Mon | Mar 19, 2018

Cedric Stephens | BOJ sets right tone on treatment of financial consumers

Published:Sunday | March 11, 2018 | 12:00 AM
The Bank of Jamaica, Nethersole Place, Kingston.

Is this columnist, who received his education and training in the United Kingdom's financial services industry, imitating "the values and affectations" - a word derived from a mid-16th century Latin verb, that most 'yardies' do not know - "of the former colonial masters"?

After all, I use English common law and statutes - that form the basis of many of our laws - the UK insurance regulatory body, its rules and best practices to inform some of my opinions; and, not to be overlooked, the language of those who enslaved my African ancestors.

Add to these the daily use of the World Wide Web, the invention of English engineer and computer scientist, Tim Berners-Lee. Am I a "black Englishman of colonial times?"

But on to the main source of this piece, which was, quite oddly, a series of Bank of Jamaica (BoJ) ads. Commercial banks, merchant banks and building societies were the targets.

BOJ is using its authority under the Banking Services (Deposit Taking Institutions) (Customer Related Matters) Code of Conduct 2016, to tell the companies it regulates how to manage customer complaints. The adverts led me directly to the 15-page code. It was issued under The Banking Services Act.

What a treasure trove of useful information. BOJ staff should take a bow. They did an excellent job. Insurance companies, intermediaries, the finance ministry and the Financial Services Commission should study the code.


Public confidence key


If Government's financial inclusion strategy is to go anywhere, public confidence in the financial system is a must. For this to happen, there should be, among other things, an effective and efficient method of handling of consumer complaints.

Senior managers of the Ministry of Labour and Social Security and the National Insurance Scheme should also take note. They don't know how to treat customers, let alone handle complaints - even though they talk glibly about accountability.

Insurance industry critics will, predictably, say that their business is very different from banking. Fair enough. The more appropriate question is: Can BOJ offer insurers ideas and suggest rules about what to do and not do in handling customer complaints?

Lawrie Savage, the former head of Canada's insurance regulatory body, offers a partial answer. He writes in 'Re-engineering Insurance Supervision': "When a consumer deals with a deposit-taking institution such as a bank or credit union, there is not a great likelihood of dispute - the consumer has made a deposit, has evidence of having done so, and the institution is clearly obligated to return the deposit upon demand or, subject to the particular conditions governing the transaction.

"By contrast, an insurer is providing indemnity with respect to circumstances that are often much more complex than a banking transaction and to protect the company, many exclusions and other terms of coverage usually apply. (These terms of coverage also protect the consumer in the sense that for an open-ended contract providing extremely broad coverage, the claims payments will be extremely high, in turn giving rise to very high, if not prohibitive, premium levels).

"Unfortunately, these contractual complexities tend to put the insurer in a position of strength when it comes time to settle a claim. The insurer has the legal and financial resources to dispute a claim, even if on a technicality. Also, the insurer has possession of the funds and the policyholder is dependent on the insurer to gain access to them. By unfairly resisting claims an irresponsible insurer is therefore in a position to retain funds rightly due to policyholders and it can be difficult for policyholders to protect themselves against such abuses ... insurance supervisory systems are important in building public confidence."

If the complexities in an insurance contract are greater than those in a deposit-taking or loan transaction and an insurer wields more power over a consumer than a bank, and banking is governed by a code, why should insurers and intermediaries not have a code that governs their interactions with consumers?

BOJ's complaint-handling rules and procedures are far more exacting than the 'mouth wata' procedures on the FSC's website. Why is the insurance regulator not treating this matter with more urgency?

Now back to MLSS and the NIS. A citizen who lives in Montego Bay wrote me last Sunday. This was the same day that I wrote: "Why is NIS so reluctant to engage its clients?". She said: " ... There is a severe lack of professionalism here as well. Here are a few of the issues: 1. Lack of communication; 2; Funeral grants taking as long 16 months plus to be processed; 3. Funeral grants processed in the incorrect names; 4. Elderly customers are sent back and forth without any assistance from the (so-called) customer service representatives. This branch clearly does not have a leader. There may be managers but not one single leader."

Other persons have also shared their unfavourable experiences with me. The auditor general, in the meanwhile, has issued a damning report about corruption, cronyism and poor management in the operation of the fund. This probably explains why responses to the article from MLSS and NIS have not been forthcoming.

Handling complaints properly is a part of the bigger process of Treating Customers Fairly, or TCF. The concept was introduced by the United Kingdom's financial non-banking industry regulator, the Financial Services Authority. The idea was adopted by its successor agency, The Financial Conduct Authority. "It ensures fairness, clarity, transparency and due regard for consumers purchasing products/services in the financial, insurance and credit markets."

As any first-year student of finance or economics knows, London is a big centre for global finance. The fact that the TCF was developed and is being promoted by some of the heirs of former colonial masters is of little consequence in the 21st century. When applied, the concept can benefit the Jamaican offspring of slaves.

- Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: