WHY AN INSURANCE COMPANY WILL NOT PAY YOUR CLAIM

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This blog was a lecture I was to deliver at a Workshop in Lagos.

INTRODUCTION

I sincerely wish to thank the organizers of today’s workshop for the opportunity to speak to you and also for thinking it important that among the issues to be treated in today’s event is a topic on insurance.

I particularly and deliberately chose this topic in order to educate, enlighten, inform and change your opinion about “Insurance.” In my number of years in the insurance industry, I have come to realize the attitude of Nigerians to insurance which is a negative one. During a recent study it was discovered that about 800 Adults in Nigeria have insurance (NEPAD), which leaves about huge gap of the population to be uninsured. Also recently a research showed that the insurance industry in Kenya is bigger than the one in Nigeria. Why these poor statistic? The reason is obvious Nigerians don’t like insurance or avoid it like a plague!

I have observed over the years in my talking with people about Insurance that their responses mostly is always the same- “Insurance companies in Nigeria don’t pay claims!” People believe this statement and have become like a cliché and have been passed around from generation to generation. That is why this topic is very vital, it is meant to clear the air and change your mentality about Insurance. 

Ladies and Gentlemen follow me on a journey to discover the reasons why claims are not paid.

After the independence 3 out of 25 insurance companies operating in Nigeria were indigenous. Political independence and the spirit of nationalism led to developments and also the proliferation of insurance companies which was facilitated by the weak conditions set by the 1961 Insurance Companies Act which stipulated a Capital requirement of only 25,000 pounds. The legislation was exploited by investors who established companies – mushroom insurance companies which were too weak to compete with the then expatriate-owned outfits. During these period and afterwards many claims were recorded that were not paid hence people came to the conclusion that insurance expert are more like fraudsters or cheats who take your money and will not pay your claim when you sustain one. This paper is written to correct this notion and hopefully clear all doubts.

However, the good news now is that as time goes on legislation and regulators emerged that changed the state of affairs in the insurance in the country. It should be noted that it is no longer business as usual in the industry. NAICOM oversees the affairs of all players in the industry and is ready to listen the report of any aggrieved member of the public. For the broker, NCRIB and for the Insurance Company it is the NIA and there is a joint body that oversees all report in respect of any industry player, and if all these avenues fail NAICOM will be the last resort.

Before I proceed further, I would like to briefly define the following terms:

Insurance: an insurance contract is an agreement enforceable at law between an insurer and an insured; the insured agreeing to pay a premium and the insurer agreeing to pay a sum of money, or something of monetary value, on the happening of a specified event to the insured.

Insurance Company: an insurance company also called the insurer, is a company that carry-out insurance services.

Insured: an insured is a person who purchases an insurance policy, also called a Policy Holder.

Claims: Claims and loss handling is the materialized utility of insurance; it is the actual "product" paid for. Claims may be filed by insureds directly with the insurer or through brokers or agents. 

Now let us attempt to delve into the reasons Why an Insurance Company will fail to pay a claim. I am going to speak plainly in this paper and would at all cost avoid technical jargon for the sake of clarity.  There are many reasons why an insurance company would not pay a claim but for want of time, only 5 reasons would be considered, viz:

1.         Unpaid/Un-remitted premium
2.         Fraudulent Claim
3.         Incomplete Documentation
4.         Insurable Interest Issues
5.         Fake Insurance Cover

Unpaid / Un-remitted Premium: according to the Principles of Insurance which is also true when it comes to the Principle of Contracts, premium (which is consideration in the Law of Contract) must be paid in advance for the contract of insurance to be valid. This is the most important aspect of an insurance cover, without which there is no cover – NO PREMIUM, NO COVER! At times agents, after taking up a policy on someone’s behalf might fail to remit the premium to the insurance company before a loss. However, when such a loss thus occurs, the first thing an insurance company will check is the premium status of the policy. If the premium had been settled before the claim, the claim stands a high chance of being paid in full, all things being equal. However, if the premium was not paid before the loss, repudiation (rejection or refusal) is the remedy. You may ask: How do I avoid this? I’ll tell you. To avoid finding yourself in this kind of embarrassing situation, pay your premium immediately you purchase the policy or pay a deposit premium instantly (in case of part-payment)  and followed by the balance payment immediately. Not only that, if you purchase the policy through an agent then be deliberate, issue your premium cheque in the name of the insurance company on your insurance paper and not the agent’s name.

