In this piece YEMISI IZUORA looks at experts and regulators position on claims payment settlement and challenges associated with infractions
Insurance is one of the most common risk transfer mechanisms for businesses, providing financial protection against losses caused by insurable events, such as natural catastrophes, business interruption and cyber breaches, to name a few.
In making an insurance claim, businesses naturally want a quick and friction-free claim process. Insurers ought to aspire for the same, with many customers considering a smooth claims experience as one of the major factors in choosing an insurance provider.
By way of definition an insurance claim is a request by a policyholder to the insurance company for payment of claim when loss occurs. To an insured, claims payment is the end product of insurance service and once an insured pays the premium, all he or she expects from the insurer is to be indemnified at the critical time. However the ability to pay claims is the real test of a solvent insurance company. quality of claims administration can make or mar an insurance company but be it as it may all genuine claims must be paid promptly. The image problem which the insurance industry has today especially in Nigeria is because of poor claims handling procedures. Claims settlement is an important part of insurance contract because it drives Policy holder’s loyalty to the insurance company as an unhappy policy holder may not take insurance contract any longer, and is likely to tell others about their negative experiences while a happy policy holder will share his or her positive experiences with others.
Mrs. Augustina Onojake Steve, who is the Assistant Director, Complaint Bureau Life at the National Insurance Commission, NAICOM in her paper, “Re-Awakening The Nigerian Insurance Industry Through Claims Settlement” at a media summit at Uyo Akwa Ibom, presented a balanced overview of the challenges insurance firms are facing in dealing with prompt claim settlement.
While she tracked the key issues associated with late claims settlement, she also maintained the need for insurance companies to provide leadership through integrity and ensure industry image is intact.
According to her, most of the times, loss situations awake the minds of the insuring public towards their insurer, as many consumers pay little attention to their insurance coverage until they have a loss.
Claims, being the heartbeat of insurance, are the most critical contact the insuring public has with the industry and thus, critical moment of truth that shapes a customer’s overall perception of their insurer.
In Nigeria, for instance, the problem of insurance industry is bad image and this has for decades stood as bane of the industry’s growth. The bad image problem of the industry dates back to early 19th century when Nigerians took over insurance business from the early British managers. The way the then Nigerian managers carried out insurance business transactions especially in the area of claims payment made the public to see insurance as a scam.
Addressing the importance of claims payment to the industry, Onojake Steve, said, that it boosts Policy holder’s acquisition and recurring revenue of insurance company.
She said that great customer service is not just important for supporting existing customers, it is a key to attracting new ones too, thereby assisting the company to make more revenue.
In addition it publicizes the company as policy holders’ satisfaction and loyalty are important for publicity.
Policy holders talk about their experiences with the companies to other people so it goes further to improve trust and promotes Insurance market development.
“Ideally, insurance business is all about claims payment, since claim is the main reason a policyholder takes up an insurance policy. Without claims being paid by insurance companies, people are not likely to take up insurance policies, and insurance company will not maximize profits, thus Claims payment in insurance contract serves as spice that attracts potential policyholders to insurance patronage.” she stated.
She noted in her paper that experience has shown that some policyholders are dissatisfied with how they are treated by the insurers when loss occurs, thus they complained about such treatments.
She listed some of the complaints by claimants about insurance claims management that insurance companies request for too much evidence and documentations to prove a loss and that some claims are not settled because the insurer refuses to admit liability.
In addition she noted that when claims are settled, they are not paid in full while some claims are rejected on purely technical grounds and also claims are generally unduly delayed and the insurer in most cases argue that the claims are fraudulent.
The above complaints she observed cause disagreement between the claimant and the insurer, and this may lead to objections to insurance sales.
Delays In Settlement
However she pointed that there are existing reasons for delays in claims settlements especially where there is delay in notifying and submitting the claim form to the insurance company.
She said that sometimes, customers delay in intimating the insurance company about the damage loss or they fail to submit the claim form on time.
