SUR­ANCE

Jamaica Gleaner - - BUSINESS - Cedric Stephens 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 Oran A. Hall, the prin­ci­pal au­thor of ‘The Hand­book of Per­sonal Fi­nanc

QUES­TION: I bought mo­tor in­sur­ance on a Nis­san Car­a­van through a bro­ker. All of the doc­u­ments that were re­quired to ob­tain cov­er­age, in­clud­ing the driver’s li­cence, were given to the com­pany. Af­ter fil­ing a claim, I was very sur­prised to learn that no in­dem­nity was be­ing of­fered. There is a dif­fer­ence be­tween the ve­hi­cle’s laden weight and the laden weight on the driver’s li­cence. The bro­ker as my agent did not do a proper due dili­gence. The same also ap­plies to the in­sur­ers. Do you agree? — N. B. W., Kingston 8.

IN­SUR­ANCE HELPLINE:

In­sur­ance com­pa­nies, agents, and bro­kers are re­quired by the reg­u­la­tor – the Fi­nan­cial Ser­vices Com­mis­sion – to un­der­take “due dili­gence” in­ves­ti­ga­tions. These ap­ply to cus­tomers and prospec­tive in­sur­ance buy­ers.

The aim is to find out if these sub­jects are in­volved in mon­ey­laun­der­ing.

Buy­ers should, for their own pro­tec­tion, sim­i­larly in­ves­ti­gate the risk-trans­fer en­ti­ties, bro­kers, agents, and in­sur­ers with whom they plan to en­ter into busi­ness deals.

Due dili­gence, ac­cord­ing to the Mer­riam-Web­ster Dic­tionary, de­vel­oped a le­gal mean­ing since it was first used in the mid-15th cen­tury. It means “the care that a rea­son­able per­son takes to avoid harm to other per­sons or their prop­erty; in this sense, it is syn­ony­mous with an­other le­gal term, or­di­nary care. More re­cently, due dili­gence has ex­tended its reach into busi­ness ... signifying the re­search a com­pany per­forms be­fore en­gag­ing in a fi­nan­cial trans­ac­tion. This mean­ing may also ap­ply to in­di­vid­u­als: peo­ple are of­ten ad­vised to per­form their due dili­gence be­fore buy­ing a house, sign­ing a loan, or mak­ing any im­por­tant pur­chase (or en­ter­ing into any writ­ten agree­ment)”.

It plays an im­por­tant part in man­ag­ing risks.

I use the term ‘do­ing home­work’ as an al­ter­na­tive for due dili­gence. Buy­ers should do their home­work or con­duct due dili­gence in­ves­ti­ga­tions be­fore en­ter­ing into in­sur­ance con­tracts. This is one way to avoid un­pleas­ant sur­prises.

I agree with you, N.B.W. The bro­ker did a very poor job. It did not play the role as your claim ad­vo­cate. Its ac­tions were sim­i­lar to those of a post box. It sim­ply stored and de­liv­ered the in­surer’s mes­sage to you.

You must also ac­cept some of the blame. Had you read the cover note or cer­tifi­cate of in­sur­ance, you would have known that cov­er­age was granted on the ba­sis that the per­son driv­ing the ve­hi­cle, you or an­other driver, was per­mit­ted to drive “in ac­cor­dance with the li­cens­ing or other laws or reg­u­la­tions”.

Also, if you had read your pol­icy, you would have known be­fore the ac­ci­dent oc­curred that your in­surer was “not li­able in re­spect of any ac­ci­dent, loss, or dam­age, or li­a­bil­ity caused or sus­tained whilst the ve­hi­cle is be­ing driven by a driver who does not pos­sess the req­ui­site driver’s li­cence”.

Due dili­gence is es­sen­tial even when in­sur­ance is be­ing bought through a bro­ker.

