comparative analysis of claims settlement …
TRANSCRIPT
COMPARATIVE ANALYSIS OF CLAIMS SETTLEMENT OPERATIONS
UNDER INSURANCE LAW: UGANDA AND ZAMBIA IN PERSPECTIVE
BY
MWEEMBA CLINTON
LLB/40097 /133/DF
BEING A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE A WARD OF THE DEGREE OF
BACHELOR OF LAWS OF KAMPALA
INTERNATIONAL UNIVERSITY
SEPTEMBER, 2017
DECLARATION
I CLINTON MWEEMBA, do declare that this is my original work and to the best
of my knowledge, it has never been submitted to any University by anybody else
or institution for the award of a degree or its equivalent.
Signature ..... ~ ..... ~ .......................... .
2__ '5 O~Dk\ '1....6 \-:f Date ............................................................ .
APPROVAL
I certify that I have supervised and read through this work and that in my opinion it
confirms to acceptable standards of scholarly presentation and is fully adequate in
scope and quality in fulfillment of the requirements for the award of a degree of
bachelor of laws of Kampala International University
Name of Supervisor: DR. VALENTINE T. "MBELI
Signarure~ .. ~W ...... ~ .
Date .. . . ?!J. i.O. h T. .. .... .
ii
DEDICATION
I dedicate this work to my lovely mother Francisca Chanda, my lovely brother
Amos Mweemba and sister Abigail Mweemba who put all their effort to ensure
that I pursue this degree in law. To all my friends and relatives for their support
during this research may God bless you.
iii
ACKNOWLEDGEMENT
My sincere appreciation goes to the almighty God, for his compassion has enabled
me to have the wisdom and interest to pursue the course am undertaking and for
the completion of this report .I would like thank my supervisor Dean School of
Law, Dr. Valentine Mbeli for his tireless efforts in ensuring that I get the best out
of my research and my mother Francisca Chanda for supporting me during my
research.
I would like to express my appreciation for the contribution and cooperation of all
those who were able to fill the questionnaire and the insurance companies that
were used as my case study.
iv
LIST OF STATUTES
1. Insurance Companies (Cessation and Transfer of Business) Act of 1967
2. Insurance Companies (Cessation and Transfer of Business) Act no. 16 of
1991
3. Insurance Act No.27 of 1997 cap 392 ofthe laws of Zambia
4. Insurance (Amendment) Act No. 26 of2005
5. Pensions Scheme Regulation (Amendment) Act No. 27 of2005
6. The Insurance (Amendment) Act, cap 213, 2011 Edition
7. The Insurance Regulations, Statutory Instruments no.66, 2002.
8. The Marine Insurance Act, 2002
v
LIST OF CASES
1. Diggens v Sun Alliance and London (1994) CLC 1146
2. Exchange Theater ltd Iron Trades Mutual Insurance co [1983] 2 Lloyd's Rep
674
3. Kelly v Norwich union Fire Insurance Society ltd (1989) ALLER 888
4. Leyland Shipping co v Norwich Union Fire Insurance Society (1918) AC
35.
5. Lrving and burns v stone (1997) CLC 1593
6. Manifest Shipping v uni-poloaris insurance co (the star sea) [2001] 1 ALL
ER 734
7. Mere-Scandia v Certain Lloyds Underwrites [2001] Lloyd's Rep IR 802
8. Nshimwe& co. vsMicrocare Insurance ltd &Insurance Regulatory Authority
of Uganda ughccd 81 (17 June 2014)
9. Prudential Insurance co v Inland Revenue Commissioners [1904] 2kb. 658
10.Verelst'sAdmistratrix v Motor Union Insurance Co [1925] 2kb 137
11.Zambia State Insurance Corporation Limited and Another v Chanda S.C.Z
Judgment No.9 of[1993] ZMSC 10 (31 December 1992)
vi
TABLE OF CONTENTS
Declaration............................................................. I
Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Dedication................................................................ 11I
Acknowledgement....................................................... IV
List statutes............................................................... v
List of cases...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
List of Abbreviations................................................... IX
Abstract... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x
CHAPTER ONE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
GENERAL INTRODUCTION...................................... 1
l.OBackground to the Study......................................... 1
1.1 Statement of the Problem................................... 14
1.20bjectives of the Study..................................... 16
1.3 Research Question.......................................... 16
1.3.1. General Objective.................................. 16
1.3 .2. Specific Objectives... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.4 Scope of the Study........................................... 17
1.5 Significance of the Study................................... 17
1.6Methodology................................................... 17
1.6.1 Study Area and Targeted Population............ 18
1.6.2 Sampling............................................... 18
1.6.3 Interviews............................................. 19
vii
1.6.4 Questionnaires....................................... 20
1.6.5 Data Collection and Analysis..................... 21
1.6.6 Document Analysis.................................. 21
1.6.7 Limitation of the Study............................ 21
1. 7 Literature Review....... . . .. . . .. . . .. .. .. . .. .. .. .. .. .. .. . .. .. .. 21
1.8 Chapterisation............................................. .. . 26
CHAPTER TWO... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1 OVERVIEW OF THE LEGAL FRAI\11EWORKS ON INSURANCE BUSINESS IN UGANDA AND ZAMBIA........................ 1 2.0Introduction..................................................... ... 1
2.1Insurance Act, CAP 213 (UGANDA).................... 1
2.2Insurance Act, (ZAMBIA)................................... 4
2.3Pension Scheme Regulation Act (ZAMBIA)............ 6
2.4Marine Insurance Act, 2002 (UGANDA)................ 7
CHAPTER THREE.................................................... 1
NATURE OF RISKS IN INSURANCE AND CLAIMS
SETTLEI\11ENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1
3. 0 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 1
3.1Nature ofrisks................................................. 2
3.2Nature of claims............................................... 6
3.3How and when claims can be made........................ 12
3.3.1 Who makes claims........................................ 13
3.4 Fraudulent Claims... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. 14
3.5Claims Settlement Operations in practical terms...... 16
viii
3.6The Role ofloss Adjusters................................... 18
3. 7 Questionnaire Distribution and Responsive Rate . . . . . . . . . 22
3.8Analysis and Finding oflnsurer completed Questionnaire
Response. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .. . 22
3.9Prompt Settlement ofClaims............ ........ .......... ... 22
3.10 Practice on the ground is not always as stipulated in
documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
CHAPTER FOUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 THE ROLE OF REGULATORY AUTHORIES IN INSURANCE IN ENSURING PREMPT SETTLEMENT OF CLAIMS........... 1 4.0Introduction............ ... . .. ..... . ... ... . ..... . .. . .. ......... .... 1
4.1Insurance Regulatory Authority ofUganda............. 2
4.2Pension and Insurance Authority (Zambia).............. 5
4.3Inadequacies of the Regulatory oflaw........ .... ....... 10
4.4Measures taken by the Insurance Regulatory bodies to rectify . d . tna equactes ............................................... .. 12
4.5The Role of Agents and Brokers in Insurance Business ... 12
CHAPTER FIVE.. . . . . .. .. .. .. .. .. . . . .. . .. . . .. .. . .. .. .. .. . .. . .. .. . . . .. . .. 14 CONCLUSION......................................................... 14 5.1 Summary.............................................................. 1
5.2 Recommendation ...................................................... 2
REFERENCE.............................................................. 5
APPENDICES............................................................ 8
ix
LIST OF ABBREVIATIONS
EAIC
N.I.C
VIC
UNIP
zsrc
ICT
EU
PIA
IRAU
IIU
East African Insurance Company.
National Insurance Corporation.
Uganda Insurance Commission.
United Nation Independence.
Zambia State Insurance Corporation.
Information Communication Technology.
European Union.
Pensions and Insurance Authority.
Insurance Regulatory Authority of Uganda
Insurance Institute of Uganda
X
ABSTRACT
With constant liberalization of the economy, issues of insurance (claims settlements) are a growing concern and as such the law governing insurance is one that must be taken into critical consideration. This research sought to investigate the insurance industry and its regulation in Uganda and Zambia. In that regard, the study took a comparative analysis of claims settlements operations under insurance law in the two countries; reviewing the regulatory bodies and to come up with effective mechanisms that can be utilized by the Insurance Regulatory Authority of Uganda and the Pensions Insurance Authority of Zambia. Using qualitative research methods, the study established that the use of iriformation communication technology could enhance the efficiency of the two Regulatory bodies. The research brought out various challenges such as fraud in the industry, lack of an efficient iriformation sharing system, strict regulations from the Regulatory Authorities on the insurance companies, internal processes delaying claims settlements among others. It recommends that the Regulatory bodies and insurance companies need to continuously upgrade infrastructure and computerization, increase claims settlement limits for branches, and be able to explain the technical language used in the policy to customers that may not understand the language.
xi
CHAPTER ONE
GENERAL INTRODUCTION
1.0 Background to the Study
A definition of the subject matter of a book on a specialist area of law seems a
sensible requirement. Most law books, however, irrespective of the branch of law
with which they are concerned, are usually forced to admit that there is no single
accepted definition of their subject area. Insurance law is no different, despite the
fact that there are numerous statutes regulating this area. Writing in 1753, Nicolas
Magens, in 'An essay on insurance', described the situation thus;
the contracting parties are: the insured, who pays a consideration, which is called a premium; and the insurer, who receives it. For the premium the insurer engages to satisfy, and make good to the insured, unless a fraud appears, any loss, damage, or accident that may happen; according to the terms of the contract or policy.'
A useful working definition is that given by Channell J. T. In Prudential Insurance
Co. v Inland Revenue Commissioneri according to which "a contract of insurance
is one whereby one party( the insurer) promises in return for a money consideration
(the premium) to pay to the other party (the assured) a sum of money or to provide
him with a coiTesponding benefit upon the occuiTence of one or more specified
events". It will not be out of place to state from the beginning that in the complex
field of risk management, insurance has become universally recognized and
accepted as the most efficient response to rescues. As a result, the position today is
that no modem economy can survive or prosper without the active support of a
disciplined and viable insurance industry. 3
1Hodgin, R. Insurance Law, text and materials. 2"d (2002) p I. Published in Great Britain 2 [1904]2kb. 658 3 Insurance Regulation in the Afi'ican Environment: Commissioner for Insurance, by Fola D, Nigeria National Insurance Commission. 20 I 0
1
The history of insurance law is greatly linked to the practice of the medieval
merchants. The records ofthe Chamber of Commerce of Florence have established
as a matter of fact that the insurance contracts as is it known at present has its
origins in the Medieval Italian merchants of the 141h century which spread their
commerce over most of Europe. Insurance among these merchants took a simple
but basic form. Groups of merchants would together and agree that one of them
would bare the loss of a particular voyage in consideration of a fee. This fee we
now call the premium. They were enterprising traders from the thriving
commercial cities of Northern Italy who introduced into England their custom of
insuring their marine ventures. In recognition of these fallen merchants, Lombardy
Street on London is actually named after them. It is where they established their
international trading houses.4
These merchants together with ship owners and other international traders
frequented a famous coffeehouse in London known as Lloyd 's Coffee House.
Their frequent meetings and exchanged ideas as to the best way of getting the most
out of their investments. This gave birth to the practice of "indemnity" against the
fear of loss which could be occasioned be perils on the sea to which their
businesses were subject. In order for a merchant to engage in this practice of being
indemnified, one had to circulate a paper containing a description of the ship on
which his goods were aboard, the nature of the voyage, the character of the ship's
crew and subsequently the name of the ship's captain. The purpose of this was to
give the "Insurers" as they are known today a clear picture of the extent of the risk
that was at hand. The individuals who wrote their names under the circulated piece
4 Taylor, I, R The law of insurance. 2"' (1968) p. 2
2
of infmmation also put down the amount of the risk they were willing to assume in
the event that the risk manifested. This, earned the term 'underwriters'.5
From the foregoing, it is an established fact that the practice of insurance was
entirely for and by individuals who by their known practice guaranteed and
encouraged commercial ventures and undertakings on a purely economic basis.6 It
is important to note that the practice of the underwriters was mainly marine
oriented. The insurance practice that was carried on at Lloyd's Coffee House is the
genesis of insurance business today. But the business did not easily and
intentionally spread to other aspects of human life that was likely to be under risk
of unexpected but possible peril, that is, non - marine risks. The Great Fire of
London was a major conflagration that swept through the central parts of the
English city of London fi·om Sunday, 2 September to Wednesday, 5 September
1666.7 The fire gutted the medieval city of London inside the old Roman city wall.
It threatened but did not reach the aristocratic district of Westminster, Charles II's
palace of Whitehall, and most ofthe suburban slums.8 It consumed 13,200 houses,
87 parish churches, ST Paul's Cathedral, and most of the buildings of the city
authorities. It is estimated to have destroyed the homes of 70,000 of the city's
80,000 inhabitants.9
The death toll is unknown but traditionally thought to have been small, as only six
verified deaths were recorded. This reasoning has recently been challenged on the
grounds that the deaths of the poor and middle-class people were not recorded,
while the heat of the fire may have cremated many victims, leaving no
5 Clayton, British Insurance, 1971, London: Elek. 'Taylor, I, R The law of insurance. 2•' (1968) 7 All dates are given according to the Julian calendar. Note that, when recording British history, it is usual to use the dates recorded at the time of the event. Any dates between 1 January and 25 March have their year adjusted to start on 1 January according to the new style. 8 Porter, Roy (1994). London: A Social History. Cambridge. Harvard. 9Tinniswood, Adrian (2003). By permission of heaven: the story ofthe great fire of London. Jonathan Cape.
