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| Sunday, 16 November 2003 |
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Business |  |
| News Business Features Editorial
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Local Insurance Warrants effective regulation It is desirable, if not imperative, that an industry or business should be disciplined by an effective regulatory system. That is the way of ensuring, in particular, that the consumer is not exploited. Insurance is such an industry or business, the majority of insured being pure laymen, who hardly ever read the small-print in their policies, far from studying the ramifications of the subject. Following nationalisation of insurance in Sri Lanka, under the control of Insurance Act there was the Controller of Insurance to enforce the statute, but the Controller of Insurance was hardly equipped with the necessary technical expertise to tackle misdemeanours of insurers towards insured, or with the powers to do so. Insured's grievances had, therefore, to be contested in Court - the last thing one would have liked to face. In the days before nationalisation of Insurance, when the industry was in the hands of the private sector companies, there were the Insurance Offices Committees manned by competent personnel, to lay down the norms for member insurers, who were brought under a common Tariff. Now, once again, Insurance has been liberalised with the Insurance Board of Sri Lanka (IBSL) as the regulatory body. The IBSL, however, would appear to be lacking in the technical know-how in order to deliver the goods adequately, as evidenced by what has already happened; it had to seek the assistance of the very insurers whom it was expected to regulate. The result was that the insurers were even successful in influencing the Board round to deregulate motor insurance against opposition from those affected (and, as pointed out elsewhere, sometime ago, it was like seeking clairvoyance from the proverbial thief's mother). Contrary to the plea tendered, for the purpose, by the insurers for the purpose that such a step would benefit insured by the resulting competition among insurers, the insurers who formed themselves into a cartel went on a premium-hike with impunity. Not stopping at that, they are now trying to tamper even with universally-accepted principles and norms in insurance by introducing conditions, which are alien to motor insurance, though they may be present in certain other classes of non-life policies. The "Pro-rata Condition of Average" is one such example. That is a clause common in most property insurances, with the exception of motor insurance - and for good reason too.It states that, if on the happening of a contingency insured against, the insured value of the asset is collectively of greater value than the sum insured, then the insured shall be considered his own insurer for the difference, and shall bear a ratable proportion of the loss. Policies in which that condition occurs are identified as "Valued" policies, but a motor policy is not a valued policy. An insurer's attempt to interpolate such a condition in a motor policy has, therefore, to be treated as obnoxious, so to say. Another instance where some local insurers have faltered in their interpretation relates to the assignment of a motor policy: The standard motor policy has provision for the insurer to "repair, reinstate or replace" a vehicle in the event of a total loss arising from a risk insured against. When such a policy is assigned in favour of a third party, say, a Lessor/owner of a motor vehicle, in keeping with a mandatory requirement under a lease agreement, the Endorsement assigning the policy carries the identical proviso, except that, it is expressly stated that "Any monies" (arising from a claim) has to be paid to the "Owner" (the Lessor). Some insurers, however, have been observed to pay only total loss claims to the owner/lessor, while they arbitrarily tend to disburse partial loss claims to the lessee, merely because the lessee is the insured, from whom they collect the premium. That could, sometimes, be detrimental to the owner/lessor, particularly if the lessee is a defaulter of his rentals. Yet another irregular practice of some insurers is to misinterpret their own policies in respect of third-party insurance under a motor policy.The Motor Traffic Act (MTA) lays down that an "Authorised" insurer should meet "Any" liability of an insured to a third party victim of an accident. The standard wording of the insurance policy however, states that the insurer would meet third party claims for which the insured is "Legally" liable. So far so good. When it comes to interpretation of that wording, the insurers insist that the insured or his driver should be convicted in a court of law before they admit liability; they would not accept prima facie evidence of negligence of a driver to meet a third party claim, where the doctrine, res ipsa loquitur (the fact speaks for itself) applies. An example of such a case is where a vehicle crashes into a stationary object such as a parapet wall.There seem to be some insurers, who lean too heavily on their legal departments to tackle technical problems. It has to be appreciated, however, that insurance Law is a shade different from Delict law, the latter of which covers offenses such as injury to persons and damage to property. One thing that it does not cover is known to be a breach of contract - and insurance is such a contract! While the above are some of the irregularities, if not shenanigans, relating to operation of motor insurance in Sri Lanka, it is reliably learnt that local insurers, in the cartel, are on the verge of calling for deregulation of Fire Insurance too. If that were to happen that would be disastrous, to say the least. In such a context the wider scope of the Consumer Affairs Authority (CAA) functioning under the Consumer Affairs Authority Act Number 9 of 2003 which has replaced the Consumer Protection Act Number 1 of 1979 and the rescinding of the Department of Internal Trade and the Fair Trading Commission would appear to be a timely step by the Honourable Minister of Consumer Affairs. It is hoped that the Authority, in conjunction with the IBSL will have a more affective check on errant insurers. - C. S. A. Fernando |
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