Why is it that Insurance companies love to sell you insurance except when you are sick? How many times have we chuckled about the fine print in insurance policies which is used to resist claims? How many life insurance businesses use the assets of the policy holders to satisfy a personal need or ego of Directors?
Life insurance companies hold assets on behalf of policyholders whose benefit is paid over several years into the future. The assets on the balance sheet belong to the policyholders. The shareholders have very limited power to extract benefits out of such assets. However, it’s an easy way to gain control over the investee companies, using the investments of the life business, as a major shareholder of the insurance company. Therefore, many corporates buy into an insurance company and indirectly get benefits from the investee companies of the life fund. In addition they also charge fees for purported services and syphon monies due to policyholders, to themselves. These related party transactions are not adequately monitored or regulated, resulting in losses to the policy holders. Sometimes, it’s better not to buy a life policy, if you have the discipline of investing today for the future. In such situations, corporate social responsibility and corporate governance in the insurance sector is questionable.
In addition to resisting the payment of claims, insurance companies are good at underwriting to avoid high risk people and events.The methods used include Exclusion clauses, Raising deductibles, Limiting the amounts paid for procedures, Writing new policies each year or introduce benefit changes without informing the consequences to the insured, Selective marketing to attract lower risk prospects. Recently, I had to follow up on a claim for maternity benefits for a colleague. I had claimed this same benefit a few years earlier under the same policy. However, this time round the claim was rejected, citing a change in the ‘fine print’ excluding maternity benefit, which none of us was aware of and the premium has been rising despite such changes! One wonders about the level social responsibility of these companies to inform policy holders about changes?
The above brings me to the issues of mis-selling, where people are duped into buying a policy that did not have the anticipated or required benefits. Mis-selling of insurance products is a common scandal leading to the question of ethical marketing of insurance services. This again is not well regulated in Sri Lanka.
Fraud and mis conduct of insurance companies is another major governance concern. Individuals are bribed to bring business to an insurance company. I’m not referring to the legal commission. The so called commissions I’m referring to are not paid to the Insured or the broker, but to high ranking officers, personally, for agreeing to insure with the insurance company! If the rebate or commission given by the insurance company reaches the insured, that can be considered a legal business deal.
I’m not sure if any Corporate Governance or Social Responsibility reporting will change the above culture. The regulators may have to introduce better rules and monitor mis-conduct to impose appropriate punishment for non compliance, if we are going to see improvements in this sector. If all don’t play by the same rules then there would be no level playing field and the good companies will end up on the losing side!