3
recognizable remains. A melted piece of pottery on display at the Museum of
London found by archaeologists in pudding lane, where the fire started, shows that
the temperature reached 1250 degrees Celsius.10The Great Fire of 1666 propelled
the expansion of insurance business. Although there were fears that insurance
against fires would increase the number of arson cases as con men would thrive to
defraud the insurers. 11 In one way or another insurance had to increase and spread
to meet the expanding business and commerce of the nineteenth century Britain
and United States of America and everywhere else in the world. The growth and
expansion of commerce created an urgent need for insurance. The benefits of
insurance became apparent and outweighed the fears of arsonists. 12
Within the last decade, certain factors have made unprecedented positive impact on
global growth and development of insurance. These include liberalization of world
trade, increasing efficiency, advances in information and communication
technology and the integration of world financial systems which now provide
unparallel economic, cultural, and recreational opportunities. These developments
have created new opportunities for insurance business in Africa; as the African
market is now open for global exploration and competition. Conversely, this has
posed new challenges for insurance regulation in Africa. 13
Having traced the origins of insurance, as it is appreciated, respected and practiced
in the global economy of today, it is of the essence to determine how it is defmed
and its nature. Zambia and Uganda as some of the countries that seek to keep
abreast with the global economy have not been left out of the many countries that
practice insurance in its economic realm. Insurance has we know it today was
10 Robinson, Bruce. London: Brighter Lights, Bigger City. BBC. Retrieved 12 August 2006 11Tinniswood, Adrian (2003). By permission of heaven: the story of the great fire of London. Jonathan Cape 12 1bid 13 Taylor, I, R. The law of insurance. 2•' (1968) p.2
4
introduced in Uganda during the colonial era. It was first introduced by the British
traders who came in the wake of British administration during the 19th century,
transacting both life and non-life insurance, with their offices based abroad. The
first insurance company was the East African Insurance Company (EAIC), which
was incorporated in 194914• This was later followed by the National Insurance
Corporation (N.I.C), established by Act of Parliament, 15 in 1964, which
commenced work a year later in 1965. Prior to that, there were only agencies and
branch offices of foreign insurance companies mainly from United Kingdom, India
and America that numbered about 95 by the time Uganda acquired independence
in 1962. Insurance did not pick up immediately, because of a number of reason,
such as; lack of a mode of exchange, among others16. Family structures were in
fonn of extended families, food was produced communally, and so were activities
done17• Upon these facts, therefore, before colonialism, insurance was informal in
nature. The consideration for insurance (premium) was non-monetary, that is, it
involved barter trade. Insurance entailed agreements for mutual aid. For example,
if one's house got destroyed by fire, the neighbors would help to rebuild and the
laws governing this informal practice were community laws and customs that
communities had to adhere to. These laws governed their forms of insurance and
were administered through chiefdoms by the chiefs or heads of villages, societies
or communities. Individuals in the community were answerable to their leaders and
that is the way their laws and regulations were administered. These laws cut across
into the forms of insurance in the community. 18While Rutaraka argues that
Uganda had some forms of insurance before the white man came namely barns for
14 Uganda Insurance Commission Annual Insurance Market Report,2000 p.I 15 Ibid p.1 16 Harold Ingrams; "Uganda; A Crisis ofNationhood". Her Majesty's Stationery Office. 1960 p.p.89-92 17 ibid p.p. 89-92 18 From questionnaire submitted at the Insurance Regulatory ofUganda handled by Mr. Ivan Kilamori Actuarial officer. 31th July, 20 I 7
5
food security, guards to homesteads for physical security to women, medicine men
for medical insurance and communal funeral expresses arrangement, he goes on to
say that they had laws customs and moral rules. For example theft of grain from
barns was prohibited because that was food reserved for any eventualities. The
barns were basically an Insurance Scheme. 19 Mr. kadi gives an example of the
Teso region of Uganda that the community there would store food in preparation
for the droughts that would hit them this in itself tohim is a form of insurance and
on the question of laws he states that it was implied for example when one is been
attacked neighbors would make an alarm allowing others to come help with the
situation.20 It is prudent to realize that insurance was not well appreciated, nor
perceived in Uganda.
There was a setback in the development of Insurance in Uganda from around the
mid-1970s-1980s. This primarily was due to a number of factors, such as; the
economic war declaration. In 1972, the then president of Uganda General Idi Arnin
announced an economic war to put the economy of Uganda in the hands of
Africans. He called it "mafutamingi" which literally meant "money and wealth for
everybody". Before Amin declared the economic war, all the retail, wholesale
trade and insurance companies in Kampala and other towns, were controlled by the
Asians and the Africans were at the periphery of Kampala.Z1 The 1970 Nakivubo
Settlement Pronouncements which required all foreign companies to be
incorporated in Uganda with 51% govermnent shareholding as well as the 1972
economic war, led to the closing of agencies of foreign companies22 • This led to
economic decline due to the exodus of tens ofthousands ofnon-Ugandans, mainly
19 From questionnaire submitted at the Insurance Company of East Africa ltd handled by Mr. Bismarck Rutaraka legal Assistant. I '1 August, 2017 20 From the questionnaire submitted at Jubilee Insurance Company handled by Mr. Justine Kadi. 21th July, 2017 21Amin 's economic war jiLelled development, by Kavumba Kaggwa, Daily Monitor, Saturday February 8 2014. 22 Insurance Institute ofUganda. Htm, overview of the insurance industry, 2012
6
Asians, leading to per inflation, scarcity of essentials commodities and closing
down of factories and other business establishment. Livelihood subsisting on quick
money illicit trade to mention but a few; were some of the implications that arose
therefrom. 23 There were the internal armed conflicts and non-settlement of many
insured losses as a result many people lost insurance claims because war is not
included among the risks that one can insurance against. An interview conducted
with the Claims Manager of GoldStar Insurance Company Ltd, Mudadai reveals
that policyholders cannot get insured against war, because war is of a fundamental
role not cured by insurance24• The war in the 1980s left quite a number of
properties damaged which certainly; called for the payment of such losses as had
been insured. Because of the magnitude of the losses and the large number of
claims that were to be paid, most insurers were left with a weak financial base, and
could not pay some of the claims that were received subsequently. As a result,
many people lost faith in the insurance industry. In May 1987, there was a
currency reforms, which in the area of insurance reduced the policy values to the
1/lOOth which was further reduced by a 30% tax.25Mudadi, Claims Manager of
GoldS tar Insurance company Ltd states that the devaluation led to loss of market,
loss oflife saves for the insured and loss of reinsurers because people whose saves
was worth millions was now in thousands in terms of settlements26• This had an
effect such as devaluing the money that had not been invested, and was still in
circulation. Consequently, insurance underwriters that had not invested the money
insured were left with a weak financial base owing to the devaluated currency that
they had in their possession27• The devaluation of the Uganda currency mainly
23 Uganda Insurance Commission Annual Insurance Market Report, 2000 p.l 24Interview conducted by Clinton Mweemba at GoldStar Insurance company ltd on the 26th July 2017 2
' Uganda Insurance Commission Annual Insurance Market Report, 2000 p.l 26Interview conducted by Clinton Mweemba at Gold Star Insurance company ltd on the 26"' July 2017 27 Uganda Insurance Commission Annual Insurance Market Report, Infra; Interview with Mr. David Sserunkuma, United Assurance Company Ltd
7
affected life insurance policyholders because the life and annuity policies they held
were no longer as valuable. This discouraged prospective policyholders from
buying long-term insurance policies. In addition, there was low return on
investments which also affected the uptake of insurance business. The depreciation
of the Ugandan currency, therefore, led to low uptake of insurance thereby
decreasing its penetration in the market28• On the point of devaluation Rurataka
maintains that it reduced the value of premiums resulting in huge losses for the
insurance companies through claims made in the new currency values29. At the
time of devaluation no payments of claims was allowed to be paid in dollars
meaning people on life polices lost a lot of money, insurance companies had to
inform and write to clients about the new changes. The insurance industry tried to
rebuild trust by awarding a 10% bonus on all who had life polices so as to lessen
the loss30 The HIV/AIDS scourge is also said to have retarded insurance
transactions31• There were moral hazards which led to the suspension of section 16
to 37 of the Motor Vehicle Insurance (3'd Party Risks) statute, 1988, relating to the
nominal defendant council which had been meant to cater for the traffic accident
victims of uninsured or unidentified motor vehicles.
The insurance industry in Uganda remained unregulated until 1978 when the
Insurance Decree was passed. The Decree was not very effective in addressing the
insurance challenges at the time. In April 1996, the insurance statute was enacted.
The statue among others established the Uganda Insurance Commission (UIC)
(now the Insurance Regulatory Authority of Uganda), as an independent body
mandated to ensure effective administration, supervision, regulation and control of
28From questionnaire submitted at the Insurance Regulatory ofUganda handled by Mr. Ivan Kilamori Actuarial officer. 31th July, 2017 29 From questionnaire submitted at the Insurance Company of East Africa ltd handled by Mr. Bismarck Rutaraka legal Assistant. I" August, 2017 3°From the questionnaire submitted at Jubilee Insurance Company handled by Mr. Justine Kadi. 21th July, 2017 31 Uganda Insurance Commission Annual Insurance Market Report, 2001, p.l
8
the insurance business in Uganda.32 The insurance industry is currently governed
by the Insurance Act and is regulated by the Insurance Regulatory Authority of
Uganda (IRA) which is established under section 14 of the Insurance Ace3 the
Authority set up a Complaints Bureau in 1998 as per section 15(f) of the Insurance
Act to handle complaints against Insurance players. The public is urged to always
lodge complaints with the Bureau for prompt settlement to complaints and
avoidance of lengthy and costly courts cases.34 In section 72 of the Insurance Act
it provides that no person or insurance company shall carry on the business of an
insurance or reinsurance broker, an insurance agent, a claims settling agent among
others unless he or she is a licensed for that business by the Insurance Regulatory
Authority of Uganda. Of pa1ticular interest to this research is the claims settling
agent who falls under this such an agent is required to be licensed to carry out
claims settlement brought forth by the policyholders. Through this, the Act protects
the insured from getting fraudulent claims agents it and makes sure that they are
licensed by the Authority.35
Turning to Zambia, although the colonial period in Zambia; the then northern
Rhodesia was a relatively short duration, its effects on the economy were and are
overwhelming. As a protectorate of the British crown, the settlers and consequently
the foreign capital which they brought influenced and set the terms on how the
country's resources would be put to use then and to even a greater extent after the
colony gained independence. One of the economic reforms, which came with
colonialism, was the crystallization of insurance law and business. 36 The economy
of Zambia then was greatly attributed to the growth of the industrial sector that was
32 Section 14 Insurance (Amendment) Act, 2011 33The Insurance (Amendment) Act, 20 II 34 Home page at www.lnsurance Regulatory Authority ofUganda.org 35 Section 32 Insurance Act, caps 213 laws ofU ganda as amended 2011 36Sikutwa. L the liberalization of the insurance industry In Zambia, Lusaka Zambia, (2002), p I
9
to the discovery of vast mineral deposits on the present day Copperbelt. 37 The rise
of immense industrial activity owing to the mining industrially and the increase of
the white population attracted insurance companies from Great Britain as a
colonial master and South Africa to set up offices in Zambia. Henceforth, to cover
the need for insurance, the London Lancashire Insurance Company was one of the
first insurance companies to set its offices in Zambia. It was mandated to
underwrite all classes of insurance as was perfect in the rising economic need for
insurance. This is notwithstanding the fact that there were other insurance
companies that set offices in Zambia.38 Thus, it is beyond dispute that at the
attaimnent of independence in 1964 there were an appreciable number of
companies in existence.
