Insurance companies are resisting a move by the Financial Services Commission (FSC) to effectively ban insurance premium financing.

Premium financing allows policyholders to pay their premiums over a longer period of time so that they don’t have to find the full annual premium up front, which can often be burdensome. A prohibition on insurance premium financing would affect several types of insurance including home, property and car. It may also affect some independent lenders.

According to managing director at British Caribbean Insurance Company (BCIC), Peter Levy, the option can be viewed as a type of loan. Some insurance companies, including BCIC, offer premium financing to customers, allowing them up to twelve months to pay for their policies, with interest typically ranging between seven and 10 per cent. “As consumer loans go, it’s not all that high a price to pay. It’s certainly cheaper than putting it on your credit card, for instance, and making payments to your credit card. Normally credit card interest is somewhere in the region of 40-odd per cent, so it’s a pretty good option for people,” noted Levy, who was speaking on Taking Stock with Kalilah Reynolds recently.

According to Levy, the issue arose out of a concept paper issued by the FSC last August, titled “Revised Guidelines on Market Conduct of Business for Insurance Companies and Intermediaries”. Section 8.6 of the paper reads, “Insurance companies must not provide premium financing. If a subsidiary or associate of the insurance company provides financing of the policyholders’ premiums, the insurance company may not terminate insurance cover if the premiums are up to date, on the grounds that a policyholder has failed to maintain the repayment schedule of the loan from the associate of the insurance company.

“Any such termination by an insurance company is an offence and is punishable on conviction in a parish court to a fine of up to $3 million. The insurance company, however, may terminate the policy if premiums are outstanding, in breach of the policy contract,” it continues. According to Levy, the effect of this will be that insurance companies will not be allowed to use the unexpired portion of the policy as collateral for the loan, which would render such loans too risky. “So basically, [for example], you’ve borrowed $60,000. It’s gone to the insurance company to pay for the insurance for your car. You’ve paid the first payment, you’ve paid the second payment, and then you miss the third payment. After a grace period… then they have the right to instruct the insurance company to cancel the policy,” explained Levy.

At that point, the lender would receive a refund, while the policyholder would have to secure new insurance. “Now you only paid for what you received, which is two or three months, so you’re not being significantly disadvantaged as the policyholder, but you have to honour your commitment to pay the premiums. Otherwise, you’re gonna lose your insurance coverage,” said Levy. He said he believed this practice was fair, and in line with what generally occurs with other types of loans.

Levy, who has been in the industry for over thirty years, said he does not know what has suddenly changed, why the FSC is no longer comfortable with the arrangement. Taking Stock reached out to the FSC to participate in the interview, but did not receive a response. Since the interview aired, however, they have agreed to be a guest on next week’s show.

According to Levy, the proposed regulations would have to be enacted into law to make them effective, which means they would have to go before Parliament for approval. However, he said the industry would prefer to arrive at a resolution with the FSC before it gets that far. “We had a lot of dialogue and the industry has responded with a position resisting and setting our objections to that approach but regulators seem to be resolute with the issue,” he said.

On the other hand, Levy has acknowledged that the insurance industry has some work to do to better educate their customers about the terms of these types of arrangements. However, he is adamant that there needs to be a solution that preserves the availability of the service for people who really need it. “I think you’re throwing the baby out with the bathwater there and if there are problems in the current way that it is done, we can solve those problems if we work together,” he added.

Levy said insurance premium financing continues to offer people a better way of managing their finances. He said stopping it would have a significant impact on the overall insurance market as thousands could potentially become entirely unprotected or have gaps in their insurance coverage. According to Levy, some 20 per cent of BCIC’s customers utilise premium financing. He gave the example of a taxi operator who he said was in the habit of getting a forged certificate to satisfy the authorities.

“When he heard about our premium financing terms, he realised that what he was paying for that forged certificate was about the same as the monthly payment. He was like, well I might as well do it legit,” said Levy, who also noted the dangers of having uninsured taxis on the road. For others, he said, eliminating the option to finance may mean that they are forced to take less insurance, thereby increasing their personal risk. “So you’ll have some that say I really want to be covered comprehensively but I can only insure the third party right now so I’m going to take that. I don’t think those are good outcomes for people, they’re taking on more risk than they actually would want to,” he reasoned. Levy said he does believe the FSC has the best interest of policyholders at heart, and said he hopes they can arrive at a solution.

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