Addressing Insurers Poor Attitude Towards Claims Payment

Claims payment is a very important aspect of insurance policy contract and given this position, its negligence is capable of sinking even the strongest firm. In this report, Ebere Nwoji looks at poor attitude of most insurers towards claims payment.

A recent global report on insurance claims payment says that, “a less than satisfactory claims experience prompts one in five customers to switch insurance providers.  As such, no insurance company worth its salt will neglect the issue of claims because doing so is at its peril.”

Here in Nigeria, given the negative attitude of Nigerians towards insurance, unsatisfactory claims experience of an insurance client prompts one in five customers to completely jettison insurance patronage and even carry about his ugly experience to other members of the public who wish to buy insurance.

This, therefore being the case, experts have called on Nigerian insurers to live up to their expectation in enthroning the regime of seamless payment of genuine claims.

Insurance claim is a formal request for compensation made by a policyholder from an insurance company for loss (es) suffered under the terms/conditions of the policy. 

Ideally, insurance business is all about claims payment and claim is the main reason a policyholder takes up an insurance policy.

Industry analysts said without claims being paid by insurance companies, people are not likely to take up insurance policies. 

According to the analysts, in every insurance contract, there is always a promise that when the eventuality (claim) happens the insurance company as a risk bearer would be there to compensate the insured/policyholder.

Claims as test instrument 

Therefore claims payment serves as a test instrument that determines the extent to which an insurance company lives up to the ‘utmost good faith’ promise. In other words, claim payment serves as brand image of an insurance company.

The importance of claims in insurance and poor attitude of insurers towards fulfilling their claims obligation prompted the minister of finance Planning and budget Mrs. Zainadine Shamsung Ahmed, to state recently that the unsatisfactory response to the settlement of claims by underwriters had greatly contributed to the prevailing poor public perception and lack of trust and confidence in the insurance industry.

“Indeed, prompt claims payment is the best advertisement for the industry, therefore all genuine claims that have been duly verified and due process followed should be paid promptly. 

She-urged the National Insurance Commission (NAICOM) to put in place mechanisms to ensure Insurance companies meet their obligations to policyholders by paying claims promptly, adding that it was the major reason they exist in the first place.  “Claims payment determines the valuable structure of the industry in the economy, ”Ahmed stated.

In Nigeria, the problem of insurance industry has remained bad image. This according to industry analysts has for decades stood as bane of the industry’s growth.

In their analysis, the bad image problem of the industry dated back to early 19th century when insurance business underwriting was taken over by Nigerians from the early British managers running the few available insurance companies in the country.

According to them, the way Nigerian managers carried out insurance business transactions especially in the area of claims payment at that time made the public to see insurers in bad light. 

They said until few years back, insurance industry operators were seen as group of fraudulent people that were out to collect people’s money only to cook up stories when claim occurs. The industry then was unattractive to work in as a result, operators were unable to attract young and vibrant school leavers to work in the industry.

Industry’s problem

Highlighting some of the industry’s problems, the analysts stated, “The way the practitioners package their policy statements and the products they offered to people also played role in building negative image for the industry. But in all, people felt more offended with the practitioners’ negative attitude towards claims settlement as they often use interpretation of the insurance policy wordings when claim occurs to shirk even genuine claims.”

Against this backdrop, the industry and its practitioners looked like the Biblical salt that has lost its taste, which should be thrown away for people to tread upon.

What this means is that since the essence of buying insurance is for the policy holder to be paid claims when there is risk but the insurers who are in the business to pay the claims are no longer paying, the insuring public decided to hold their money and carry their risks by themselves when they come.

This was the genesis of the industry’s poor image and patronage problems until in recent years when modern managers started feeling the negative impact as while they were earnestly searching for patronage, some sector operators were busy taking their juicy accounts to foreign insurers whom they have more confidence in. This cuts across all sectors including government business just because the public has no confidence in the ability and willingness of indigenous insurance firms to pay claims.

The industry operators realising this some years ago, became determined to embark on image laundering for the industry through publicity.

They set up a committee tagged insurance industry image committee led by one of the elders of the industry the late Mr Yinka Lijadu.