Zambia operated a free market economy at independence. According to Sikutwa,
the economy had 26 foreign insurance companies and one local insurance
company.39The priority of the new govermnent which took over from the British
colonial masters was to 'Zambianize' the economic resources of the country. Thus,
in 1967 the then ruling party, the United National Independence Party (UNlP)
adopted the philosophy of humanism as a national philosophy, as regards the
economic sector, this philosophy of humanism meant, chiefly the transfer of the
commanding heights of the economy from the private hands to the state for and on
behalf of the Zambian people. At this point it is important to note that prior to
effectuation of humanism and nationalization, Zambia was a liberal economy.40
The insurance industry was not spared as regards the implementation of humanism.
The central aspect of this philosophy was that govermnent rather than the private
sector would mobilize and provide massive investment capital. The Mulungushi
37 Roberts, A, A history of Zambia. London (1976)at page 176 38 National Archives of Zambia, January 1990 39Sikutwa. L the liberalization of the insurance industry In Zambia, Lusaka Zambia, (2002), p I 40 Ibid p I.
10
Economic Reforms is the platform on which the government set out its aspirations
of the Zambia economy. To this effect, on the 191h April 1968, the former
republican president Dr. Kenneth Kaunda stressed the necessity for transfer of the
Zambian economic power in the following words; " ... time is now that we must
take urgent and vigorous steps to put Zambia's business firmly in the hands of the
people themselves just like political power is in their hands41". The main aim was
to stop the repatriation of profits by foreign-owned companies and to re-orient their
operations to fit the prevailing sense of nationalization that is, greater control over
the economy. The insurance industry was no exception to these reforms hence the
second part of Zambia humanism stated that; "in order to avoid the possibility of
local over-mighty barons ... insurance ... would be under local forms of ownership,
management and control.42 Given the foregoing policy of government on
commerce in general and insurance in patticular, the 1964 Insurance Laws
(modification and adaptations) Regulations, regarding insurance business had to be
reformed to embody the new policies of government as they were totally
incompatible. This was amply summarized by the words of the Minister of Finance
of the time;
law which is not intended for Zambia alone, has proved to be ineffectual and does not permit me, as the ultimate authority, to exercise sufficient control to ensure that the contract of insurat1ce business is in the best interest of the public and in accordance with sound insurance principle and practice. It is for this reason that it is proposed to repeal the federal Act. 43This He stated further and with enthusiasm that; the ratnifications of insurance extend to all sections of our population. For the common man it provides a means of saving and security of providing in advance for the social needs of his family and protection against his property; for the industry and commerce it affords financial protection and stability necessary for development of the country; and for medium sized business undertakings and even small organizations
41 The president's speech on economic reforms at Mulungushi. Published by Zambia information services printed by government printers at page 27 42 Kaunda, K, D Humanism in Zambia and a Guide to its implement. (1979) Government Printers. At page 63 43 Daily Hansard dated Thursday the 14'h December, 1967
11
especially those in the embryo stages finding it difficult and restrictive if not altogether impossible to operate without protection provided by insurance finally, it is important that it should, to the fullest extent possible, be administered from within the country. 44
Therefore, in the same year, 1967, the Insurance Act was enacted and it came into
force on the first of January 1968. The Act gave autonomy to Zambia as an
independent country. This Act also sort to regulate the insurance industry by
providing checks on the industry. As part ofthe nationalization process the Zambia
State Insurance Corporation (ZSIC) was formed on the 4th of January 1968. Further
economic reforms were made with the notable one being the point that ZSIC was
to hold a monopoly on the insurance business. The Insurance Companies
(Cessation and Transfer Business) Act, 1970 effected the dissolution of the then
existing insurance companies and finally the takeover by government. The
announcement of the takeover came on the lOth ofNovember, 1970 and actually on
the 24th of December of the same year, 1970.45
However, by 1992, the Zambian economy was liberalized with the introduction of
multiparty politics. This saw the birth of many insurance companies, insurance
broking firms and insurance agencies. This followed the repealing of the Insurance
Companies (Cessation and Transfer Business) Act 1970 in 1991.46 Information
obtained from the Pensions and Insurance Authority revealed that the industry had
eight insurance company as at 31th July 2003.47 The insurance industry consists of
at least 1 re-insurer, 9 insurers, 32 brokers, 37 agents, 7 assessors, 2 loss adjusters
and 4 claims agent. 48
44 Ibid p.4 45Sikutwa. L the liberalization of the insurance industry In Zambia, Lusaka Zambia, (2002) 46 Zambia consumer news (1992) 47 List of insurance entities licensed in 2006 as obtained from the pension and insurance authority on the 20th November, 2006 48 Ibid
12
Appreciated is the fact that insurance is a good thing and is a positive step in
economic stability. But it must be available to the mass ofthe population if it is to
be seen as a success in raising the living standards of the people. More
fundamentally, how and when losses and claims are settled go a long way in
ensuring confidence in the insurance market. The direct implication is that denial
or delay in settling insurance claims could be counterproductive to the extent of
impeding the growth and development of insurance business. It is against this
background that this study proceeds to examine the legal framework of the two
countries as relate to claims settlement operations.
1.1. Statement of the Problem
The settlement of claims constitutes one of the important features of an insurance
relationship or transaction. Indeed, the payment of claims may be regarded as the
primary service of insurance to the public. It is the purpose for which an insurance
contract is the entered into. The proper settlement of claims requires a sound
knowledge of the law, principles and practices governing insurance contracts and,
in particular, a thorough knowledge of the terms and conditions of the standard
policies and various extensions and modifications thereunder. In addition, the
prompt and fair settlement of claims is the hallmark of good service to the insuring
public. It is equally important that claims negotiations should be on the basis of
patience, and courtesy.
The Zambia State Insurance Corporation (ZSIC) had a monopoly in insurance
supply from 1971 through to the early 1980s when other insurance companies
emerged on the market. At that it mattered less whether ZSIC practiced customer
care or not because customers had no choice of an alternative insurance provider
but had to insure with the only available corporation. This was compounded by
13
loss of confidence by some of the corporation's customers who migrated to
competing insurers during the 1990 crisis when the corporation was failing to
honor claims on time. Some clients left the corporation as the average turnaround
period for settlement of big claims had moved from 30 days to approximately 180
days. Delayed claims settlement was a source ofworry.49
A setback in the development oflnsurance in Uganda from around the mid-1970s-
1980s, could be attributed a number of factors, such as; the economic war
declaration. The 1970 Nakivubo Settlement Pronouncement which required all
foreign companies to be incorporated in Uganda with 51% government
shareholding as well as the 1972 economic war, at which led to the closing of
agencies of foreign companies. The war in the 1980s left quite a number of
properties damaged which certainly; called for payment of such losses as had been
insured. Because of the magnitude of the losses and the large number of claims that
were paid, most insurers were left with a weak financial base, and could not pay
some of the claims that were received subsequently. As a result, many people lost
faith in the insurance industry.
Against this background of having many insurance companies operating in Uganda
and Zambia, it can be inferred that customers can easily choose to do business with
an insurer that offers better services. Therefore, the problem that Uganda and
Zambia regulatory authorities have to contend with, is overcoming adverse effects
of competition and problems to deal with claims settlements. Claims settlement is
perceived to be beneficial for customer attraction, satisfaction and retention. Even
at that, some insurers still continue to default or delay claims settlement processes,
49Sikutwa. L the liberalization of the insurance industry In Zambia, Lusaka Zambia, (2002), p I
14
leaving most claims unsatisfied. Therefore the issue of claims settlement remains a
valid point of legal investigation for which this study represents.
1.2. Research Questions
This study entailed questions which formed a guide towards the attainment of the
research objectives. The following questions guided the researcher:
1. Is the Uganda and Zambia legal frameworks effective in regulating claims
settlement operations in the insurance industry?
2. What are the challenges facing the Insurance Industry and regulation in
Uganda and Zambia in terms of claims settlements?
3. What measures should be undertaken to improve claims settlement?
1.3. Objective of the Study
1.3.1. General Objective
The objectives of this study is to enlighten the public about this area of insurance,
which though seems insignificant yet it is the basic of the insurance transaction,
and not forgetting another objective is to eliminate or at least to minimize such
misunderstandings by stating the procedure of claims settlement for the benefits of
the parties taking part in the insurance transactions.
The study will be guided by the following specific objectives;
1. To find out whether Ugandan and Zambian legal frameworks are effective in
regulating claims settlement and the insurance industry.
2. To determine the measures that should be undertaken to improve claims
settlement.
15
1.3.2 Specific Objectives
In the light of a rapidly changing legal and regulatory environment on insurance
business and to promote good business ethics, this study seeks to evaluate the
efficacy of the laws relating to claims settlement operations in Uganda and
Zambia.
1.4. Scope of the Study
This research paper is limited to the insurance industry in Uganda and Zambia. It
examines the historical perspective of insurance in Uganda and Zambia from 1962
to date. This research will cover all types of insurance, it also discuss the claims
settlement operation, laws and institutions governing regulation in Uganda and
Zambia.
1.5. Significance of the Study
1. The study forms a strong basis for the reform of laws governing insurance
business so that there is a fair and safe market for profitable insurance
business transactions and also provide adequate protection for consumers of
insurance products in Uganda and Zambia.
2. This research study is also important in that it exposes the gaps in the laws
and weakness in the institutions governing insurance regulation in Uganda
and Zambia thus enabling reforms.
3. The information obtained from the findings of this research can be useful to
the relevant regulatory bodies; the Insurance Regulatory Authority of
Uganda and Pension and Insurance Authority of Zambia in supervising the
underwriting practice of insurance companies and ensuring that they adhere
to recommended legal Requirements.
16
1.6 Methodology
Methodology refers to the strategy or plan of action that links methods to
outcomes. 50 This parts attempted to define the methods and procedures that are
followed in order to achieve the objectives of the study. This research was partly
doctrinal and partly empirical. The primary source was interviews and
questionnaires in which the researcher considered the study area and population,
sampling, research instruments, data collection and analysis, and document
analysis.
The study also made use of the primary legal materials such as statutes, case law
and Regulation. Further, it employed secondary sources of material including
textbook and internal sources.
1.6.1 Study Area and Targeted Population
This study focused on Lusaka and Kampala because it's where most insurance
companies and insurance regulatory institution are situated. The study population
is limited to consumers of insurance products, insurance managers and
administrators and insurance regulatory institutions. The following msurance
companies and Regulatory bodies were used as case study the Insurance
Regulatory of Uganda (IRA), the Pensions and Insurance Authority (PIA),GoldStar
Insurance company Ltd, Jubilee Insurance company Ltd and Insurance Company
of East Africa Ltd.
1.6.2 Sampling
A common goal of research is to collect data representative of a population.
Sampling is used to select individuals who can yield information about a
population of concern. Different procedures are used for selecting a sample for the
50 Creswell, j. (2003). Research design: qualitative, quantitative and mixed method approaches,
17
purpose of data collection. These fall into two categories; probability sampling or
purposive sampling. Probability sampling is widely used in quantitative research.
In purposive sampling, sampling is done "with a purpose in mind" .51
This study employs a purposive sampling approach to select a representative
sample. Purposive sampling can be useful in situations needed to reach a targeted
sample quickly and where sampling for proportionality is not the primary concern.
There are currently about 26 insurance companies in Zambia52 and 27 in Uganda
licensed to operate. 53 The study selected a few companies in Uganda as the
population of the study. Within these companies, however, not all users are
conversant with insurance administration; underwriting and regulatory procedures;
hence the users further stratified on the following basis: operational users-mostly
clerical, operational and administrative people who have the most day- to- day
contact with the regulatory systems and hold a local view of the systems.
Supervisory users- those who manage a group of operational users and are
responsible for their performance and executive users- those who provide initiative
for information systems projects and have a global view of the systems.
This categorization provides the basis for a simple stratified technique to be used.
Sample sizes depend on the degree to which the sample population with printing
multiple questionnaires and delivery. It also makes it easy for the collection of
filled up questionnaires. The questionnaires help the researcher to obtain
statements of fact and also place less pressure on the respondent who will not be
required to respond immediately. This allows the respondents to answer the
questions posed during their free time. The questionnaire also ensured uniformity
by the possible responses thus simplifying analysis. The respondents were able to
'1 Wed center for social research methods. (2008): non-probability sampling.
'2 List of licensed Insurance Entities 2006 obtained from Pensions and Insurance Authority
"Insurance Regulatory Authority, Annual Market Report, 2015
18
provide honest opinions and information about insurance business. Its
administration and regulations in Uganda and Zambia.
1.6.3 Interviews
An interview is a fact finding technique whereby the researcher collects
information from individuals through face to face interaction. An interview permits
the direct exchange of ideas, opinion, or information between the interviewer and
the interviewee. The main target of the selected insurance companies and selected
officials from the Insurance Regulatory Authority and the mandate is to gain a
deeper understanding of the insurance industries of both countries.
