April 2021

The insurance contract has been the quintessential of  fine print or small print, at least for those standard contracts that should be scrutinized  by the consumer.

It is a fact that the Insurance  Regulatory Authority Kenya took steps to address the woes of consumers regarding  policy documents. The regulator has made several steps in an attempt to address this by simplifying the language used in the insurance policies and standardizing most of them.

When you have come across many disputes brought by consumers of insurance one cannot fail to notice that, the dilemma of the Insurance products for consumers cannot be cured by slightly enlarged print and slightly decoded language only.

When an Insurance product consumer is interviewed at the time of a problematic claim, you find that there is confusion on the proposal form, the main part of the policy document and the schedule.

 Most of the consumers will not even read these documents due to confusion regarding the insurer, the agent and the role of each. The insurance sales process is wanting in disclosure.

The proposal form which forms part of the policy document is like at the entrance or the application, the policy is the inside(the wordy main part)  and the schedule is the backyard.(contract)

For most, the proposal form (where applicable) is the only document they get to see, it is often the only document presented by the intermediaries for collection of insured’s information and signature. The proposal form is the formal request for the insurance of  the property or risk and should ideally  address extent of coverage, but does not. It has a declaration part to reinforce the principle of utmost good faith which Insurers will throw at you when rejecting a claim, this good faith is applied in favor of the insurer .

 The policy,(agreement part)  is prepared after and the actual risk covered is in the schedule appended to the policy document. This is usually delivered once the deal is done and premium paid. Consumers trust the agent understands terms on their behalf!

Not all policies used in the industry are standard, insurers customize with regulator’s approval and not consumer approval.

Unless  consumers are warned that there are terms and conditions plus exclusions in the wordy part; that risk, limits  and objects covered  are as described in the schedule, they always assume the  risk has been transferred fully to the Insurer in case of total loss. They do not even read the excess clause, if at all they read anything.

By way of example, there  is a policy type called the first loss policy insurance.(FLP) It is a shock that in most cases, in property insurance like burglary, the meaning  and essentials of the FLP sinks in  at the time of claiming .These essentials are what an underwriter should have explained without fail:-

  a) the cover taken was partial insurance

 b)Premium is based on the assumed single exposure i.e. maximum loss that can occur at the same time. This is sound reasoning  if  the maximum loss that can occur is expertly  computed.  Determining that  likelihood may  requires some risk analysis not just what proportion of  premium the consumer can afford.

   c) There is usually a high deductible in property and other high value insurance( deductible is the amount to be paid by the insured (consumer) before the Insurer can pay  its share of the claim. It has

unfortunately happened  in some cases, that  the insured unintentionally becomes  its own insurer for the higher proportion.

d) The premium for FLP is lower than the amount for full insurance coverage.  Unfortunately, this is used as a tool ensure a sale by intermediaries who tout the  option of paying lower premium without explaining that lower  premium means in case of loss, the claim amount the insurer pays is calculated proportionate  to that low premium  and once the deductible is factored in, risk cover loses meaning.

d) It is affordable to insure this way; but the reasoning which is never explained to the insured, is that you take such cover in situations where upon sound calculation and collating of data risk of total damage/loss  is very highly unlikely.

 For example , you are a motor-trader with many cars in the compound, you may  assume only one may be stolen at any one time? Will it be the highest valued or the cheapest so decide wisely.

If you are insuring property like expensive gadgets that are easy to steal in quantity, and your limit  covers only  a few pieces, then you may be in for a surprise.

It is important to sensitize  Insurance consumers , that proper inventory and valuation of  property is important. Reviewing of the patterns of loss  in the risk being insured against is also crucial.

 For example, it would be sensible to review the ways of modern burglars whose tech survey methods of planning  burglaries make for higher loss scenarios. Often certain business categories with high cost valuables are  targeted and theft executed with military precision.

EDUCATION & DUE DILIGENCE

Insurance may be an intangible product but it requires education to know what to look out for and due diligence is what agents/brokers should be giving to consumers in exchange for the business . The products are usually sold through intermediaries and a few of them do not explain the finer details or ask the consumer to read the proposal form and  the policy plus its schedule. Some will even fill the proposal for the insured and sometimes information is inaccurate. Instances are many where the agents have signed even the proposal and have put their addresses as customer address.

What  should  Consumers look for in an insurance policy.

1. Always ask how many documents to expect for the transaction. Get the checklist written out by the intermediary  preferably showing it is from the particular underwriter(or principal underwriter) issuing cover.

2. Ensure the information you are required to give in the proposal  is understood and completed correctly, before  signing  the declaration part.

3.Read the policy and look out for clarity in the following:

The  description of the risk so that it is clear that it is in alignment with what you would like it to be. Crosscheck with definitions given because where words are defined, it will not be open to other interpretation. In insurance  words like theft and burglary or flood/rain and storm are not the same.

Check  what is included and what is excluded.

See Conditions (i) what is required to be in place when policy takes effect, e.g guards, alarms, specified fencing. ii) what is expected to be done  when loss occurs? In what circumstances will the policy not be in force?

Most important, once everything has been fulfilled,  what  will be the exact nature of indemnity?  How will the compensation be calculated or effected?

 For a contract to be a contract, you have to know what is expected from you and what  you expect from the insurer. There should be agreement on salient points.

Schedule: read the schedule for the specific details  agreed upon.

Period of insurance, breakdown of premium payable, full particulars of  the items covered, their description, is that all you wanted covered?

This is most important, if you agreed to limit cover to a certain amount or you  extended cover it is all in there. If cover is in force for necessary removal of items and use in different locations etc.

 Excess or deductible is also indicated in the schedule.

If after reading you note errors have been made, there is a period within which these can be rectified, don’t wait for a claim to say, this is not what I told the agent. If cover was to be extended to cover particular people or situations, read the schedule to see that is reflected.

What is in the schedule is the specific not the general or standard clause.

Consumers need help, know where to get it, if the intermediary is not helpful:

i)Directly from the Insurance Company. It would be better to put an inquiry in writing and have it duly received, anything else added in discussion ;put the date and name of the officer you have discussed with and put in your insurance file.

ii)From  Insurance Regulatory Authority (IRA) , check website for information and call them or visit  customer care.

iii) If you have a lawyer and they understand insurance contracts,( reading and understanding contracts may be easy for most commercial lawyers).

iv) If intermediary is all you have, after listening ask as many questions as possible.

A policy can be cancelled as stipulated in the terms or stopped  when you realize it is of no use for your particular purposes. You cannot know this without reading it.

People in the Insurance line, like loss adjustors can interpret policies, see if they provide consultancies.

In cases where the Insurer’s reputation is so bad, they are in the media for wrong reasons, do yourself a favor and get a reputable alternative before it is too late. Some intermediaries will keep you with a bad insurers because  they are paid extra.

Prevention of claim rejection is always better, there is no cure when the insurance contract is null and void  or cannot apply  for terms that should be ascertainable in advance.

GERTRUDE  MATATA.