By Ian-Johnson Ondari
The insurance industry has a reputation for utilising every weapon in its vast arsenal to avoid or minimise payment of claims. This is further intensified by the woven intricacies of the policy terms and conditions. Information asymmetries, where the insurer can access better and more information than the consumer, added to the tied-in insurance purchases, especially in the general insurance sector (consider purchase of loan-financed automobiles) are a consequence of this imbalance. The industry is continuously bogged down by claims related to non-payment of claims due to imperfect information and discrepancies over the sum insured.
It’s vital to note that the insurance sector regulator, Insurance Regulatory Authority (IRA), has channels through which consumers can seek redress, such as submitting complaints against insurance companies. A report by IRA (Insurance Industry Annual Report – 2015) puts at 620 the number of consumer complaints received in 2015. Consumer protection is also recognised as one of the three fundamental goals of the IRA 2013–2018 Strategic Plan.
Framework for consumer protection
The Consumer Protection Unit, while nearly unheard of, is redefining dispute resolution in the Kenyan financial services sector. At the outset, consumer protection officers function as mediators; however a more administrative tenor will be assumed if it’s established that an outright violation by the insurer has occurred and therefore necessitating relevant sanctions. In such cases, binding orders can be issued against the offending company. A less serious violation, like breach of warranty, could call for an award of specific performance in favour of the complainant. However, more serious violations, especially en masse consumer claims due to insurer malpractice, may be a ground for refusal to renew an insurer’s annual license.
IRA has built its capacity to handle complaints arising from insurance contracts by setting up the Consumer Protection Unit. As a governmental agency, its functions are augmented by other sectorial agencies, for instance the Commission on Administrative Justice (Ombudsman), Policyholder’s Compensation Fund, Advocates Complaint’s Commission or industry lobby organisations like the Association of Kenyan Insurers. Worth mentioning is that the majority of the claims originating from these bodies are concentrated around third-party auto injury claims, stale claims against insolvent insurers, and malpractices by legal representatives.
The prevailing issue still remains to be access to these bodies, it being that majority are concentrated in urban areas. The regulator has tried to compensate through consumer education outreach programmes (Executive Certificate of Proficiency in Insurance and Insurance Champions Training) at the county level, to raise awareness levels on the regulators mandate, while simultaneously demystifying insurance, ultimately raising the profile of the Consumer Protection department and its role in reviewing consumer complaints. On the other hand a mid-term review of the 2013–2018 IRA Strategic Plan point towards the possibility of devolving IRA services to the counties through Huduma Centres.
Alternative dispute resolution
The dispute review process is guided by the principles of insurance in part, as well as review of documentation such as the policy documents, investigation reports and correspondence between consumer and insurer, among others. The maximum duration indicated for resolving a complaint is ninety days. The Insurance Act (Cap 487) in Section 203 also provides a procedure on how claims are to be settled.
Alternative Dispute Resolution (ADR) is a discretionary remedy, recognised under Article 159 of the Kenyan Constitution. In the standardised motor insurance policies, there are arbitration clauses that provide for settlement of disputes through either mediation or arbitration. The arbitration clause mentions the finality of an arbitral award and specifies the period within which ADR should be sought.
ADR is gradually being favoured as opposed to litigation because it’s arguably cheaper, accessible and more efficient. A case for ADR, in the context of insurance disputes, has been made on the basis that it diminishes the informational asymmetry that exists in consumer–insurer disputes. This is because parties have more autonomy over the review process, attributable to an increased degree of transparency.
Current structure of online dispute resolution
Online Dispute Resolution (ODR) is a branch of dispute resolution that involves negotiation, mediation or arbitration, or a combination of all three. It can either be partial ODR or be integrative, and is applied largely in disputes arising out of Business-to-Consumer disputes. ODR is the use of technology information and communication in the resolution of disputes; in developed countries it’s been extensively integrated into e-commerce transactions.