In preparation for the interview, the targeted respondents are requested for
appointments and issued with a copy of the interview guide so as to make them
aware of the particulars issues they are be expected to respond to while conducting
the interviews, data was recorded by writing. The interviews provide immediate
responses to queries. Further, the researcher is able to seek and obtain clarification
on specific issues and challenges faced by the insurance companies. The interviews
also seal the omission and ambiguities that arise from the questionnaire.
1.6.4 Questionnaire
A questionnaire is a document that allows a system analyst to collect information
and opinions from respondents54• It is common instrument for collecting data
beyond the physical reach of the researcher. Structured questionnaires was issued
to the selected sample. The questionnaires were given to selected, policy holders,
operations staff and administrators from the insurance companies. Delivery was
physical (hand delivery) for a section of the population (those who will not provide
54Whitten, j, and Bentley, I. (2008): Introduction to Systems Analysis and Design. McGraw hill: New York.
19
email-addresses55), but online delivery was also considered for those who provided
their e-mail addresses. Online distribution helped to cut down the costs associated.
1.6.5 Data Collection and Analysis
Data will be collected from insurance products consumers (policy holders),
underwriters and administrators from the selected insurance companies. Data
collection efforts is geared at gaining an understanding of the insurance business,
underwriting practices and regulation.
1.6.6 Document Analysis
This involves consultation of printed documents in the insurance industry as well
as literature on the domain of interest to the research. This is used to fill the gaps of
information or facts that are overlooked or missed by the other data collection
tools. It proved beneficial in revealing some issues that the respondents are not
willing to divulge. The documents that are analyzed include books, encyclopedias,
newspapers, magazines, web sites, documentaries, electronic journals and physical
hard copy format reports.
1.6. 7 Limitation of the Study
During the process of conducting this research hardships have been met like
issuing out questionnaires and having interviews on the part of Zambia hence
limiting the side of Zambia to secondary sources.
Intervening or confounding variables which may be beyond the researchers control
such as honesty of the respondents and personal biases. To minimize such
conditions, the researcher requested the respondents to be as honest as possible and
to be impartial I unbiased when answering the questions
55 Ibid. Whitten, j, & Bentley, I. (2008)
20
1.7. Literature Review
The aim of literature review is to identify issues that have been discussion and
materials written on the domain of insurance in Uganda and Zambia and other
parts of the world. The views of various authors on the legal mechanisms for
claims settlement in the insurance industry and the practice of regulation therefore
come under reviews.
A number of authors have in no small measure distinguished themselves and
whose works are important to this research, Birds56 opined that the basic principles
of insurance are insurable interest, fraud, premium, and indemnity and claims
settlement. He is of the view the most important and reliable is claims settlement.
There is also the work of McGillivray57. The general principles of insurance
according to them are insurable interest, premium and claims settlement. Also,
notable judicial pronouncements of the courts and the opinion of jurists was relied
upon coupled with reference to various legislations on insurance.
Fola/8discusses the factors that have impacted on the global growth and
development. These factors include: liberation of world trade, increasing
efficiency, advances in information technology and then integration of world
financial systems which now provide unparallel economic, cultural and
recreational opportunities. He maintains that these developments have created new
opportunities for insurance business in Africa; as Africa market is now open for
global exploration and competition. Conversely, this has poses new challenges for
insurance claims settlement and regulation in Africa hence the need for insurance
regulation in order to protect consumers of insurance products, standardize the
"Ed. John Birds, Birds Modern Insurance Law, 8'" "MacGillivary, Insurance Law, 9ed 1989, London "Insurance regulation in the African environment; Fola D, commissioner for insurance Nigeria national insurance commission. 20 I 0
21
conduct of insurance business and to establish sound financial systems.59 In
addition, he discusses the challenges facing claims and insurance regulation in
Africa. Which include: absence of reliable data for effective supervision, poor
public perception of insurance, low level of technological infrastructure,
ineffective legal framework, lack of adequate funding for effective regulation,
cross border transactions, inadequate cooperation by the regional and continental
regulatory bodies, and lack of independence of regulatory institutions among
others.60 Zambia and Uganda being part of the emerging economies are prone to
and facing these challenges. Strong regulatory and supervisory arrangements that
complement and support the operation of market discipline are indispensable to the
stability of insurance markets according to the Asia Development bank. 61
Zambia and Uganda have taken steps in claims settlement through their insurance
Acts, and established Regulatory bodies charged with the role of ensuring the
effective administration, supervision, regulation and control of the business of
insurance in both countries. These regulators would develop deep expertise in
insurance and in the institutions which have a focus on insurance. Most important,
the regulators would have equal status with existing regulators in the commercial
banking, securities and asset management industries. A Dedicated regulators for
those financial institutions viewed as imposing systemic risk exposure to the
financial system, a primary focus would be to understand the consequences and
interconnectedness of all the activities of these institutions that could lead to
systemic risk.
Insurance is generally an optional service. However, compulsory insurance may be
justified in respect of certain forms of social protection and might be considered in
59 Ibid 60 Ibid p.l3 61 Asia Development bank. 2000. Country review of the people's republic of china insurance regulatory commission (CIRC),2008
22
other areas where the risks covered are particularly serious and are not covered on
a non-compulsory basis. In the case of Motor Vehicle (Third) Party Insurance, the
primary objective is to provide affordable, fair and accessible treatment,
rehabilitation and compensation for bodily injury to, or death of, third party road
accident victims62• The primary social purpose is to protect innocent third parties
fi·om the physical injuries and economic losses arising from motor vehicle
accidents. In order to establish an effectively functioning compulsory motor
msurance information system, a suitable monitoring system is crucial. Many
nations have made legislations that make certain forms of insurance compulsory.
In Zambia and Uganda, it is not known in practice whether all registered vehicles
are properly insured or whether claims made on the various insures are consistently
and fairly settled.
There has been emphasis on the use of Information and Communication
Technology ICT to enforce compulsoty insurance. According to the United
Nations Conference on Trade and Development; the focus of insurance supervision
has generally been on financial reporting, with emphasis on financial statements
and technical ratios.63 In recent study, Hermm164 posits that whereas there are
obvious benefits from the integration of data, very few organizations have gotten to
high levels of integration due to the following challenges: overcoming distrust in
sharing proprietary information, overcoming functional stovepipes wiiliin one's
own company, gaining executive sponsorship, and creating in business and
technology design ilie organization wishes to receive. These challenges hold true
of the Zambian and Ugandan insurance industries. Even though players in this
industry have been made to integrate these systems, such integration can be costly
62 Ibid p.28 63 United Nations conference on trade and development. (2007). Guidance on insurance regulation and supervision for emerging market economies. 64 Herman, j. 2002. Making collaborative commerce happen. Received from http:/portal. Acm. Org I citation. Cfrn?id =1225318.1225711
23
and difficult to justify for individual insurers. However, regulatory bodies like the
Pensions and Insurance Authority (Zambia) and Insurance Regulatory Authority of
Uganda would have a stronger business case for the establishment of a database
that aggregates data from the various players.
In an article on m1cro-msurance Eschbom65, discusses the role of insurance
regulation by stating that regulations define the requirements of an insurer, provide
consumer protection through the supervision of insurers to safeguard their
solvency and thus shield the customer from buying insurance from an unsuitable
company. More specifically, insurance regulations protect customers from
misleading sellers (by regulating the delivery channel, e.g. through standards for
agents/ licensing of agents and brokers) and unfair claims practices. For example
by requiring disclosure and by regulating complaints; or by regulating rate setting/
pricing (some jurisdictions (Uganda and Zambia inclusive) have limits for rate, or
require prior approval); regulating policies (fmms/contracts. Exclusions); protect
the financial viability of insurers, e.g. by requiring standards for qualifications,
solvency, performance, risk limitation, disclosure, reserves. Reporting (periodicity,
accounting and information systems), auditors, investment police to crack down on
uninsured vehicles. It has also helped to expedite police investigations in motor
related cases across the EU. 66 This has not been the case with Zambia and Uganda;
regulations have often taken the form of issuing legal notices and pmdential
guidelines and hoping that all will be well. Little effort has been invested in setting
up systems and platforms that enhance compliance.67 The regulatory bodies of
65Eschborn, Regulation and supervision of micro insurance, page 9, 2004 66 Martin, D. (2001). Programmer charter: motor insurance database. Received from www.miic.org.uk/documents/aboutmiic/MIDchmter pI. Doe, 2008 67 United Nations conference on trade and development. (2007) (supra).
24
Zambia and Uganda, therefore, need an effective database to monitor and regulate
not only motor insurance but other classes of insurance.
1.8. Chapterization
This research study is consists of five chapters, with the following breakdown
chapter one, deals with the introduction, background to the study, significance of
the study, statement of the problem, scope of the study, hypothesis, research
questions, and objectives of the study, literature review, methodology, and chapter
breakdown. Chapter two covered legal and regulatory frameworks on insurance
business in Uganda and Zambia and the historical evolution ofthese laws. Chapter
three looked at the nature of risk in insurance and claims settlement, starting with
the nature and definitions of risk and claims, to how and when claims can be made,
who makes the claims and claims settlement operations in practical terms and the
results of the empirical findings. Chapter four looked at the institutional framework
and role of the regulatory authorities in insurance, measures taken by the bodies to
rectify inadequacies. Chapter five offered conclusions as to the entire study with
recommendations.
25
CHAPTER TWO
OVERVIEW OF THE LEGAL FRAMEWORK ON INSURANCE
BUSINESS IN UGANDA AND Zambia
2.0. Introduction
Insurance regulation simply connotes laws, rules or guidelines through which
govetnment controls the practice of insurance business. Regulation of insurance in
Africa is mainly through various domestic legislations creating regulatory
authorizes/agencies to superintend the business. These reflect both the need to
address particular problems and possible abuses in the business, as well as ensure
the development of insurance markets. 1 This chapter provides an insight into laws
which govern and regulate the insurance industry in Uganda and Zambia.
2.1. Insurance Ace
Insurance in Uganda 1s mainly governed by the above mentioned Act, first
promulgated as Insurance decree of 1978.3 The Act applies to all insurance and
reinsurance companies, insurance and reinsurance broking companies, insurance
and reinsurance brokers, and agents, loss adjusters and assessors, risk inspectors
and representatives of foreign companies engaged in such activities4• The Act
renames the Uganda Insurance Commission as the Insurance Regulatory Authority
of Uganda5• The amendment also provides for compulsory membership of all
persons licensed under the Act to the Insurance Institute of Uganda. It further gives
more recognition to the Insurance Institute of Uganda to nominate the one
Insurance Industry representative to the recomposed Insurance Regulatory
1 Insurance Regulation in the African Environment, Fola, D. Commissioner for Insurance Nigeria,2010. p.7 2 Cap 213, Laws of Uganda 3 As early as 1961 Uganda had a law for the regulation of insurance, the Insurance Ordinance of 1961. It was repealed by the insurance companies Act 1964, which was also repealed by the Insurance Decree 1978. This was, in tum; repealed by the Insurance Statute, 1996. 4 Section I, insurance Act (amendment), cap 213, 20 II 5 Section 14 of the insurance Act cap 213 laws of Uganda, as amended by the insurance (amendment) Act, 13, 2011.