This leads to a delay in the claim settlement process.
Also, losing the insurance policy document are major reasons for seeming delays as policy documents are vital for a claim process.
She advised that policy holders must keep all the original documents in a safe and secure place because if documents are lost or were not found on time, then the claim process will take time.
Also, non-submission of necessary documents causes delay in some circumstances because the turnaround time starts from the day of the final submission of all the required documents.
If a policy holder fails to submit the documents, then the whole process of claim settlement will be delayed, she explained.
She also mentioned about making a claim after the deadline has passed. According to her, one of the reasons for claim delays is late notification of claims. In the terms and conditions of every insurance policy, there is a deadline by which the claim should be filed.
There is also the issue of timely premium payments:.
Onojake said that policyholders are expected to pay premium timely so that they can benefit from the insurance policy because timely payment of premium is key to claims settlement. “When a policy is lapsed as a result of late payment of premium, such claims may not be settled by insurers. Additionally, if a policy holder cannot continue paying for any reason, there is need to inform the insurer before the policy expires. Most insurers may consider genuine circumstances and offer necessary arrangements, such as converting the policy into a paid-up policy to assist the policy holder.” she stressed.
Repudiation Of Claims
The term repudiation in Insurance claims management refers to the rejection by Insurers to pay a claim.
In her explanation she said claims can be repudiated when te claim is fraudulent and cannot be substantiated with material facts.
She said notice is not given to the insurer at all or within a specified period or a.reasonable time.
She listed other grounds like when the claim will violate public policy; insurance contract is illegal or there is no insurable interest in case of life and a breach of utmost good faith, a breach of a fundamental term of the insurance policy or when the policy holder did not pay premium in line with Section 50 of Insurance Act 2003 (No premium, No cover).
She also pointed out that the receipt and verification of not less than 5 complaints of failure to pay claims promptly by the Commission may lead to the cancellation of Insurance registration in line with Section 8 (1) (m) of Insurance Act 2003.
Section 55(1) of the Act 2003 states that, “In a contract of insurance, a breach of term whether called a warranty or a condition shall not give rise to any right by or afford a defense to the insured unless the term is material and relevant to the risk or loss insured against.”
Also , Section 55(2) of the Insurance Act states that, where there is a breach of a warranty or condition of the contract, the insurer shall not be entitled to repudiate the whole or any part of the contract or any claim on the grounds of the breach unless; (a) the breach amounts to fraud; or (b) it is a breach of a fundamental term of the contract. (Section 55 (5) of the Act defined the Fundamental term of the contract as a warranty, condition or other term of insurance contract which is regarded by the insurer in accepting the risk and fixing the amount of premium).
Section 55(3) of the Act states that where there is a breach of a material term of a contract of insurance and the insured makes a claim against the insurer and the insurer is not entitled to repudiate the whole or any part of the contract, the insurer shall be liable to indemnify the insured only to the extent of the loss which would have been suffered if there was no breach of the term.
Section 55(4) of the Act states that, “Nothing in this section shall prevent the insurer from repudiating a contract of insurance on the ground of a breach of a material term before the occurrence of the risk or loss insured against.” Thus, the insurer based on this section is allowed to repudiate a contract of insurance on the ground of a breach of a material term before the occurrence of the risk or loss insured against, not after the occurrence of the risk or loss insured against. The law frowns at repudiation of a genuine claim by insurance company. Claims are not to be repudiated, but the contract of insurance can be repudiated on the ground of a breach of a material term before the occurrence of the risk or loss insured against.
Re-Awakening The Industry
She said that a prudent claims settlement is key to promoting customer contentment and allegiance.
In other words, claims settlement is the activity of insurance companies that truly portrays what they are there for, because claims settlement is the reason for insurance contract.
