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The Interface between Consumer Protection and Insurance

By Natalie Nakazwe

By and large, the use of complex financial services has increased in Zambia, and the Competition and Consumer Protection Commission has seen a need to enhance the welfare of consumers in this sector. This is done through the key consumer legislation in Zambia – the Competition and Consumer Protection Act No. 24 of 2010 (the Act). Numerous cases have come to the Commission’s attention where consumer’s rights have been violated The Commission has noted that generally information and power is imbalanced in most insurance contracts, with consumers being in weak bargaining positions. However, even in circumstances where insurance information is clearly expressed, it is very difficult to comprehend it leaving the consumer vulnerable to market abuses by traders.


Historically, Zambian consumers were not well acquainted with the use of these services, which made them susceptible to unfair trading practices and even fraud by agents.  Insurance services could be labelled as complex because of the intricate world of underwriting. The sales agents normally sell to anyone, anywhere but underwriters ensure that one meets certain standards before they can receive cover. This can be a source of confusion for consumers, and can only be managed by providing clear and sufficient underwriting conditions before sales are made. Companies offering these services are at times viewed as profit-maximizing schemers because it seems “what you see is not what you get”.

The basis for such a statement is that the benefits consumers derive from having insurance cover are delayed because there is no immediate consumption of the service. The pay-out and benefits are unknown to the consumer until an event arises, for example, a car accident or a house burning down. To stress this point see the difference between buying a dress and buying insurance. When a consumer is purchasing a dress, the price of the dress is clearly known. There are no limitations as to who can access the product, transactions are transparent, suitability of the product is known and there is no compulsion to purchase the dress. On the other hand, the final price of insurance is generally unknown until an event arises, there are limitations as to who can purchase and be covered, access is limited to those meeting certain criteria and some insurance products such as car insurance are mandatory.

To further highlight practices considered normal in insurance, an example will suffice. A successful private medical insurance provider had access to massive facilities for their clients, such as clinics, speciality hospitals, exclusive hospitals, state of the art laboratories and diagnostic centres. Their health care providers list was long, and the premiums paid by clients were very affordable, whereby clients had an option of paying premiums every month for the whole year or in once off lump-sums. This organisation flourished and took on thousands of clients from other health insurance companies. However, the clever tactics of their insurance sales agents could not hide the imbalanced terms and conditions of the contracts offered by this company.

Potential clients were made to fill in long medical forms where they were queried regarding previous medical history. The company would not cover what they called pre-existing conditions. An element called a “waiting period” which lasted up to 90 days stipulated that clients under insurance cover could not access facilities until the waiting period elapsed. A department existed comprising former nurses called the claims department. Ultimately the claims processing department had a duty to vet all medical claims for existing clients. This department with skilled nurses could even turn down paying out claims due to various discrepancies. For instance, if a client was hospitalised without informing the insurance company before being admitted, they were personally liable to pay their own expenses and the company would not fulfil such claims. Furthermore, hospital stays were limited to a few days; hence patients in need of long hospital stays suffered rejection of their claims. This is just an example of the world of insurance, and consumers need to be aware that because underwriting is not easy to understand, they are vulnerable to having their rights violated.

However, as stated in the preamble, the Act is the right channel to use to mitigate unfair trading practices. The Act proscribes unfair contract terms whether in insurance or any other sector. Specifically, section 53(1) of the Act states that;In a contract between an enterprise and a consumer, the contract or a term of the contract shall be regarded as unfair if it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.” There are terms and conditions peculiar to this sector that are accepted as normal trading standards, but according to the Act, any terms that leave a client in a worse off position than they were at their starting point is prohibited. So then what entails a fair contract? For an insurance contract to be fair, it must possess certain qualities to ensure balance in consumer rights.

Contracts must be transparent, that is having full disclosure of information to consumers before they are entered into, there should be no fine print. Hence, if one wants to have insurance cover for K60,000 for a boat, and pays a premium to that effect, then they should be covered for the full amount when an event arises. Contracts must give the user choice in terms of what the consumer is in need of, and no under-hand means should be used to trick clients into purchasing unwanted services. Contracts ought to be confidential, that is, clients must determine who has access to their private information. And there ought to be a consumer redress mechanism in place, whereby complaints from members of the public are handled with timeliness they deserve and to the satisfaction of both parties.

About CCPC

The Competition and Consumer Protection Commission (CCPC) is a statutory body established with a unique dual mandate to protect the competition process in the Zambian Economy and also to protect consumers.

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Competition & Consumer Protection Commission
4th Floor Main Post Office Building
P.O Box 34919
+260 211 232657/222787

5678 Toll Free


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