1
Authority Board, among others. The amendment further provides for the formation
of a National Reinsurance Company, with compulsory cessions from all insurance
companies Uganda6• The Insurance Act does not directly provide for the claims
procedure, however it provides for the licensing of any claims settling agency. But
also to say that the entire industry is governed by the Act including the Insurance
Regulatory Authority of Uganda which issued guidelines for the claims procedure. 7
The Insurance Regulation, Statutmy Instruments no.66, that were enacted in 2002
in pursuant to section 98 of the Insurance Act,8provide for the procedure and
formalities for the grant, suspension and revocation of licenses; the methods of
calculation of assets and liabilities of an insurer; reporting requirements for
licensed companies. When it comes to Professional Association, section 94 of
Insurance Act makes it incumbent upon all insurers to join professional insurance
associations. The maintenance of the insurer's financial stability and viability is
ensured under section 7 (1) of the Insurance Act,9 which provides for the
establishment and maintenance at the central bank; of at least 10% of the
prescribed paid up capital of the company as security deposits. This security
deposit can be a subject of court attachment to settle claims. The provision of this
section was put to test in the case of Nshimwe & co vs Microcare Insurance ltd &
Insurance Regulatory Authority of Uganda. The judge in that case held that the
security deposit is liable for attachment under section 44 of the Civil Procedure Act
and order 23 of the Civil Procedure Rules. 10 This deposit is considered as part of
the assets in respect of the capital of the insurer and is invested at the central bank
6 Insurance Institute ofUganda.htm: overview of the insurance industry, 2012 7From questionnaire submitted at the Insurance Company of East Afi-ica ltd handled by Mr. Bismarck Rutaraka legal Assistant. I'' August, 2017 8 Caps 213, Laws of Uganda as amended 2011 edition 9 Ibid section 7(1) 10Ughccd 81 (17 June2014)
2
in short term investments and securities approved by the central bank. 11 The law
also sets the capital requirement of mutual insurance companies as the assets ofthe
company and surplus of not less than 15% of its assets over its liabilities or such
other percentage that may be determined by the authority. 12 And professional
indemnity policy of not less than five million shillings for loss adjusters. 13
Under section 48 it is provided that an insurer shall at all times in respect of
insurance business transacted in Uganda invest and hold investments in Uganda
assets equivalent to not less than the amount of funds in the insurance business as
shown in the balance sheet. The investment of funds shall be in respect of the life
insurance fund; 30% in such other investments as shall be approved by the
Regulatory Authority; and in respect of the non-life fund; 20% in government
securities; and 80% in such other investments as shall be approved by the
Regulatory Authority. 14
In addition, section 8(a) enables an insurer to withdraw from the security deposit
an amount of not more than 50% of the security deposit in case an insurer suffers a
substantial loss from liability to claimants and the loss is such that it cannot be met
from its available resources. This protects insurers during hard times. Furthermore,
the paid-up capital or any security deposit made in respect of life insurance
business shall not be available for the discharge of a liability of the insurer arising
out of non-life insurance; and that in respect of non-life insurance business shall
not be available for the discharge of a liability of the insurer arising out of life
11 Section 7&8. Ibid. 12 Section 10, Insurance Act (Cap 213) Laws of Uganda, as amended by the Insurance (Amendment) Act, 13,2011 13 Section 78(2). Ibid. 14 Section 48. Ibid.
3
insurance. 15 The Insurance Act ensures clear accountability on both sides which is
an essential ingredient in the insurance industry as propelled by good faith.
This is done through section 85 which requires the updating of records by way of
keeping records on all insurances undertaken by any insurance agent broker and
risk manager, among others. This ensures a clear track of all transaction between
such players and their clients. It helps in the regulation and monitoring of the
insurance industry. Further Insurance Act provides for supervision of the insurance
players which exercise involves the review of claims management of the player. In
order to protect the interest of policyholders, the Authority issued claims
guidelines to the indust1y which stipulate timelines for settlement of claims16• The
Act also provides for penalties that would be imposed on eiTant insurance players.
The Insurance Act provides for an insurance Ombudsman who will be responsible
for handling insurance complaints, among which would include disputes in claims
settlement.17
2.2. Insurance Act18
The two main Acts that govern the insurance industry, is, the Insurance Ace9 and
the Pension and Insurance Regulations Act20 the research will look at some of the
sections and how they relate to claims settlements.
The Insurance Act was enacted in 1967 and it came into force on the first of
Janua1y 1968. The Act gave autonomy to Zambia as an independent country. This
Act also sort to regulate the insurance indust1y by providing checks in the industry.
The Insurance Act does not expressly provide sections for claims settlements but
15 Regulation 3 (3), Insurance Regulations, Laws of Uganda, 2002 16 Insurance Regulatory Authority, Annual Market Report, 2015 17 Section 15(t) Insurance (Amendment) Act, 2011 18 Insurance Act (cap 392), Laws of Zambia 19lbid 20Pension Scheme Regulation (Amendment) Act, cap 255
4
through the claims agent one can do so, in the case of Zambia State Insurance
Corporation Limited and Another v Chanda21 the issue was whether the plaintiff
could lay a claim after signing the release form, the plaintiff (respondent in this
appeal) omnibus was damaged in a road traffic accident attributed to the
negligence of the second defendant's driver. The first defendant was made a party
under the principle of subrogation as an insurer of the second defendant. The first
defendant paid for the repairs but resisted to pay for atter was referred to the first
defendant who requested the plaintiff to obtain three quotations. The first
defendant paid the repair costs based on the lowest of the quotations. The plaintiff
asked to be paid for the loss of use of the omnibus but this was resisted by the
defendants on the basis that when the repair costs were paid to the plaintiff, he had
signed a form of release. The leamed judge held in favor of the plaintiff by saying
that the facts accepted showed that, far from abandoning his other claim, the
plaintiff made it plain he was insisting on the claim for loss of us and he received
assurance that the could still pursue such claim. He may have been misled or
induced by such an assurance so that it is inequitable for the defendants to take
advantage and seek to enforce a gratuitous agreement which was patently
unconscionable from any point of view. Equity requires that parties come with
cleans hands; the defendants' hands were not clean. So the question as to whether
the plaintiff could lay a claim after signing the release form the court answered in
favor of the plaintiff and ordered the defendant ( insurance company) in this case
the claims agent to indemnify the insured.
Claims agents settle insurance claims by evaluating the facts of a customer
situation surrounding the claim, determining whether the loss is covered and what
the compensation should be. Thorough investigations are needed to ensure that
claims are not fraudulent. As part of their examination, agents may contact the
21 S.C.Z. Judgment No.9 of1992 [1993] ZMSC 10 (31 December 1992)
5
customers' doctors or employers for additional information if they discover that the
filings are questionable. In such cases, these agents may consult legal counsel to
determine the best course of action. Eventually, they negotiate settlements and
authorize payments, while keeping records of all action for the customer's file?2
2.3. Pensions Scheme Regnlation Act (Zambia)
The Pensions Scheme Regulations Ace3is an Act which provide for the prudential
regulation and supervision of pension schemes; to provide for the appointment of
the Registrar of Pensions and Insurance. Section 224 states that: "An Act to
establish the Pensions and Insurance Authority (PIA) and define its functions and
powers; to provide for the prudential regulation and supervision of pension
schemes; and to provide for the matters connected with or incidental to the
foregoing. Section 4 establishes the Pensions and Insurance Authority (PIA). The
PIA is the regulatory and supervisory body of insurance business. To this effect,
section 4 states that; "there is hereby established the Pension and Insurance
Authority which shall be a body corporate with perpetual succession and a
common seal, capable of suing and of being sued in its corporate name, and with
power, subject to the provisions of this Act, to do all such acts and things as a body
by law do or perform. 25
The pre-current scenario was such that the Insurance Act provided for the office of
the Registrar who performed the functions that are now officially the functions of
the PIA. The PIA operates more on the basis of a department in the Ministry of
Finance and National Planning. As a legal entity, the PIA is now empowered with
its own source of funds. This is a positive step as the activities of the PIA will not
22C/aims Representatives Duties, by Aurelio Locsin, ©Copyright 2017 Hearst Newspapers, LLC 23 Pension Scheme Regulation (Amendment) Act, cap 255 24 Ibid Section 2 25 Section 4 (I) of the Pension Scheme Regulation (Amendment) Act cap 255
6
be restricted on the basis of lack of or shortage of administrative funds. To make
this a reality, the law as it stands is to the effect that funds of the PIA shall consist
of such monies as may " ... be paid to the authority from a levy which may be
imposed on the net assets of the pension funds or insurance premiums paid to the
insurers and re-insurers ... ".26The whole essence of the imposition of a levy on the
assets of the pension funds and insurance premiums is aimed at enhancing the
operational capacity of the Authority. This idea was borrowed :fi:om other
jurisdictions such as Kenya, South Africa and the United Kingdom as Zambia was
lagging in this direction of development?7
2.4. Marine Insurance Act28
The above mentioned Act, governs the marine insurance in Uganda. Marine is a
special category of insurance because the nature of the risks covered makes it
appropriate for the Act to contain specific provisions dealing with matters, such as
general and particular average, which are not encountered in other areas of
insurance business.29
Certain examples exist to buttress the separate regime of insurance for marine
activities, particular the nature of business and the risks involved. A commonly
cited example is MV Kabalega saga. On the 81h of May 2005 early morning, MV
Kabalega, the ship collided with MV Kaawa on Lake Victoria and at exactly 3:30
pm MV Kabalega gave way.30 The business was affected since MV Kabalega sank
with a load of coffee it was transporting from Mwanza while Kaawa dominated the
business. Without standing the above mentioned issues, the Marine Insurance Act
in section 75 states that, "Where there has been a loss in respect of any subject
26 Ibid 27 Pension and Insurance Authority, Annual report, 2006 28 Marine Insurance Act 2002, Law ofU ganda 29Halsbury laws, p704, val. 20, I998 Reissue 30 Reported in the standard on 9th April 2009 by Peter Atsiya.
7
matter not expressly provided for in the foregoing provisions of this Act, the
measure of indemnity shall be ascertained, as nearly as is practicable, in
accordance with those provisions, in so far as they are applicable to this particular
case".
And in section 75 (2) it states further that, "Nothing in this Act relating to the
measure of indemnity affects the rules relating to double insurance, or prohibits the
insurer from disproving interest wholly or in pa1t, or from showing that at the time
of the loss the whole or any part of the subject- matter insured was not at risk under
the policy."31This is good for policy holders as it will encourage them to insure
their goods and when it's time for a claim they can use that section in the Marine
Insurance Act.
Uganda and Zambia have been colonized by the same colonial master; that is the
British, therefore most of the laws are bon·owed fi·om English law and insurance is
not an exception. Mr, Mudadi Claims Manager at GoldStar Insurance Company
Ltd says that the two countries validly use the same legal framework; that is
English law to him what differ is the effectiveness of the industry in terms of
supervisions32 while for Mr. Bismarck Rutaraka legal advice at the Insurance
Company of East Africa applauds the Insurance Act or the legal frameworks that in
its efforts it has created the Insurance Regulatory Authority of Uganda to regulate
the insurance industry and allowed the opening of the Uganda Insurance Institute
to train the people about the insurance and how it works but he points out that the
Insurance Act of Uganda is not central to claims he adds that the Insurance
Regulatory Authority of Uganda guidelines requires that companies pay within 10
days but internal process delay the settlements33•
31 Section 75, Marine Insurance Act, 2002. Laws of Uganda "Interview conducted by Clinton Mweemba at GoldStar Insurance company ltd on the 26"'July 2017 33 Interview conducted by Clinton Mweemba at Insurance Company of East Africa on the 21th July 2017
8
CHAPTER THREE
NATURE OF RISKS IN INSURANCE AND CLAIMS SETTLEMENT
3.0 Introduction
Risk is the central problem that insurance attempts to address. It is understood to
mean that in a given situation, there is uncertainty about the outcome and a
possibility exists that the outcome would be favorable. Risk has been defined, the
change or degree of probability of loss to the subject matter of an insurance
policy. 1The probability that it could occur is used to measure the risk. However,
where a large number of exposure units- policies- exists, it is possible to predict the
probability of loss which is the probability an adverse deviation from the expected
outcome. The standard deviation is used as a measure of risk. The higher the
probability of loss the greater the risk as the probability of loss the greater the
probability deviation fi·om what is hoped for.2
Risk differ from peril and hazards. A peril is the cause of loss while a hazard is a
condition that may create or increase the chance of loss arising from a given peril.
Claims settlement constitutes one of the important functions in an organization.
Indeed, the payment of claims may be regarded as the primary service of insurance
to the public. It is the purpose for which an insurance is entered into. The proper
settlement of claims requires a sound knowledge of the law, principles and
practices governing insurance contracts and in particular, a thorough knowledge of
the terms and conditions of the standard policies and various extensions and
modifications thereunder. In addition, the prompt and fair settlement of claims is
1 Black's Law Dictionary (8th ed. 2004) p 4135 'Hodgin, R. Insurance Lmv, Text and Materials. 2'd (2002) published in Great Britain
1
the hallmark of good service to the insuring public. It is equally important that
claims negotiations should be on the basis of patience, tact and courtesy.3
3.1 Nature of Risks.
We live in a risky world. Forces that threaten our financial well-being constantly
surround us and are largely outside our control. Some people experience the
premature and tragic death of a beloved family member, loss or destruction of their
property from both man-made and natural disasters. There is other group of people
where there is no accident but are exposed to the traumatic effects of liability
lawsuit. Risk is the potential of loss (an undesirable outcome, however not
necessarily so) resulting from a given action, activity and or inaction. The notion
implies that a choice having an influence on the outcome sometimes exists (or
existed). Potential losses themselves may also be called "risks". Any human
endeavor carries some risk, but some are much riskier than others. 4
Risk can be defined in different ways, firstly the probability of something
happening multiplied by the resulting cost or benefit if it does. The probability or
threat of quantifiable damage, injury, liability, loss. Or any other negative
occurrence that is caused by external or internal vulnerabilities. And that may be
avoided through preemptive action. Uncertainty is at the very core of the concept
of risk itself. It is uncertainty about the outcome in a given situation. Uncertainty
does not exist in the natural order of things though there are a number of outcomes.