The committee could not do much to boost the industry’s image until the late 90’s when the industry’s regulator the National Insurance Commission (NAICOM) took it upon itself to address the issue of low capital base which it envisaged was the cause of operator’s poor attitude towards claims payment. It pushed up the industry’s capital from N20 million to N100 million in the first instance for general business underwriters then to N300 million. The regulator under the leadership Fola Daniel took over and continued to push up the capital base of insurance firms to the present level of N 3 billion for general business., N2 billion for life , N5 billion for composite firms and N10 billion for reinsurers. Since then several efforts have been made by past and present leadership of NAICOM to increase the capital but to no effect.

As these efforts met strong oppositions from both the operators and shareholders.

But the operators have in the light of these failed in their report attempts to increase the minimum capital of the industry raised their capital above the prevailing minimum stipulated capital, given the double digit inflation now plaguing Nigeria, this existing minimum capital does not position the industry as a serious minded sector.

More so as other sub sectors of the finance services sector have increased their capital; for instance, the pension sector, recently increased operators’ operating capital from N1 billion to N5 billion while the banks are girding up to increase their capital far above the existing N25 billion.

Obviously one of the key effects of the existing low capital base of the industry is that operators currently shirk claims even genuine ones.

To the extent that some mischievous operators as soon as they receive report of occurrence of risk for a business they insured often tell the loss adjuster to decline the claim even before seeing the extent of the damage done.

These insurers have been having their way in this regard because it is said that he who pays the piper dictates the tune. Because it is the underwriters who pay the adjusters, the adjusters do their job to sooth the underwriters. But apparently this is not helping the industry.

People’s experience and suffering

For instance, a foreign trained IT engineer working with one of the print media houses had two ugly stories to tell about the poor attitude of Nigerian insurers towards claims payment.

He insured his camera and other working tools with one of the big insurance firms with corporate head office at Awolowo road Ikoyi. But when he was attacked by armed robbers on his way back to his house from his office he lost the entire working tools to the robbers. He then filed his claims to the company but instead of paying his claims the claims officer started bringing up a lot of clauses and interpretations in the policy documents, which no body explained to him at the beginning of the policy contract.

 Again, he bought insurance policy for his house in Agbo Delta state.

According to him, he bought the policy from one of the big insurance firms with corporate head office at Iponri Lagos.

The IT engineer said he insured the house against flood, which was ravaging the area. He said the insurance firm made him to pay for policy extension to cover flood risk but that when the risk occurred, the company denied the claim saying what damaged his house was erosion not flood.

When he approached the National Insurance Commission he was told that there is no clear difference between flood and erosion.

He then approached the management of Nigeria Insurers Association and after consultation with the Director General, Mrs. Yetunde Ilorin, he was assured that she would get back to him after due consultation with the company in question but till date nothing came out of it.

Yet, these companies every year float billions of Naira claims they said was paid to the media.

Claims paying firms

However, there are some industry operators who have proven that it is no longer business as usual through positive attitude towards claims payment.

Few years ago along Ikorodu road, two motorist driving different brands of Sports Utility Vehicle (SUV) were involved in accident. While they jumped out of their vehicles to commence the usual argument that often cause long traffic jam at accident spots on Nigerian roads, an employee of Mutual Benefit Assurance, one of the underwriting firms in another vehicle recognised one of them as his company’s policy holder and approached her immediately telling her that she insured the vehicle with his company.

While the woman was trying to understand what he meant, he called his office and within a short while a towing van was brought to carry the damaged SUV for repair. This was surprising to both parties, that just for N5000 premium paid, the insurance firm took it upon itself to bear the cost of repairing the vehicle.

Both the industry regulator and leaders of the various trade groups in the industry have realised this and they are currently leaving no stone unturned in their effort to ensure that the operators pay genuine claims promptly.