Fraudulent Claim: insurance is taken for an unforeseeable occurrence i.e. the event, occurrence, loss or outcome must be probable (under probability). If a person, for instance purchase a fire insurance and decides to set his house on fire, it's a criminal act called arson! Or willfully damage his car (in the case of motor insurance) in order to come for a claim - it is fraud! When an insurance company is able to trace a claim to fraud, the claim will be repudiated automatically. I recall a case few years back with one of our clients. This man reported that his car was engulfed in flames from his engine while in motion, which according to him resulted in the total loss of the vehicle on the highway. After documentation the office sent me out to inspect the burnt vehicle at the point he said it was burnt. Armed with my camera, I set out on what eventually turned out to be a wild goose chase. What happened was that, after combing the area alleged to be the spot of the accident without success, I decided to ask some policemen in that area. Surprisingly, they told me that no such accident occurred in that area at the said date and time. Conclusion was that there was no such accident and the insured had reported a fraudulent claim which led to the claim being repudiated.

Incomplete Documentation: if you are filling in a claim be ready to turn in all documents. For example, proof of ownership, photographs, purchase receipt/invoice, estimate of repairs etc in the case of motor insurance claim. And in the case of personal accident claim medical report, receipt of payments etc are necessary. I dealt with this subject in my blog: Documents needed that will make your claims valid. Check out my blog page for that. Make sure your documents are in order and complete without that your claim will be delayed unnecessarily because insurance is based on documentary evidence. So take my advice, tender every document as evidence, be patient. Another client of mine reporting a Workmen’s Compensation Claim was told to supply the medical report, receipts and every other document to show that one of his staff was actually involved in the accident. What he sent was just a picture of the victim on a hospital bed, when we ask for the other documents he became furious and said it was rubbish! Till date the claim is still pending, if he decides to tender the documents the claim will be treated further. So document as if

your life depended on it.

Insurable Interest Issues: Insurable interest is one of the elements necessary to create a valid insurance contract. Insurable interest may be simply defined as the legal right to insure arising out a financial relationship recognized at law, between the insured and the subject-matter of insurance. To have insurable interest in a contract of insurance, the insured must have a pecuniary interest in the subject matter of insurance, which is recognized at law to enable him take an insurance contract on that subject matter of insurance. So it means before one can insured an item or property there must be legal right to do so, i.e. there must either be property right, interest of life, limb or potential liability etc. Now if one does not have right to insure a property, even if he does and at the eventual loss of that property the insurance company now discover that the insured had no interest in the property the claim would be repudiated. The premise here is you cannot insure what you don’t own or have legal right to possess.

Fake Insurance: In Nigeria 80% of the Third Party Certificate people use are fake! It is shocking to note this, but it is true, some people who portray themselves as Insurance Agents are not, they just take people’s money and give them empty paper in the name of Certificates. Do you know that your Third Party Motor certificate actually covers you to the sum of N1,000,000 in property damage to a Third Party and also an Unlimited amount to the Death or Bodily Injury of a Third Party? If you did not know, now you know! 

So buying fake insurance, you are actually short changing yourself, because it is so cheap that you pay N5,000 to get the cover and funny enough a fake insurance cost like N3000 or less to cover nothing! Why not just buy the real thing and get a real cover than the fake one without a cover. Which would you rather buy, fake or real? 

I recall a young man how purchased from my former company a Third Party Cover for his truck and paid N10,000 and as events will have it, he had an accident with  his truck somewhere in Mile 2 and killed a pedestrian. He was charged to court and have to pay like N500,000! He came to the company to claim and it was discovered that everything was in order, he was settled in full. Note that he paid N10,000 and was able to claim N500,000, that’s insurance for you!

In the light of that, I also recall when I was still in an Insurance Company (name withheld) there was this man who rushed to us with a claim and our Motor Certificate, but after receiving the document from him we observed that the certificate was a fake one, it was probably issued by the peddlers of fake insurances, his claim was turned down. The question now is how do you avoid this? My answer is approach the right person – that is where a broker or experts come in or even go to the insurance company directly. 

Instead of bothering your head with all the technical jargon in insurance, just leave it to us as professionals and they will handle it for you. Do you know the good news? You are not paying extra for the services, just your premium.

CONCLUSION

Insurance is a legitimate business and also legal profession therefore should not be taken for granted or with levity. It requires utmost seriousness just like law, medicine and others. Insurance is not a dubious business, it is for your safety and peace of mind. It relieves you of the anxiety of preparing when a risk occurs. If you abide by the advice given above, you would not be stranded or else appoint us as your insurance broker and consultant so that we can take the headache off you. 

For further questions, quotes or queries, email me on john.ideboghie@gmail.com or call 08029961727.

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