Which are uncertain. For example; the risk of having an accident. There is surely
uncertainty surrounding these event. In 1921, Frank Knight summarized the
difference between risk and uncertainty thus: "uncertainty must be taken in sense
3Rochez SP, Insurable Interest, Third Parties' Interests, Assignment, chapter 2, 2000. WI! INZ 4 Clarke M, Policies and Perceptions oflnsurance Law in the Twenty-First Century. 2005 Oxford University press.
2
radically distinct from the familiar notion of Risk. From which it has been properly
separated The essential fact is that "risk" means in some cases a quantity
susceptible of measurement, while at other times it is something distinctly not of
this character; and there are far-reaching and crucial differences in the bearings of
the phenomena depending on which of the two is really present and operating. It
will appear that a measurable uncertainty. Or "risk" proper as we shall use the
term, is so far different from an un-measurable one that it is not in effect an
uncertainty at all. 5
There are basically two categories of risk; speculative or dynamic risk; and Pure or
static risk, speculative or dynamic rick, is a situation in which either profit or loss
is possible. Example of speculative risks is betting on a horse race, investing in
stock/bonds and real estate. In the business level, in the daily conduct of its affairs,
every business faces decisions that entail an element of risk. The decision to
venture into a new equipment, diversify on the existing product line, expand or
contract areas of operations, commit more to advertising, borrow additional capital,
etc., carry risk inherent to the business. The concern of such speculative risk is
either beneficial (profitable) or loss speculative risk is uninsurable. The second
category of risk is known as pure or static risk. Pure (static) risk is a situation in
where there are only the possibilities of loss or no loss, as oppose to loss or profit
with speculative risk. The only outcome of pure risks are adverse (in a loss), never
beneficial. Example of pure risks include premature death, occupational disability,
catastrophic expense, and damage to property due to fire, lightning, or flood. It is
important to distinguish between pure and speculative risks for three reasons. First
through the use of commercial, personal, and liability insurance policies, insurance
companies in the private sector generally insure only pure risks. Speculative risks
5 Ibid
3
are not considered insurable. Second, the law of large numbers can be applied
more easily to pure risks than to speculative risks. The law of large numbers is
important in insurance because it enables insurers to predict loss figures m
advance. It is generally more difficult to apply the law of large numbers to
speculative risks in order to predict future losses. One of the exceptions is the
speculative risk of gambling, where casinos can apply the law of large numbers in
a very efficient manner.6
Finally, society as a whole may benefit from a speculative risk even though a loss
occurs, but it is harmed if a pure risk is present and a loss occurs. For instance, a
computer manufacture's competitor develops a new technology to produce faster
computer processors more cheaply. As a result, it force the computer manufacturer
into bankruptcy. Despite the bankruptcy, society as a whole benefit since the
competitor's computers work faster and are sold at a lower price. On the other
hand, society would not benefit when most pure risks, such as an earthquake,
occur.' Risk, in insurance terms, is the possibility of loss or other adverse event
that has the potential to interfere with an organization's ability to fulfill its
mandate, and for which an insurance claim may be submitted'. 7
Risk management ensures that an organization identifies and understands the risk
to which it is exposed. Risk management also guarantees that the organization
creates and implements an effective plan to prevent losses or reduce the impact if a
loss occurs. A risk management plan includes strategies and techniques for
recognizing and confronting these threats. Good risk management doesn't have to
be expensive or time consuming; it may be as uncomplicated as answering these
6Hodgin, R. Ibid 7 Ibid
4
three questions: What can go wrong? What will we do, both to prevent the harm
from occurring and in response to the harm or loss? And if something happens,
how will we pay for it? Risk management provides a clear and structured approach
to identifYing risks. Having a clear understanding of all risks allows an
organization to measure and prioritize them and take the appropriate actions to
reduce losses. Risk management has other benefits for an organization, including;
saving resources: time, assets, income, property and people are all valuable
resources that can be saved if fewer claims occur, Protecting the reputation and
public image of the organization, preventing or reducing legal liability and
increasing the stability of operations, protecting people from harm, protecting the
environment, enhancing the ability to prepare for various circumstances, reducing
liabilities and assisting in clearly defining insurance needs. An effective risk
management practice does not eliminate risks. However, having an effective and
operational risk management practice shows an insurer that your organization is
committed to loss reduction or prevention, it makes your organization a better risk
to insure. Insurance is a valuable risk-financing tool. Few organizations have the
reserves or funds necessary to take on the risk themselves and pay the total costs
following a loss. Purchasing insurance, however, is not only for risk management,
it also addresses many risks that are not insurable, including brand integrity,
potential loss of tax-exempt status for volunteer groups, public goodwill and
continuing donor support. 8
3.2 Nature of Claims
One of the most important principles of insurance indemnity which can be said to
be the cornerstone of insurance. The need to be compensated, or at least
8 Professional programme. Insurance law and Practice. The institute of Company Secretaries oflndia, printed at Tan Prints/July, 2014 p. 1-8
5
indemnified, for loss or damage suffered is the very basis of insurance. In
insurance parlance, this is the bread and butter of insurance, or the second face of
marketing. What if the unthinkable occurs a fire takes place, burglary or an illness
occurs? Contemplation of the negative aspects makes a prospect introspect on the
need for adequate insurance cover. But once the policy is availed of, the most
impotiant aspect is the speed and ease with which the insured is compensated or
indemnified in the event ofless. That is why, claims serving is the second face and
even more important face of marketing. It is the actual delivery of the product
tangible service. Servicing of customers at the time of claim is the most important
and vital aspect of any insurance service. A satisfied customer is the best public
relations offer of an insurance company. An insured having suffered a loss, is
always in a damaged or vulnerable condition; alleviation of some of the suffering
by ensuring speedy processing and settlement of the claim is the best and most
excellent aspect of any insurance. 9
When it comes to understanding claims settlement, it's important to look at
causation. Although X may have a policy and X has suffered a loss, it may be that
the policy does not cover that particular loss. This may be due to the fact that the
policy does not extend to that particular loss. In the highly competitive world of
insurance, consumers should heed the warning that 'cheapest may not be the best'.
Whether or not the policy extends to the type of loss suffered will largely depend
on the construction of the policy wording. With regard to the burden of proof, it is
for the insured to prove that his loss comes within the policy wording. In
appropriate cases, it will then be for the insurer to prove that an exception or
exclusion relieves him from liability on the policy. 10
9 Ibid 10 Clarke, M, 'Insurance: The Proximate Cause in English Law' (1981) 40 CLJ 284
6
The leading case is the House of Lords decision in Leyland Shipping Co v Norwich
Union Fire Insurance Society. 11 A ship was insured against perils at sea but the
policy excluded 'all consequences of hostilities or warlike operations'. The ship
was torpedoed by the enemy, but managed to reach a French port. She was ordered
to a particular berth by the harbor authorities. The berth was too shallow and the
ship eventually sank. In deciding the case Lord Shaw: In my opinion, my Lords,
too much is made of refinements upon the subject. The doctrine of cause has
been ... one involving the subject of distinctions ... too treat proxima cause as the
cause which is nearest in time is out of the question. Causes are spoken of as if
they were distinct from one another as beads in a row or links in a chain. . . the
chain of causation is a handy expression, but the figure is inadequate. Causation is
not a chain, but a net ... what does 'proximate' here mean? The cause which is
truly proximate is that which is proximate in efficiency may have yet not destroyed
it, or truly impaired it, and it may culminate in a result of which it still remains the
real efficient cause to which the event can be ascribed. Thus, applying the 'real
efficient cause' test, it was held that the loss was due to the torpedoing and
therefore the insurers were not liable on the policy. 12
In Irving and burns v stone, 13 the plaintiffs were a firm of surveyors who obtained
professional indemnity insurance from the defendants. During the currency of the
policy, a writ was issued alleging negligence against the plaintiffs, but it was not
issued or brought to their attention until after that policy had expired. The Court of
Appeal found for the insurers. The policy was a claims made policy and there
being no claim communicated to them during the currency of their policy. The
judgment makes no reference to the insurers who presumably took over the
11 [1918] AC 35. 12 Clarke, M, Ibid 13 [1997] CLC 1593
7
plaintiffs professional indemnity cover. If there was no claim against the first
insurers notified within their policy, there would, presumably, be a right of action
on the subsequent policy, subject to its wording, there is, potentially, great
difficulty for the insured, if he knows of a potential claim, but one which is not
formally notified and the renewal, or new insurers- if he is considering changing
insurers. In such circumstances it is difficult to imagine that a renewal or a new
policy would be offered. In reality, insurers have responded to this situation in
marketing policies that attempts to deal with the problem. 14
The case of Kelly v Norwich Union Fire Insurance Society ltd15 illustrates how a
privately insured can face great difficulties in this area. The plaintiff had an
external water pipe break and he had it repaired. He then insured the bungalow.
The pipe leaked again. It was later discovered that the bungalow had suffered
damage due to water leakage. It was not possible to determine which leak had
caused what damage. The court of Appeal disallowed the insured claim. No
apportionment was possible as between damage caused by the pre-policy leakage
and policy leakage, because there was no evidence submitted to distinguish the
damage caused by the two leaks. The second area of difficulty is that relating to
mitigation of loss. The requirement in the general law of contract that the innocent
party should mitigate his losses is well known. Does this translate to an insurance
setting? It is not usual for the policy to require efforts to be taken by the insured to
avert or mitigate potential loss. Rather like a motor policy or a buildings policy
requiring that the vehicle or building be kept in a good state of repair. The question
is, can the cost insured be passed on the insurer?16
14Hodgin, R. Insurance Law, Text and Materials. 2"' (2002) published in Great Britain 15 [1989]2 ALLER 888 16Hodgin, R. Ibid
8
In Verelst's Adimistratrix v Motor Union Insurance Co, 17a motor policy contained
a condition precedent that notice should be given 'as soon as possible' following
an accident. The insured was killed in India in a motor accident, but it was not until
12 months later that the policy was discovered by her personal representatives. The
insurers denied liability for breach of the notification requirement. They argued
that knowledge of the accident and not knowledge of the existence of the policy
should be the triggering event for the notification period. The court rejected this
argument, finding for the personal representatives. A potentially impossible task
would have faced the claimants if the language of the policy had used an
expression such as, notification must be given within 14 days of the accident. Such
set time periods are by no means uncommon. In consumer contracts, the situation
is somewhat eased by the Association of British Insurers' Statement of General
Insurance Practice which calls for the use of the phrase, found in Verelst 's case 50
years earlier, 'as soon as reasonably possible' .18
Measure of Indemnity, the guiding principle is that the insured should be
indemnified against his loss whether the loss is total or pmtial. He should not be
under compensated nor should he receive a windfall. The chances, however, of
reaching a figure that accurately reflects each side's view of what is true
compensation are probably rare. It is possible to have a valued policy wherein both
sides agree at the outset the value of the object and that figure is paid if there is
total loss. Such policies are rare outside marine insurance, but a vintage em· might
attract such a policy. House content policies are usually written on a 'new to old'
basis whereby the 10 year old television, stolen or destroyed in a fire, will be
replaced by a new set equivalent to the model lost or destroyed. In that sense it can
17 [1925]2 KB 137 18 Professional Programme. Op. cit pg 172
9
be said that the insured receives more than a true indemnity. Premiums will, of
course, reflect this approach. Insurers usually reserve for themselves. Obviously
they will choose whichever remedy most suits them. Payment is normally the
option, the main reason being it is administratively the simplest method- claim,
pay, and close file, increase premiums .How is the loss or damage to be calculated?
First, it should be said that it is calculated at the time of loss or damage and not
when the policy was taken out. Thus, in motor insurance, you value the car at
5,000 Euros on 1 January (and, even then, this may not be a figure which, if the car
was stolen on that day, you would receive) and the car was written off on 1
November. It is the value on 1 November that will be paid. Choosing the correct
figure at that date is clearly an area ripe for disagreement and a fertile ground for
the insurance Ombudsman. 19
In Exchange Theater ltd v Iron Trades Mutual Insurance Co. 20however, the court
did not consider that a Victorian hall used for bingo merited rebuilding to its
original splendor and awarded the costs of a modem equivalent. Is it possible for
an insurer to be held liable for losses that the handling of the claim has caused to
the insured? While it is obviously the right of the insurer to defend a claim there
are times when that defense could be shown to be one of incompetence, negligence
or even a sign of bad faith on the part of the insurer. The effect of late payment of
the claim, either as a result of the insured's successful litigation or a change of
position by the insurer, will attract interest on the reward. The actual loss suffered
by the insured may be shown to be far greater mere interest added to the insured 21 sum.
