FSC says direct insurance premium financing not a widespread practice among insurance companiesTuesday, September 14, 2021
In response to the recent highlighting of the Financial Service Commission's (FSC) objection to insurance companies who create subsidiaries to provide premium financing, the FSC has advised the Jamaica Observer that there is no widespread problem, but it is concerned about conflicts of interest which might arise.
In information sent to the Business Observer, the regulatory authority said, “The FSC is only aware of one insurance company that is currently directly engaged in this activity (premium financing).” There are 17 insurance companies which have operations in Jamaica, made up of general and life insurance business lines.
The FSC said that the offer by several companies, from time to time, of an expanded or extended window for premium payments is not the same as premium financing. It was explained that, “Insurance companies do also offer other periodic premium payment options which provide a similar facility for policyholders to pay premiums in instalments. Such arrangements are not the subject of any proposed change.”
The FSC said that in practice it does not regulate premium financing and so the riskiness of the activity is not assessed and FSC does not monitor loan balances from this activity. But, it was stated that, in the case of the one company which offers premium financing, “The FSC's concern is about the possible unfair treatment of policyholders due to a conflict of interest on the part of the insurance company. The insurance company has superior knowledge of insurance vis-à-vis the policyholder and the scenario of the insurance company convincing the policyholder to accept an insurance policy that carries a certain amount of premiums and then offering the policyholder financing to pay the said premium could lead to possible conflict of interest and unfair treatment of policyholders, without appropriate regulatory controls.”
As to whether it might choose to request an end to all activities relating to premium financing where it exist, the body replied, “The FSC has not reached a conclusion on the matter. The issue has been extensively discussed with the insurance sector and we are reviewing our position in light of those consultations. A final proposal on the treatment of the activity has not been issued.”
The agency concluded that it will continue to “monitor and assess the situation and refine its proposal to manage the market conduct issues (fair treatment of policyholders), which may include premium financing and conflict of interest via proposed amendments to the legislation”. In relation to solving the issue of premium affordability and how insurance companies can handle the challenge faced by some of its clients, the agency told the Business Observer, “It is up to each insurance company to offer the modes of payment that are acceptable to it.
“It must be made abundantly clear that the FSC has never issued any advisory that it intended to ban insurance premium financing by non-insurance entities. The FSC's concern is about the issues mentioned above – market conduct (the fair treatment of policyholders and conflict of interest).” The regulatory authority added, “Initially the FSC proposed to disallow insurance companies and insurance intermediaries from carrying out this activity but, as we indicated before, we are still reviewing our position after discussion with the insurance sector stakeholders.”
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