Insurance is a risk transfer mechanism that ensures full or partial financial compensation for the loss or damage caused by events beyond the control of the insured party. Under an insurance contract, the insurer indemnifies the insured against a specific amount of loss, occurring from specified amount of loss or from specified eventualities within a specified period, provided a fee called premium is paid. In general insurance, compensation is normally proportionate to the loss incurred, whereas in life assurance, usually a fixed sum is paid. In this week’s article, we focus on elements that make insurance contracts unfair.
The Competition and Consumer Protection Act regards a contract to be unfair if it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.
It is not uncommon that there have been complaints of unfair contracts in the Insurance industry. A case in point are complaints received by the Commission in which policies are effected without the consent of the consumers. In a particular case, a consumer had applied for a life policy, but later noticed that two policies were active on the pay slip. Facts in this matter revealed that the agent for the insurance company opened the second policy without the consent of the consumer.
Equally, in order for consumers to open a policy, some Insurance companies would demand that the consumer first opens the policy before the contract and other contract documentation could be availed to them. This has in most instances resulted into consumers opening policies whose terms and conditions they do not understand.
Section 45(a) of the Competition and Consumer Protection Act states that “a trading practice is unfair if- it misleads consumers; and thereby distorts, or is likely to distort, the purchasing decisions of consumers”. Further, Section 45(b) of the Act states that “a trading practice is unfair if it compromises the standard of honesty and good faith which an enterprise can reasonably be expected to meet and thereby distorts, or is likely to distort, the purchasing decisions of consumers.” This, therefore, implies that traders in this case, Insurance companies are expected to furnish the consumers with adequate information about the policy in order to enable them make informed decisions prior to purchasing the policy.
Therefore, if consumers are not availed with contracts and conditions of the policy before it is effected, then there is a likelihood that the decision of the consumer would not be an informed one as most of the information about the policy would be contained in the contract forms. The Commission has lately, seen an increase in complaints where consumers seek to cancel insurance policies soon after opening them simply because information provided to them at the time of opening the policy was not adequate, hence, the consumers might not have understood the contract terms as the contract forms were only made available to them after the policy had already been effected.
In tandem with the aforementioned, there has been a rise in the number of complaints in which monthly contributions towards the policy are increased without the beneficiaries being informed. Consumers need to be informed about the terms and conditions of the product which they have paid for, both at the time the purchase of the policy is done and during the course of the policy on any adjustments made to enable them make informed decisions.
The Commission wishes to implore insurance companies to provide adequate information to consumers as they vie to market their policies in this highly competitive industry. Equally, agents who go out in the field to find customers should be highly monitored by their employers to avoid bringing the reputation of their employers in disrepute by compromising standards of honesty and good faith for the sake of commission allowance based on the number of policies that they open.
Consumers have a right to report cases of such unfair trading practices to their service providers and to the sector regulators such as the Pensions and Insurance Authority and the Competition and Consumer Protection Commission if their rights as consumers have been violated. Furthermore, consumers should ensure that they gather adequate information about the insurance policy which they intend to open in order for them to make informed decisions. Equally, Insurance companies are advised to provide correct information to enable consumers make informed decisions regarding the insurance policies.