19Hodgin, R, Ibid 20 [1983 I Lloyd's Rep 674. 21MacGillivary, Insurance Law, 9nd 1989. London
10
Selecting the appropriate value of goods or property at the time of insuring, or
renewing, is not always an easy matter. That requires discussion of the possibility
of over-valuing or under valuing by the insured and the effect that might be on th~
claim. Over valuing might be sign of fraud on the part of insured. If it is a genuine
mistake, then the insured will only receive the true market value at the time of the
loss and he will have paid too high a premium. Under valuing is more common. As
the premium is largely linked to the declared value, some insured may under value
to keep down the premium. They may have house contents worth 30,000,000
million shillings (Uganda shillings) but believe that not everything could be stolen,
or even in the case of fire, the chances are that not everything will be lost before
the fire brigade arrives. They may simply think they cannot afford the full
premiums. Wary of this technique, insurers countered with their own technique of
'subject to average clauses' or the reteable proportion clause. A typical clause
reads: Whenever a sum insured is declared to be average, if the property shall at
the breaking out of any fire, be collectively of greater value than such sum insured,
then the insured shall be considered as being his own insurer for the difference, and
shall bear a reteable share of the loss accordingly?2
If there is total loss then the insured will receive up to the insured sum, which of
course will be less than true value. If there is partial loss, however, he will not
receive the loss he had suffered but only a percentage of that assessed as follows;
the policy value over the true, times the amount of loss. To use simple figures; if X
insures his house for 50,000 Ugandan shillings whereas the true value is 100,000
Ugandan shillings and the fire damage is assessed at 10,000 euros then he will
receive 50,00/100,000 multiplied by 10,000 Ugandan shillings = 5,000 Ugandan
shillings. Insurers may decide to offer a settlement figure rather than use the
22 Ibid
11
average clause. If the undervaluing is due to negligent advice from an intermediary
it may be possible to sue the intermediary:23
3.3 How and when claims can be made.
If you are fortunate, you may never have to make a claim against your insurer.
However, when things go wrong and you are involved in an unexpected accident,
disaster or other loss that is covered by your insurance policy, you can make a
claim with your insurer. The policy you buy is a promise of assistance when things
go wrong, provided you fall within the policy's terms and conditions. You need to
lodge a claim to activate the insurer's response. If your claim is accepted, the
insurer will fulfill the promise it made in the policy. This is commonly through
repairing or replacing damaged prope1iy or items, covering legal fees, or through a
payment. When you make a claim on an insurance policy, you are formally
notifying the insurance company that you have suffered a loss or damage that you
believe is covered by the policy and you are requesting action. The insurer will
review the insured's claim and see if the event or circumstances are risks covered
by the policy.24
You will need to provide proof it is a genuine claim and the insurer will need to be
certain the claim satisfies the terms and conditions of your insurance policy. If
your claim is accepted, the replacement or repair of your property or any payment
by the insurer is called the benefit or payout. The insurer will work out the value of
the claim and provide the appropriate benefit specified in your insurance contract.
Insurance companies try to make the claims process as smooth as possible, but the
policyholder must go through a few steps in the claims process. If you are well
23Hodgin, R. ibid 24 http:/understandinsurance.com.au!claims-explained
12
prepared and organized, and you have all the information that the insurance
company needs to see, making a claim is usually straightforward and quick. The
first thing you must do is cmTect your insurance company as soon as practical after
the event happens especially if the loss is due to theft or a serious accident. You
may choose to review the Product Disclosure Statement (PDS) for you insurance
policy to see if you have valid claim and that the event is not on the list of
exclusions for your policy, your insurer will do this any way once you lodge a
claim.25
3.3.1 Who makes claims?
The question as to who can make claims is generally the insured except in life
insurance. When making that claim, the insured has to contact the insurer or broker
as soon as possible if you need to make a claim and have as much information
available as you can. Making contact is critical to getting the claims process under
way even if you don't know the full extent of damage to your property. Some
insurance claims, can be made over the phone without you needing to fill a form,
which means that the claim can be processed straight away. 26
3.4 Fraudulent Claims
Fraud is more likely to take place because of a decision by the insured. Typical
examples would be to bring about the insured event, for example, arson; to claim
for the items that were never owned and to overestimate the value of the loss. An
important recent case dealing with content of the duty of good faith at the claims
stage is the House of Lords in Manifest Shipping v Uni-Polaris Insurance Co (the
25 Procedure for settling claims in insurance, www.Insurance Regulatory Authority ofUganda.org 26 Ibid
13
Star Sea)27• The decision involves matters of good faith. The case concerned a
claim on a marine policy. The insurers rejected the claim on the grounds that two
earlier accident reports relating to other ships owned by the insured had not been
disclosed to them at the time of the present claim and this was in breach of the
utmost good faith requirement of section 17 of the Marine Insurance Act (MIA).
All three courts found for the insured. It was held that the duty of good faith found
in section 17, affecting the performance of the contract, was not the same as the
duty of good faith required in section 18 which related to pre-contract negotiations.
In relation to claims only the finding of fraud against the insured would defeat the
claim under section 17. The policy wording might well cover such situations and if
so then the contract rules for breach would come into operation.Z8
Leggatt LJ in the court of Appeal (United Kingdom) on the three occasiOns
refened to the draconian remedy (avoidiffice of the policy) being the only remedy
that would be available if the breach of section 17 was found. Such a remedy
should be limited to cases of fraud and not extended to negligent or culpable
behavior on the part of the insured. If some insurers are unhappy with the
interpretation of the House of Lords in the Star Sea, then they will find no joy at all
in the court of Appeal decision in IdS Mere- Scandia v Certain Lloyds
Underwriters. 29Here, under a liability policy, the insured had written a fraudulent
letter during the negotiations leading to a claim. This letter, however, had nothing
to do with the substantive claim and its falsity was discovered long before the
claim was duly processed. (In fact, it was a claim against the insured had gone into
liquidation and thus it was not a 'claim' by the insured at all.) The insurer sought to
avoid on the grounds of fraud arguing that star sea, while rejecting a right to avoid
27 [2001]1 ALLER 743. 28Hodgin, R, Op. cit pg 583 29 [2001] Lloyd's Rep IR 802.
14
merely because there may have been culpable behavior at the claims stage, had
indicated that fraud would be an example of breach of good faith post-contract.30
It was held that the insurer was liable. Longmore LJ explained that it was well
recognized that before a contract could be avoided for pre-contract non-disclose/
misrepresentation, the fact not disclosed or misrepresented had, firstly, to be
material from the point of view of pmdent insurer when assessing the risk. There
was no reason why these ingredients should not also be the test where an insurers
seeks to avoid liability for the luck of good faith or fi·aud in relation to post
contractual lack of good faith must exist in an appropriate form before an insurer
can avoid the entire contract for post-contract lack of good faith. In the way the
requirement of inducement for pre-contract conduct resulting in avoidance is then
made to tally with post-contract said to enable the insurer to avoid the contract.
The conduct of the assured which is relied on by the insurer must be causally
relevant to the insurer's ultimate liability or, or least, to some defense of the
insurers before it can be permitted to avoid the policy. This is ... the same concept
as the insurers must be seriously prejudiced by the fraud complained of before the
policy can be avoided.' 31
From all the interviews conducted and questionnaires issue out, all the person
involved agreed on this point that fi·aud is the biggest challenge the industry is
facing currently. The claims manager of GoldStar Insurance Company Ltd
maintains that because of fraud allot of resources and time is put to investigate the
claims hence leading to longer time to settle as the companies check to see how
clean the claim is32• There is a high growth rate of fraudulent claims in the
insurance industry. This is, therefore, affecting many insurance companies. The
30Hodgin, R, Op. cit pg 586 31 Ibid p 584 32Interview conducted by Clinton Mweemba at GoldStar Insurance Company Ltd on the 26th July 2017
15
law regulating the insurance industry provides for legal action against the insurer
in case they don't comply or take advantage of policy holders. However, the
current law does not provide for legal action against policyholders and
counterparties who defraud the insurers which, therefore, becomes a challenge.33
3.5 Claims Settlement Operations in practical terms.
The general procedure for seeking claim settlement is same in most forms of
general insurance. The presentation of claim settlement is given below:
Intimation/submission of the claim by the insured. The insured would intimate the
insurance company of the occurrence of a peril or risk which has caused loss of or
damage to the insured property. Evaluation/Registration of claim. The insurer
would briefly initiate process check-whether the policy has been issued by the
insurer, whether the policy is in existence, whether correct premium has been
received by the insurer and whether the peril causing loss/damage is an insured
peril. If the insurer is not satisfied and the necessary elements of insurance are not
represent, it may repudiate the insurance claim and intimate the insurer about the
repudiation. In some cases, the insurer may ask for some other inputs about the
insurance which he thinks necessary for processing the claim further. If on receipt
of the additional input, the insurer is not satisfied, he may repudiate the claim and
intimate the insured about repudiation of claim. Only after getting satisfied about
the claim, the insurer initiates the next step for claim processing.34
Appointment of surveyor/loss assessor/investigator etc. The insurer would
immediately arrange for surveyor to be appointed who would look into the
33From questionnaire submitted at tbe Insurance Regulatory of Uganda handled by Mr. Ivan Kilamori Actuarial officer. 31th July, 2017 34 Professional Programme Op.cit pg 173-175
16
circumstances of the loss, assess the actual loss suffered in money terms and which
can be indemnified in terms of the contract, advice the insurer regarding
compliance of the various and warranties under the contracts etc. The loss assessor
has also to advice the client on various aspects of loss mitigation, salvage. Loss
investigation including forensic investigation and analysis may also come under
the purview of a professional investigator. Acid tests applied by the surveyor of the
various principle- insurance interest, utmost good faith, proximate cause and of
course contribution, help in deciding ultimately, if a claim is payable as well as
quantum payable. If the claim is not paid within the same financial year in which it
occuned, then the surveyor's assessment would enable the adequate provisioning
for the claim in its financials.Settlement of Claims, the insurer would ensure claims
are settled on the receipt of the final report from the surveyor, generally within the
Turn Around Time (TAT) stipulated by various regulations and committed by the
insurance company. Recovery. The next step for the insurance company, in certain
is initiating process for recovery from the third person who is party - e.g. in marine
cargo transit claims - recovery proceedings, as per applicable statutes are initiated
against canies. In motor third party liability claims - awards are settled with
victims of any motor accident instituted against the owner of the vehicle for
recovety. 35
3.6 The Role of Loss Adjusters
A loss adjuster is an insurance professional, although one doesn't need a specific
degree subject to become a loss adjuster, a degree in surveying, engineering, risk
management, law or finance may be useful. Employers are generally more
interested in ones skills and personal attributes, as well as your potential to handle
the varying demands of the work of a loss adjuster. Their job is to investigate
35 Professional Programme, Ibid
17
insurance claims on behalf of the insurer once they reach a certain size. The loss
adjuster plays a crucial role in the insurance claims process and is usually the first
person you will come into contact with from the insurance company after a claim
is logged. While most oftheir dealings are directly with insurance companies, their
work has profound repercussions on your claim. So, what exactly is their role?
Basically, they are independent claims specialists who investigate complex or
contentious claims on behalf of insurance companies. 36
Loss adjusters are usually engaged by insurance companies. As the loss adjuster's
fee is paid by the insurer, it is untrue to say that he is independent. However, the
loss adjuster is expected to be impartial given that adjusters' fees are paid out of
the common pot of premiums paid by policyholders to insurers. The claimant can
also engage his own adjuster, but he will have to bear the charges himself. Some
insurers may take exception to loss adjusters on their panel acting against them,
while other insurers would welcome the participation of another adjuster, provided
he helps in presenting a realistic claim. Loss adjuster firms also employ other
professionals, viz; accountants, engineers, legal officers and the like, recognizing
the fact that to provide a professional and top class service, a multi-disciplinary
approach to claims handling is needed.37
Loss adjusters are engaged by insurance companies to help find the answers to
certain questions, including the following, in the event of a claim: Am I (the
insurer) liable? If yes, how much? If not, why not? Is there someone else I could
make a claim against? And is there another insurer that will share the loss? The
loss adjuster's first duty is to ascertain whether, and to what extent, the insurance
36Flavia M, the observer (Kampala). Uganda: Loss Assessors and Loss Adjusters, 4 December 2012. 37 Realty Review: Property Damage- The Role of the Loss Adjuster, December 2008
18
company is liable under the insurance policy. In other words, the loss adjuster will
have to comment on whether the loss has been caused by any of the insured perils
under, say a fire insurance policy or whether any of the exclusions apply under an
all risks policy. The loss adjuster plays crucial role, particularly at the outset of the
loss. Many loss adjusters either directly or indirectly provide damage reclamation
services. These range from independent technical advice, through expert guidance
on loss limitation opportunities, to specific options to recover and restore damaged
property, thereby preventing wastage. At the initial stage, procedures are agreed by
the loss adjuster with the policyholder for the repair or replacement of property,
and the continuation of the business to limit any claim for loss of profit, thereby
enabling the policyholder's business to retum to normal in the shortest possible
time. For goods that will have to be written off, a loss adjuster will have the skill to
dispose of them at the best salvage value, thereby mitigating the damage. The loss
adjuster reports to insurers immediately after visit, particularly on the loss reserves
to be created so as to enable insurers to fulfill their statutory obligations.
