Category Archives: Insurance law

Reinsurance and Insurance: Solvency II Directive

Should Consumers In Africa Be Weary Of Microinsurance?

Over the past few years, large corporations operating in Africa, have come up with innovative ways of redesigning financial products to cater for an increasing number of individuals unable to obtain services in more traditional ways. One of the most popular financial products has been Microinsurance, a product of the microfinance industry, which has for some time been aggressively marketed as essential – particularly for people in the informal sector – to provide a form of security, enabling people to manage their risks and prevent them from falling into poverty in the event of a crisis.

With the continued rise of mobile phone users in Africa, insurers have a huge opportunity to grow their revenue as they tap into this large consumer base – targeting the population in the middle of the economic pyramid – that does not live on less than $2 a day but cannot afford access to traditional insurance products.

Microinsurance has no doubt been beneficial to some SME’s (small and medium sized enterprises) and may be applauded as an innovative way of reaching a large proportion of people who previously relied on informal ways of managing their risks such as relying on the support of their family or their community. However, the drawbacks of this financial product and the lack of transparency by the companies that offer this mechanism of risk management need to be scrutinised. There have been concerns that microinsurance may not be quite what it seems.

The lack of transparency by some corporations means that more and more unscrupulous insurers are exploiting consumers who are unaccustomed to the concept of insuring their assets and income. There are already some insurers claiming to offer free insurance, who fail to inform consumers that their premiums are linked to product purchases such as mobile phone topup’s.

This deliberate choice by insurers not to disclose the truth to consumers is largely based on the assumption that most consumers will struggle to understand the insurance products being offered. They use marketing tactics that lead consumers to believe they are being offered free insurance. Questions need to be asked with regards to the way in which insurance products are being marketed in an unethical manner.

It may not be a stretch to suggest that because profits in the micro-insurance business are hard to come by as it requires large volumes of insurance contracts to make the business viable, companies are being less open and transparent about their insurance products particularly in some countries where regulation of the industry is not stringent.

While countries like South Africa, have made great strides in the regulation of the insurance industry to ensure customer confidence in the industry,  by introducing a “Twin Peak” model of financial regulation aimed at addressing the shortcomings of the regulatory structure, other countries in Africa still have a long way to go.

Better regulatory practices need to be developed to deal with the risks of potential abuse in the insurance business. The regulatory models that currently exist in some countries in Africa are largely ineffective because of the slow law making process and unreliable judicial systems.

Rigorous reform of the insurance legal framework is needed in many countries across the continent as well as the establishment of independent regulatory institutions to ensure consumers are not vulnerable or exploited.

A Review of Good Faith and Insurance Contracts (3rd edition) by Phillip Taylor

In this video, Phillip Taylor reviews an authoritative text on Good faith in insurance law. He gives a well thought out comprehensive review of the book and explores the principles that underpin insurance law.

It’s About Time Disclosure In Insurance Law is Reformed.

Main entrance - 25 The North Colonnade (Canary...

Main entrance – 25 The North Colonnade (Canary Wharf, London) – FSA building Русский: Главный вход – 25 The North Colonnade (Канари Варф, Лондон) – FSA здание (Photo credit: Wikipedia)

Technological advancements have revolutionised the insurance industry over the years, paving the way for new ways of doing business but the law remains the same as it was hundred years ago. This has presented huge challenges for the judiciary  in developing the principles of insurance law to adapt  to changing economic conditions. Despite calls for  statutory measures that would have the full force of the law, much of the insurance industry continues to favour self-regulation in the form of FSA rules which replaced Insurance Statements of Practice.

Insurance law developed in the 18th and 19th century and is largely codified in the Marine Insurance Act 1906. This ancient Act imposes heavy duties on those who apply for insurance of any type, to disclose any information that would “influence a prudent insurer”. Failure to disclose any information that may be deemed to be of importance to the insurer, can result in a policy of insurance being avoided. There is the argument by legal commentators such as R. Hasson who holds the position that this principle has been wrongly and broadly applied, contrary to what was intended when the principle was first formulated in the 18th century by Lord Mansfield in Carter V Boehm.

Most legal commentators maintain that the rules set out in the Act are inapproriate for a modern consumer market. The development of the financial Ombudsman Service as a substitute for law reform has not resolved the problems that consumers of insurance services face. Most people continue to be unaware of their duty of disclosure and are often surprised when their insurance claim is rejected for non-disclosure. The discretionary nature of the decisions of the Financial Ombudsman Service makes it difficult for insurers and consumers to understand what is required of them. The Financial Services Authority rules are inadequate and are primarily intended to regulate the market rather than grant private rights to individual insureds.

The current law is unclear, incoherent and in need of reform in order to meet the expectations of consumers. A new Insurance Act for the 21st century is desperately needed in order to address the present defects in the law and restore confidence in the insurance industry.

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