Conflict of interest a global problem
One of the problems arising in the fair settlement of short-term insurance claims as well as the resolution of disputes arising from claim rejections is conflict of interest. The Ombudsman for Short-Term Insurance, Brian Martin, alludes to this in the office’s 2007 Annual Report. He believes that “many underwriting managers continue to wear many hats at the same time, and are not in a position to approach complaints in an objective, impartial and balanced manner.”
Martin questions whether complaints against a short-term insure can be adequately dealt with when the person making the decision appears blissfully unaware of the conflict of interest that exists. How can underwriters be expected to “answer complaints regarding risks which they have underwritten and claims which they have rejected?” he asks.
A recent US case proves that this conflict global
Such conflicts are not unique to the South African insurance industry. We recently read an article dealing with a US High Court ruling that involved conflict of interest in the disability insurance space. The court ruled that an insurer that “serves as both the provider and administrator of disability benefits has an inherent conflict of interest. “We here decide that this dual role creates a conflict of interest; that a reviewing court should consider that conflicts as a factor in determining whether the plan administrator has abused its discretion in denying benefits; and that the significance of the factor will depend upon the circumstances of the particular case!”
The ruling followed a decision by MetLife Inc to reject a claim for permanent disability benefits from a certain Wanda Glenn (former employee of Sears, Roebuck & Company). What makes the High Court ruling interesting is the idea that a plan administrator should be held to the same standard as a trustee… This would require benefit determination (and by extension the decision to award benefit in the first place) a fiduciary act.
It’s also interesting to compare the attitudes of insurers and claimant in this matter. The insurer, Metlife, felt that the court should accept their ‘independent’ judgement in such matters. They claimed to be “indifferent to whether or not they pay claims” and would assess each matter on facts alone. But the court was having none of it… Attorney for the claimant, Joshua Rosenkranz of Heller Ehman LLP, notes: “Anyone who has ever had a dispute with an insurance company knows that they are not necessarily always bent on paying what they owe. The Supreme court held that lower courts should consider that reality when they review claim denials.”
Business at arms length
Another problem that the Ombudsman for Short-Term Insurance highlighted in the 2007 Annual Report is the growing prevalence of ‘arms length’ relationships in the insurance industry. “The trend on the part of many Insurers to rely upon external underwriting managers for the underwriting and processing of insurance related business has continued to accelerate and sadly many insurers have now become nothing more than a franchise operator,” he said.
This ‘arms length’ relationship often means the insurer has no ability to entertain a complaint or dispute from the policyholder. Instead, these complaints are passed over to underwriting managers for resolution.
Editor’s thoughts:
For the most part, short-term insurance policies are fairly simple. It’s not too difficult to understand the small print in the policy document and a sensible independent assessor should be able to make sense of it. Life & disability claims could prove more contentious due to the tricky mix of identification and assessment of the insured condition. Is it possible for the insurance industry to rely on independent assessors for all claim decisions? Add your comment below, or send to [email protected]
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