Thereafter, he will ensure that insurers are kept fully advised. His reports will
incorporate facts, opinions and recommendations when appropriate. The loss
adjuster will advise the insured that it is the latter's duty and not the adjuster's to
submit a claim and to provide full and prompt information and supporting papers,
e.g. repair estimates, invoices, receipts, proof of ownership and value, etc. When
claim has been presented, the loss adjuster will check it for quantity, description
and pricing and, after agreeing on any necessary adjustments with the claimant, the
loss adjuster will present the final repmi to the insurers recommending
settlement. 38
38 Loss Adjusters- Role in Insurance Claims, by Nehemaih Neo Lian Sun, managing Director, Insight Adjuster Group, June 2014
19
The laws of Uganda provide for loss adjuster, that no loss adjuster shall carry on
the business of loss adjuster unless the adjuster maintains at all times while
carrying on that business a professional indemnity policy of not less than five
million shillings. 39 The Act goes further to state that the Minister may on the
advice of the Authority by the statutory instrument amend the prescribed paid-up
capital, the security deposit or the professional indemnity policy provided under
this section. And in section 93 the Act provides that no person shall carry on
adjustments of losses occurring under insurance contracts issued in contravention
of this Act. The Uganda Association of Engineering Valuers and Loss Assessors
(UAEVLA), is one of the players who help keep a check on what the loss adjusters
do. The main objective of the association is as follows; the provision and
maintenance of a central organization for the promotion of efficiency, progress and
general development among members thereto.40 To exercise professional
supervision and control over members of the association: as well as promote good
cordial relationship with other associations or professional bodies in Uganda.
While for Zambia the law provides in section 6 (1) and (2) on and from the date
prescribed by the Minister by Statutory Instrument, an insurer shall not engage a
person, otherwise than under a contract of employment, to act as a loss adjuster
unless the person is licensed under this Act. In subsection(2) where this section is
contravened- (a) the insurer; and (b) the person engaged to act as a loss adjuster,
shall be guilty of an offence and shall be liable, on conviction, to a fine not
exceeding twenty thousand penalty units, and where it is proved that the offence
was committed with the knowledge or connivance of the director, chief executive
officer or employee, then the director, chief executive officer or employee shall be
guilty of the like offence and shall be liable, on conviction, to a fine not exceeding
39 Laws of Uganda Cap.213. The Insurance Act. Section 79 (2) 40 Uganda Insurance Commission: Insurance Market Report, 2001. P. 5
20
twenty thousand penalty units or to imprisonment for a period not exceeding two
years or both.41And in section 14 (A) it is provided that a person shall not carry on
business as an insurance risk surveyor unless that person is registered and licensed
as such under this Act. And is the Registrar to issue a loss adjuster's license to
individual and companies other than an insurer or broker, who are of good
reputation. Both Uganda and Zambia provide for Loss Adjuster which is
commendable for anyone looking to do business or those that have a claim. Each
party can employ a loss adjuster be it the insurer or the insured to assess the loss
that has occurred.
3. 7 Questionnaire Distribution and Responsive Rate
Out of the four customer questionnaires that were distributed among the four
branches/ companies of Insurance/ corporations all the 4 completed and they
responded.
However only three gave me interviews and one did not. This represents a 90
percent response rate.
3.8 Analysis and Findings of Insurers completed questionnaire Responses
From those that responded, 90% percent were satisfied with the service they were
providing to the policyholders with a dismal dissatisfaction rate of only 10 %
percent. Comments from those that were satisfied with the service they are
providing indicated that the insurance companies are able to settle claims and the
frontline personnel were generally friendly and receptive. Views from those that
were dissatisfied pointed out that the rate of claim settlement was slow owing to
internal process and manual keeping of files which were at times misplace.
Another weakness which was mentioned for the insurance industry was higher
41 Insurance Act (Cap 392), Laws of Zambia
21
premiums for most products and low or non-existent non claim discounts. On the
whole, most insurers that responded to questionnaires indicated satisfaction on the
level of claims settled.
3.9 Prompt Settlement of Claims
This is an important aspect of the insurance business as it revolves around the
whole essence of insurance. Restitution after a peril has arisen is very fundamental
in insurance. Prompt settlement of claims builds trust and confidence in the
corporation. It assists in retaining of policyholder. Prompt claims settlement is also
essential as it provides predictability which is necessary for insured and
policyholder retention. Claims settlement is the one important factor that
policyholders pay particular attention to. In addition to the value of premiums,
claims handling is another factor taken into account when choosing an insurer as it
is restitution that customers are looking for in insurance. Delayed restitution after a
peril could be very frustrating to a customer. Internal processes has caused
settlement of big claims to delay leading to anguish for the policyholder waiting to
be settled. When the wait is too long it can easily result in the insured opting to
underwrite insurance with other insurers.
3.10 Practice on the ground is not always as stipulated in documents
For instance, the turnaround period for claims settlement is 21 days. However, for
some claims it may take longer to effect to the settlement as investigations on some
policies may need to be done before the payment is made. Taking an example of
motor insurance claims, a police report needs to be provided by the client before
the corporation can process a claim. The police may need to carry their own
investigations before they do a report. The claim has to pend until the police report
is availed. This works against the client. At times the finance department has their
22
own priorities which may slow down claim settlement effecting clients adversely.
Sometimes, clients themselves may not be up-to-date with their premiums or may
delay in notifYing the insurance company about the need to be compensated.
All the above mentioned shortcomings may result in delayed claims settlement or
non-settlement at all leading to loss for the insured.
23
CHAPTER FOUR
THE ROLE OF REGULATORY AUTHORITIES IN INSURANCE IN
ENSURING PROMPT SETTLEMENT OF CLAIMS
4.0 Introduction
Regulation is important because Insurance is considered a business vested with
public interest. Thus, the business of insurance, although primarily a matter of
private contract, is nevertheless of such concern to the public as a whole that it is
subject to government regulation to protect the public's interest. 1 The fundamental
purpose of insurance regulatory law and bodies is to protect the public as insurance
consumers and policyholders. Functionally, this involves; licensing and regulating
insurance companies and others involved in the insurance industry; monitoring and
preserving the financial solvency of insurance companies; regulating and
standardizing insurance policies and products; controlling market conduct and
preventing unfair trade practices; and regulating other aspects of the insurance
industry.2 The market forces have since been allowed to control themselves but this
is only as regards the ratios of demand and supply. To ensure that the economy
does not collapse, regulation is vital. As such, the Insurance Regulatory Authority
of Uganda and Pension and Insurance Authority of Zambia are empowered to
regulate insurance business in the two countries respectively. To this effect the
research will look at how the two bodies administer the law in meeting the above
purposes of regulation. It points out the weaknesses of the law and the steps that
have been taken to rectify these inadequacies and also the research will outline the
role of agents and brokers in insurance business and the regulation thereof.
'Mayhall, III, Insurance Regulatory Law: Defined, Insurance Regulatory Law. Retrieved, 12th july,2012 2 Klein, Robert W. (2008): An Overview of the Insurance Industry and Its Regulation, Center for Risk Management & Insurance Regulation, Georgia State University.
1
4.1 Insurance Regulatory Authority of Uganda
The above mentioned Authority was established under section 143 of the Insurance
Act. The main objective of the Authority is to ensure effective administration,
regulation and control of the business of insurance in Uganda.4The Authority has
been effective in handling complaints from the public as provided for by law. As
per section 15 (f),5the Authority has set up a Complaints Bureau to handle
complaints against insurance players. This has helped in protection of the rights of
insured's and other insurance beneficiaries. According to IRA report/ the
Authority's Complaints Bureau receives and amicably resolves complaints from
policyholders and members of the public. During the review period, a total number
of sixty complaints were received. The highest number of complaints emanated
from delays in settling of claims and non-fulfilment of obligations under the
insurance contracts. As at the end of 2010, the Authority was working on the issue
of reducing complaints related to delays in settlement of claims and non-fulfillment
of obligations under insurance contract by say, coming-up with standard claims
settlement guidelines for the insurance players, increasing on the fi·equency of on
site inspections of insurance players, and so on. Out of the complaints received
during 2010, 68% were settled, 10% were not payable, 8% were referred to
alternative dispute resolution mechanisms and 14% remained pending.7 The public
is therefore urged to always lodge complaints with the Bureau for prompt
settlement of complaints and avoidance oflengthy and costly court cases.
The Authority's most significant challenge is to be vigilant in the protection of
consumers, especially in the light of the fact that insurance consumers have
3 Insw-ance Act (cap 213) Laws ofUganda, as amended by the Insw-ance (Amendment) Act, 13,2011 4 Section 15 (I) insw-ance (Amendment) Ac~ 2011 5 The Insurance (Amendment) Act, 20 II 6 Insurance Regulatory Authority Annual Market Report, 20 I 0 7 Ibid.
2
relatively little information about the equality and comparative cost of insurance
policies. In addition to ensuring that consumers have access to information that is
necessary to make informed insurance purchase decisions, there is a regulatory
imperative to handle complaints well whenever they arise. Handling complaints
effectively and fairly is an important way of maintaining trust in the sector and
therefore, a key part of the consumer framework. During the year 2015, a total of
159 new complaints were registered. The highest numbers of complaints received
were in respect of delayed payment/ settlement of payable claims followed by
complaints pertaining to unsatisfactory medical services begin received from one
provider whose license was revoked in the course of the year. In some other cases,
the licensed entities or agents have behaved in way which constitutes unsound
practice and that the act or course of conduct caused injustice. Others still involved
disagreements concerning liability under policies issued, or amount offered for
settlement8• Out of the new complaints received, 66 complaints were settled and 28
complaints were closed for various reasons, among which include, claimants
having no locus to file the complaints, complainant failing to furnish further
supportive particulars of a complaint after several reminders, filling complaint
which is not within the mandate of the IRA and some complaints are subjudiced.
Additionally, a total of 52 complaints remained outstanding especially due to the
fact that two of the companies involved had been delicensed by the Authority
while one of the companies had voluntarily wound up. As at the end of year,
thirteen companies were still under mediation.9
The mandate of the Authority to revoke or suspend a license of any insurance or
reinsurance broker, risk manager among others as provided under section 7810
8 Insurance Regulatory Authority of Uganda, Annual insurance Market Report, 2015 9 Ibid 10 Insurance (Amendment) Act, 2011
3
helps the Authority in exercising effective control and monitoring of insurers'
businesses. This done others; upon such grounds as could have disqualified such
company from being granted a license11• The Authority also effectively ensures
that premium rates, rating scales, commission rates, policies and proposal forms
are reasonable and fair12. It also regulates insurance contracts. The Authority
prohibits insurers from entering into contracts with reinsurance companies that do
not meet reinsurance claims, have doubtful integrity in business dealings or other
reasonable cause. The Authority also scrutinizes contracts and advises insurers to
make modifications in terms and conditions of the contract where necessary or
prohibit the contract if the terms and conditions are not favorable to insurer or are
not in the interest of the economy of Uganda or the insurance industry or are not in
the public interest. 13
The Authority ensures strict compliance with the provisions of the Insurance Act
and, not only to ensure establishment of good standards for the conduct of
insurance and reinsurance business in Uganda14, but also in the interests of all
stakeholders in the Uganda insurance Industty.
Lastly, the Authority's regulation is also ensured under section 53 of the Act15,
which provides for the mandatory preparation and exhibition of life policies,
underwritten; by the insurer, to the Authority 16; at the expiration of each business
year. This makes life underwriting process subject to the sanctions of the Act. 17
Ultimately, this helps not only the Authority but also the general public in making
11 Section 78(1) (a). ibid. 12 Section 35 and section 15(2)(c) and (d) Insurance (Amendment) Act, 2011 13 Section 60 Insurance (Amendment) Act, 2011 14 Section 15, ibid. 15 Insurance (Amendment) Act, 2011 16 Uganda Insurance Commission 17 Insurance (Amendment) