Blog: Cedric Stephens | Holding banking, insurance regulators to account – Jamaica Gleaner

Last Thursday’s Gleaner article, ‘BOJ Slammed for Role in Banking Abuse’, caught my eye. Bravo to members of the Public Administration and Appropriations Committee, PAAC, of the House of Representatives for summoning central bank governor Richard Byles to discuss ‘the banking sector’s alleged rip-off of customers’.

The Bank of Jamaica, BOJ, regulates deposit-taking entities like banks and credit unions. Even though my April 3 commentary dealt specifically with how banks and insurers mistreat one customer segment – senior citizens – the same holds for other consumers. Many people have told me that they hate visiting banks.

When will the PAAC issue an invitation to Everton McFarlane, the executive director of the Financial Services Commission, FSC, to appear before it to account for his stewardship of this body, and specifically, to explain what measures that regulatory body is taking to protect insurance buyers?

Some banks own insurance companies and/or plan to enter that business. If the allegation of customer rip-off in banking is true, is it unreasonable to expect that these unfair business practices will spread?

These questions are being asked on behalf of a consumer, who owns two cars that are insured by separate companies. His negative experiences with these insurers, who control 25 per cent of the market, have led him to explore the feasibility of self-insuring his vehicles. Motor insurance, he says, is a big racket. He has no confidence in motor insurers. Buying coverage from other insurers would be a waste of time and money if it were not required by law. There is evidence to suggest that this is not an extreme view.

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The government’s financial inclusion strategy, which is being piloted by the BOJ, is unlikely to succeed if this basic trust issue remains unresolved.

Third-party motor insurance is required by law. However, does the Motor Vehicles Insurance (Third-Party Risks) Act, MVITPRA, permit a vehicle owner to comply with the statute without having to buy insurance from a registered motor insurer? Section 4(1) of the act provides an affirmative answer. It reads: “Subject to the provisions of this Act, it shall not be lawful for any person to use, or to cause or permit any other person to use a motor vehicle on a road, unless there is in force in relation to the user of the vehicle by that person or that other person, as the case may be, such a policy of insurance or such a security in respect of third-party risks as complies with the requirements of this act.”

The law allows the use of ‘a security’ as substitute for a ‘policy of insurance’.

Section 7 of MVITPRA prescribes that the security must “be given by an insurer; and consist of an undertaking by the insurer to make good, subject to any conditions specified therein and up to the amount, in the case of the undertaking relating to the use of any motor vehicle, of not less than one million dollars in respect of each vehicle, any failure by the owner of the vehicle, or such other persons or classes of persons, as may be specified in the security, duly to discharge any such liability as is required to be covered by a policy of insurance under section 5, which may be incurred by him or them.”

Simply put, insurers have the monopoly to offer motor insurance and its statutory substitute. The security must be provided by an insurance company and the security must operate as a policy of insurance.

While the Offices of Utilities Regulation has supervised the utilities like monopolies, its insurance counterpart, the FSC – and its precursor, the Office of the Superintendent of Insurance – has never treated the suppliers of motor vehicle insurance services comparably even though there are no alternative suppliers.

Jamaica’s 25 credit unions, with an asset base of $143.63 billion as of June 2021, according to the Observer, “are collectively less than one-tenth the size of the island’s eight commercial banks, which have assets of $2 trillion as of March 31, 2021. They have 1.04 million members out of an employed labour force of 1.26 million persons.” These data suggest that credit unions are deemed to be substitutes for commercial banks and evidence of the commercial banks’ failure to meet customers’ needs.

I am not sure what is the mission of the PAAC. It should conduct a review of the motor insurance industry. If I agreed to do so, I would volunteer to provide, free of charge, 100 man-hours to conduct research and prepare briefing papers on its behalf about any planned interaction between members of the Committee and representatives of the regulatory body.

n Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com or business@gleanerjm.com

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