Effort in this direction started during the administration of late Chief Oladipo Bailey as the industry regulator when in 2002, he compelled the operators to pay claims that emanated from the Ikeja cantonment explosion. Indeed Bailey prevailed on the operators to pay both genuine and spurious claims from the incident as a way of advertising the industry. Also during the Dana Air crash of June 3, 2012, both the umbrella body of insurers the Nigerian Insurers Association and NAICOM prevailed on operators involved in the contract to pay claims to the victims’ dependants not minding that some employers of the victims have not renewed the contract, which was due for renewal in January. The insurers were compelled to pay the claims under the consideration of what the then chairman of Nigeria insurers Association (NIA) Mr Ladipo Ajayi called ‘gentleman’s agreement’.

These were meant to advertise the industry as claims paying industry before Nigerians and to save the industry from the existing bad image occasioned by non-payment of genuine claims by the early practitioners.

Before now Fola Daniel had told the operators that the biggest awareness creation and advertisement they could do is to pay genuine claims without much argument. To ensure that genuine claims are paid without much argument both the NIA and NAICOM had set up what they tagged customer compliant bureau where any member of the insuring public that has unsettled claims should lodge his complaints.

According to NIA, the bureau will serve as a place where displeased claimants can lodge complaints against insurance companies in Lagos.

At the inauguration of the bureau, the then NIA chairman, Mr. Olusola Ladipo-Ajayi, identified the need to change the poor public perception of the insurance industry as a major reason for introducing the bureau.

According to him, ”Over the years, incidences of unsatisfactory response to settlement of claims by underwriters seem to have contributed to the poor public perception of insurance as a financing option. Today, we want to shake off the yoke of the inglorious past and chart a new beginning for the insurance industry anchored on the principles of trust and utmost good faith, the basic pillars of insurance practice.”

He said that after a comprehensive review of the situation, especially as it concerned confidence building mechanisms, the NIA had come up with the idea of establishing a Customer Complaints Bureau intended to provide the needed platform for intervention in cases of dispute leading to delay or non settlement of claims.”

The objectives of the bureau, he stated, are to serve as alternative dispute resolution mechanism, providing an independent opinion on disputes that might arise in any insurance transaction between members of the association and policyholders; and reducing the cost of obtaining justice in respect of insurance related matters, especially those involving members of the association.

NAICOM said its own Complaints’ Bureau as a unit established in accordance with section 8(a) of the National Insurance Commission Act No. 1 of 1997.  It serves as an organ to which members of the public may submit complaints against insurance companies and intermediaries. 

The commission said the bureau is to handle all insurance disputes arising from insurance policies issued by registered insurers, such as undue delay in settlement of genuine claims, denial of liability, where the complainant is convinced that there is liability.  

NAICOM said the insuring public should seek for the intervention of the bureau only after the complainant has failed to reach settlement with the insurer, or intermediary, in respect of a matter properly reported or lodged with the insurer or intermediary.

These point to the importance of claims settlement as a medium for building public confidence in the insurance industry.

But with what is happening now people are compelled to ask whether the complaints bureau is functioning at all. They are asking the question because for a long time now nobody has heard anything about the complaint bureau, their workings and cases they have resolved.

But many insured suffer non payment of genuine claims.

The situation is more prevalent with non-corporate policies.

Delayed claims

Generally, some of the issues that could make claims payment outstanding include reporting delay, that is time gap between claims occurrence and claims reporting to the insurance company); and settlement delay because it usually takes time to evaluate the whole size of the claim.

Indeed in advanced countries, insurance managers are so faithful to their claims settlement obligation that they keep what they referred to as claims reserves which involves an insurance company putting sufficient provisions from the premium payments aside, so that it is able to settle all the claims that may arise from insurance contracts.

Here in Nigeria, it is not certain if such reserve is made. Where it is made, it is just merely put there for the regulator to see.

Often what is experienced is long period of argument between the insured and the insurers when claim occurs.

The argument is caused by the fact that while the insured wants to get his claims paid without delay, the claims department officers of insurance firms want to save their companies from spending on claims payment and this often delays payment of the claim.

The Commissioner for Insurance, Mr. Sunday Thomas, recently threatened to deal decisively with insurance firms not paying claims.

Indeed, from his statement, the commission will soon come up with a strategy that will expose non-claims paying firms and deal with them without fear or favour.