The Battle of Principles: Insurance Versus Business

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Monday, July 27, 2020 / 2:42 PM  /By Ekerete Ola Gam-Ikon / Header Image Credit: Doeren Mayhew

 

Fundamentally, our lives are guided by set principles irrespective of the biases we put forward at different times. For example, "Do unto others as you would have them do to you" or put differently, "Be fair in all your dealings with others" is universally accepted. Deriving from this, individuals, businesses, governments and non-governmental organizations have defined the basis of their relationships in agreements, contracts and constitutions.

 

To further strengthen these positions, international relationships have been bound by conventions and protocols set by the United Nations and its agencies, and businesses have been acting in acknowledgement of such frameworks in respective domains.

 

Businesses, especially multinational companies, have Business Principles to guide their internal and external activities and relationships wherever they operate. They adopt those foundational statements to guide their future. With increasing successes recorded, we have seen local businesses emulating their foreign counterparts and the efforts to create sustainable development have been anchored on this.

 

A review of how the practice of business principles works in the insurance industry threw up some very interesting findings, which have also deepened our understanding and I thought to share.

 

Insurance, like other professions, have its principles which often challenges business principles and the conflicts (sometimes, distress) that have been seen in the insurer-policyholder relationship could be attributed to this.

 

Seven (7) Notable Insurance Principles 

Examining the following insurance principles in terms of how you should act or expected to act will surely enable you have a better insurance experience.

 

No

Insurance Principles

Description

1.

Utmost Good Faith

You and your Insurer should have a good faith towards each other regarding all contracts of insurance. Both have a duty to disclose all facts.

2.

Insurable Interest

You must have interest in the object of insurance; meaning it gives you gain but loss when it no longer exist

3.

Proximate Cause

In the event of a claim, your insurer is interested in the most dominant or most effective cause of loss when they are two or more causes of loss or damage

4.

Indemnity

You have the assurance that you will be put in the same position you were before the unexpected event occurred. Your compensation should not exceed the value of your economic loss

5.

Contribution

Sometimes called Double Insurance, it is a corollary of the principle of indemnity. If you had taken out more than one policy for the same object, your claim will be to the extent of the actual loss and no more.

6.

Subrogation

When you have been compensated for the loss due to damage to your object of insurance, your right of ownership goes to the insurer. This is what enables you to claim the amount from the third party responsible for the loss

7.

Loss Minimization

You have a duty to take all possible steps to minimize the loss of your property as the uncertain event happens

 


Above all these principles, I hope you will always remember that insurance has the nature of contract, when the insurer makes an offer or proposal to you and you accept freely. However, what seems to be taken for granted is that only the insurer signs the contract (policy document), possibly in absolute good faith, and when the unexpected happens, the insurer interprets the wording, quite often, to your disadvantage.

 

Statement of Business Principles By Insurers 

Imagine if insurance companies in Nigeria are required to, or simply decide to, have their business principles clearly stated in their public documents and for the attention of the public, I think it would enable us have more internationally rated insurers and an environment where best practices would be acceptable. Some global organizations, especially technology brands that have large population of employees and customers, have business principles that emphasize fair treatment of others notwithstanding the aggression towards profitability; something that the insurance industry globally continues to struggle with.

 

Examples of those guiding statements of business principles are:

 

Some Business Principles

Decide to be a great leader

Decide what you will do and what you will not do

Decide what makes you different

Ensure meaningful experiences for customers

Emphasize giving before receiving

Employ and retain great people

Expose yourself to learning and turn ideas into actions

Make money and manage cash flow

Contribute to the communities you have offices

Always seek to improve on what you do

Prepare for tough times

Maintain your integrity in all you do

 

Viewed against insurance principles, which quite some insurers would rather rely entirely on, there might be something to explain why your relationship with your insurer is always tested. Take for example, one of the business principles that says "Decide what you will do and what you will not do" and consider where an insurer decided to abide strictly by insurance principle of utmost good faith. I think quite a number of claims that have been settled by insurers in favour of companies would not have happened, simply on account of the poor data they have to work with.

 

Consider another business principle, "Contribute to the communities you have offices" and you will discover from studying the financial statements of insurance companies that only a few have good showing under Donations in their books. Not surprising though because a company that is unable to meet its obligations cannot be seen to be making public donations, yet to attract business in a sustainable manner, this has become the norm. Will we see a foundation promoted by insurers soon?

 

The BIG Question: Will Insurers Adopt Business Principles over Insurance Principles? 

Never! An experienced insurance professional has argued, restating that "once you remove any of the principles, insurance loses its value". Is there room for a debate on this? I do believe so.

 

Insurers have, from my experience, enjoyed greater public attention any time they chose to do something beyond the insurance principles especially with regard to Principles 3-7 stated above, which have to do with the process of claims management. Insurers that have indemnified policyholders whose vehicles were badly damaged with new ones have been better applauded than those who paid the claim amount less depreciation. This is what brings the policyholder much closer to the position he/she was before the damage or loss that the sum paid; anyway, how many claimants use the sum paid to acquire replacement of the lost object?

 

Very few insurers across the world are reaching beyond the insurance principles to engage policyholders and give them different refreshing experiences, thus winning increasing share of their markets. Will we see such in Nigeria and Africa, where poverty has been an excuse for insurance penetration? Unfortunately, delay in claims payments have pauperized people!

 

It is my hope that the evolution of insurance through the current wave of digitization will create answers that will embolden insurers to uphold insurance principles in sync with good business principles.

 

Our world has changed, so should the things we seek to derive value from, like insurance.

 

About The Author

Ekerete Olawoye Gam-Ikon, MNIM, CPP, is a management consultant with a specialization in Strategy and Insurance. You can contact him via e:mail olagamola@gmail.com and mobile +234-806-648-1111


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