Should Insurers be responsible for Data Validation?

THE STANDARD PRACTICE, NOT necessarily the best, when providing insurance cover whether in liability, life, casualty or property insurance is to ensure that the interest of the policyholder is very clear and distinguished from...

THE STANDARD PRACTICE, NOT necessarily the best, when providing insurance cover whether in liability, life, casualty or property insurance is to ensure that the interest of the policyholder is very clear and distinguished from any other interest including that of the party paying the premium. While an insurance company is always keen to close the deal, it would not be without clarifying who would be paid claims, if and when the situation arises in future.

The question, therefore, is: Should insurance companies ensure that the persons or organizations they insure are genuine and valid entities? In an era where it is common to come across requests on websites for you to verify that you are not a robot, and sometimes, irritating steps, there is vital need to validate data given the increasing cases of cybercrime.

If however, the practice in insurance transactions, which does not require insurance companies to validate the information and data they receive subsist, it would be very interesting to see how things play out in the emergent digital environment where connected information have become the source.

Data Required For Insurance Contracts

For ease of understanding this challenge, let us examine what happens inside the insurance sector. So, for any insurance contract, the customer (policyholder) is legally meant to provide personal details and specific information about the assets to be insured, sometimes it might be persons in employment, and hence the schedule of names would be made available. Insurance companies, on the other hand, are required by the Know Your Customer (KYC) regime to ensure that they have all vital information about their policyholders but the question remains: Should such information be kept without validation? Will it be appropriate to assume that the form of identification provided by the customer is in order without any validation with the issuing authority?

If it is challenging with an individual policyholder, it becomes even more arduous with incepting policies for groups of people. Group Life and Group Accident insurance policies that have large numbers of persons covered usually just have personal details of the listed persons as provided by the named organization. In this case, insurance companies neither have any form of identification for the persons on the schedule nor seek to validate. This is because the insurers, on the basis of the contract are liable to the organization, also recognized as the insured and the one that will be paid the claim, where the situation arises; though there could be, as part of the contract, an understanding that claims payment be made in favour of the affected person, in case of accident or the beneficiary, in case of death.

Imagine for a moment that these claims payments by insurance companies could have been made to fictitious persons since there were not properly identified and their identities not duly validated. Putting this in numeric context, will allow better appreciation of the exposure of the Shareholders’ Funds of insurance companies, for example:

accidents before making claims payments, and sometimes, discrepancies are noticed in the data provided by the customer (the organization), which causes avoidable delays. Still, the question is: Should insurance companies validate the data they receive from clients?

Any Benefits of Data Validation?

To my mind, there are some benefits that the insurance industry, the insuring organizations, the persons listed on the policies and the general public will enjoy if the information and data that are provided for insurance purposes are validated.

For the insurance industry in Nigeria, what says that they are not paying claims that they should not pay? Claims costs are increasing significantly as we have seen during this COVID-19 period and there are no independent ways, and even no time, to confirm the veracity of these claims besides simply believing the organization. Insurance frauds are also growing steadily and the need to change the way insurance policies are done cannot be overstated. It will be necessary to have machines or access codes of the issuing authorities within insurance companies to validate the identities of policyholders or persons listed as beneficiaries in insurance contracts.

The organizations insured will also need to protect their reputation and the integrity of the information and data they provide to insurance companies for their contracts. We have seen some cases of connivance between executives of insurance companies and the organizations they insure and validating information and data could discourage such acts.

Mention must also be made of the heightened confidence the insuring public will have in insurance when they know that their information and data are validated with the issuing authorities, Recall that insurance contracts probably have the most detailed information and data on persons and properties, so it might be the differentiator we need for our identity management in Nigeria.

The insurance industry in Nigeria is poised to engage massive opportunities as we approach the ‘new normal’ but needs to be circumspect as cybercrime increases along with the increased adoption of insurance through online and mobile platforms.

Today’s customers are very concerned about the use of their information and data, so insurers should be broadcasting their privacy policies to their policyholders, whether individuals or organizations.

It does make sense to validate your data as you insure yourself, your employees or assets!