The buyer’s du­ties in re­la­tion to in­sur­ance trans­ac­tions, ac­cord­ing to the UK-based As­so­ci­a­tion of In­sur­ance and Risk and In­sur­ance Man­agers in In­dus­try & Com­merce (AIRMIC), in­clude:

1. Ac­cu­rately com­plet­ing pro­posal (ap­pli­ca­tion) forms and dis­clos­ing ma­te­rial facts.

2. Re­view­ing pol­icy word­ings to en­sure that they meet re­quire­ments.

3. Pay­ing the pre­mi­ums when they be­come due.

4. Com­ply­ing with the pol­icy re­quire­ments – seek­ing clar­i­fi­ca­tion where nec­es­sary.

5. No­ti­fy­ing in­sur­ers about changes in ma­te­rial facts and when there are changes in your cir­cum­stances.

Most con­sumers -busi­nesses and in­di­vid­u­als – view the re­la­tion­ship with their in­sur­ers as static. This is wrong. Con­tracts of in­sur­ance en­vis­age that the in­sured-in­surer as­so­ci­a­tion is dy­namic.

The pol­i­cy­holder’s at­ten­tion is usu­ally fo­cused on only two of the five items, namely 1 and 2. Be­cause of this, buy­ers are of­ten caught by sur­prise when claims are re­ported — one duty that was left off AIRMIC’s list.

IN­SUR­ANCE BRO­KERS’ DU­TIES

AIRMIC iden­ti­fies five du­ties that bro­kers should per­form. These are:

1. Dis­cuss and ad­vise on the type and level of cov­er­age re­quired.

2. Dis­close all sources of in­come on the ac­count and man­age con­flicts of in­ter­est.

3. Sup­ply details of in­sur­ers ap­proached and quotes re­ceived to in­sured.

4. En­sure that all doc­u­ments are sent to in­sur­ers in good time.

5. Mon­i­tor claims ac­tiv­i­ties and pur­sue and/or ad­vise on re­cov­er­ies.

There are five other items that can be added to the AIRMIC’s list: a) pay­ing the pre­mi­ums to in­sur­ers when due; b) de­liv­er­ing pol­icy and other doc­u­ments to cus­tomers on a timely ba­sis; c) bring­ing to the cus­tomers’ at­ten­tion in­sur­ance pro­vi­sions that may be harm­ful; d) re­port­ing claims promptly to in­sur­ers; and e) plac­ing con­tracts with in­sur­ers when so di­rected and oth­er­wise com­ply­ing with buy­ers’ in­struc­tions.

The due dili­gence ex­er­cise that your in­surer con­ducted was not done to en­sure that you were pro­tected. It was car­ried out ex­clu­sively to pro­tect the in­ter­ests of the in­sur­ers. It was your re­spon­si­bil­ity and that of the bro­ker to take steps to en­sure that your ve­hi­cle was prop­erly cov­ered by in­sur­ance.

Given the facts now in your pos­ses­sion, it will be your job to de­cide who was re­spon­si­ble for your in­sur­ance not per­form­ing as was ex­pected. and how to cre­ate and man­age a port­fo­lio of se­cu­ri­ties while giv­ing them a close-up look at a wide range of se­cu­ri­ties.

Se­ri­ous stu­dents can come away with a solid foun­da­tion on how to in­vest suc­cess­fully. In­ter­act­ing with lec­tur­ers and other stu­dents and tak­ing a se­ri­ous ap­proach to as­sign­ments en­hance the learn­ing process.

But what if you are not able to en­rol in any of these cour­ses? I sug­gest that you make full use of rel­e­vant in­for­ma­tion on­line and in the news­pa­pers.

In our lo­cal set­ting, it would be use­ful to know about unit trusts, mu­tual funds, stocks and bonds ini­tially. More so­phis­ti­cated in­stru­ments like de­riv­a­tives can wait for now. Lis­ten to or watch rel­e­vant in­vest­ment pro­grammes.

It is go­ing to be chal­leng­ing at first, but it will get bet­ter over time if you are pa­tient and are pre­pared to in­vest the time re­quired to take care of your in­vest­ments.

I

IN­SUR­ANCE BUY­ERS’ DU­TIES

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