Section 70 (1) (a) of Insurance Act 2003, requires the insurance companies to settle all admitted claims within a maximum time frame of 90 days, and where claims are repudiated, the insured should be communicated by the insurer within 90 days from the date the claims are delivered to the insurer in line with Section 70 (1) ( c) of the Act. If the insurance company needs to investigate the claim, it should do that within 90 days.
Article 1.2.2 (g) of Revised Market Conduct and Business Practice Guidelines For Insurance & Reinsurance Companies 2022 requires the insurance companies to deal with customers’ complaints in a fairly manner. Article 4.0 to 4.6.11 of Revised Market Conduct and Business Practice Guidelines For Insurance & Reinsurance Companies 2022 stipulates claims handling procedures by insurance companies . Despite the provisions of the Extant Laws, claims settlement has remained a mirage by some insurance companies. Experience had shown that some insurance companies were unable to settle claims due to Weak Capital Base, Insolvency, Poor Underwriting etc. To re-awaken the Nigerian Insurance Industry through claims settlement, the following should be considered: Increase of the Insurer’s Capital Base: The liquidity position of some of the underwriters is very bad. The capital increase will assist the company to meet their obligations thereby re-awakening the Nigerian insurance industry.
However, she observed that most of the policyholders lack awareness on claims notification and documentation so there is need for creating awareness on this because it will enable the claimants to provide adequate documents needed for their claims for prompt settlement.
This she opined will aid prompt claims settlement and in turn re-awaken the Nigerian Insurance Industry. Beef up claims reserve:
Claims reserve is money set aside for a claim that has been reported but not settled (RBNS) or incurred but not reported (IBNR).
An insurance company assigns claims reserve to each file, reflecting its best estimate of the eventual settlement amount. Section (20) (a), (b) and (c) of Insurance Act 2003 requires insurance companies to make provisions that will cater for unexpired claims and outstanding claims. In order to re-awaken the industry through claims settlement, insurance companies should beef up claims reserve to cater for claims settlement when loss occurs. 
Compliance with Section 25 (1) and (2) (a-g) of the Insurance Act 2003 regarding Protection of Policy holders Funds: Section 25 (1) and (2) (a-g) of the Insurance Act 2003, protects policyholders fund by directing the insurers on how to invest policyholders’ funds. Insurance companies should strictly comply with this provision of the Act at all times to enable them mitigate the risk of not been able to perform claims obligations when loss occurs as a result of inadequate investment of policyholder’s funds. Regulator: National Insurance Commission was established by Section 1(1) of NAICOM Act, 1997 to ensure the effective administration, supervision, regulation and control of Insurance business in Nigeria. Section 8 (a) of NAICOM Act, 1997 empowers the Commission to establish Complaints Bureau to which complaints against the insurance institution may be submitted by members of the public.
Section 31 (1) of NAICOM Act, 1997 established Inspectorate Department for the purpose of carrying out the supervisory functions of the Commission in respect of the insurance institutions. Section 49 (1) (b) of NAICOM ACT, 1997 and Section 101 of Insurance Act 2003 empowers the Commission to issue Guidelines to Insurance Institutions. The Commission had made numerous rules and regulations concerning the protection of policyholders to ensure that genuine claims are settled timely. The Commission had also established Complaints Bureau to which complaints against the insurance institution are submitted by members of the public and where complaints against insurance institutions are resolved. The Inspectorate Department of the Commission had carried out several inspections on insurance institutions to enhance insurance companies’ solvency so that claims will be settled timely. The Regulator should not relent in their functions. They should continue to make rules and regulations to enhance fair customer treatment as well as supervise the compliance of the regulations to ensure robust claims management system. This will assist to re-awake the insurance industry through claims settlement.
She said that lack of trust and confidence in the Nigerian insurance industry resulting from non-settlement of claims constitute one of the biggest challenges of the industry.
“Non settlement of claims have negatively impacted confidence in the industry. Thus, insurance companies should endeavor to settle claims promptly because Claims payment in insurance contract serves as spice that attracts potential policyholders to insurance patronage.” she concluded.