This concept has been recognised by IRA, to the extent of complementing primary methods by encouraging complaints to be submitted online through e-mails or phone calls. Of course, majority of the consumer complaints can easily be resolved online – for instance delayed payment of maturity benefits, delayed issuance of policy documents and erroneous deductions, among others. Other complaints might require a comprehensive review of documentary evidence, a case in point being Third Party auto injury and claims under the precincts of the Work Injury Benefits Act (WIBA), thus requiring physical meetings.
While Kenya has built the institutional and legal infrastructure to sustain full ODR, these provisions are yet to be implemented. The current infrastructure allows for processing of complaints by documenting the critical stages of the review process. Complaints are registered and appropriately categorised in a “pre-review stage”.
The next stage involves contacting the insurer to evaluate the complaint’s status, majority of the complaints are resolved at this stage. Subject to the response from the insurer, the complaint may be resolved online, or carried on offline with physical meetings. Depending on the complexity of the case, the matter is settled once the concerns raised in a dispute are adequately covered. The review process is ideally supposed to adhere to the set timescales, which is set out as not more than 90 days. ADR decisions are not final and cannot bind the parties; as well, the parties are not precluded from pursuing judicial remedies after ADR.
Implementing ODR in consumer-insurer disputes
The backlog of cases in Kenyan courts has seen rerouting of insurance disputes to the regulator; the basis behind this could be due to the non-adversarial approach in reviewing complaints, but chiefly that IRA does not charge for using its services. Ironically, the services are sought by legal firms and representatives, who may charge their clients.
A more appropriate legal and institutional response to this gap could be to fully exploit the value of ODR. Characteristic to the triumph of ODR is quick and fair settlement of claims due to clear and reliable frameworks. Kenya has already adopted partial technological infrastructure that allow the regulator to document the review process, and therefore movement towards ODR may not be unnatural. However, the question remains where to start. Should ODR be the exclusive mandate of the state regulator, or should the industry take over this function?
ODR – ‘The United Kingdom Affair’
Consideration to the regulatory structure of the United Kingdom reveals that the British have opted for a private ombudsman to resolve consumer disputes in the financial services sector. ODR has been in use since the 1970s in the UK, operating under the confines of one independent entity.
Much of the elements of decision-making in the review process remain largely unchanged as compared to Kenya. The system still provides for assignment of cases to adjudicators (mediators) and discretion of parties to pursue judicial remedies. A key divergence is that once decisions, in an anonymous form, are issued, they are available in public domain. The success of the UK model is hinged on its comprehensive tiered structure and because ODR is managed by a non-regulatory public entity.
Yehuda Tunik and Benoam
Another ODR study would be Israel’s Model, called Benoam (“in a peaceful manner”). This ODR model handles subrogation claims from property damages between insurers in Israel, developed as an alternative to litigation by an attorney called Yehuda Tunik, who was frustrated by the case backlog in their domestic courts. The distinguishing feature of this model is its ability to decide cases based on evidence submitted online.
This efficiency is enhanced due to a requirement that members of the Benoam system consent to detailed arbitration rules: internal appeal rules, brief time constraints, application of the principle of res judicata, releasing of precedents (“landmark decisions”) and employment of professional arbitrators (retired judges, attorneys, traffic examiners).
ODR in Kenya
The current concerns in further support for the demand of ODR, aside from the informational asymmetry, include the possibility of regulatory capture. The Kenyan regulator oversees one of the most vibrant sectors of the financial services sector, with an asset base, according to statistics by IRA, of almost half a trillion (Sh498 billion) as of March 2016.
The threat of regulatory capture is very real, especially taking into account the routine human capital symbiosis in the insurance sector due to value attached to insurance practitioners. Likewise, the centralisation of the regulator denies free and equitable access to the consumer protection services. ODR could potentially liberalise the opportunity to settle claims without engaging legal representation or using the courts as an alternative.
The Constitution provides for equitable access to government services, and technology might be the better-suited alternative to realising this. It acts as a “Fourth Party” to consumer-insurer disputes embodying a range of capabilities such as automated negotiation, sending automatic responses, monitoring performance, and clarifying interests and priorities, therefore efficiently offering disputing parties with greater advantages: time saving, cost reduction and accessibility.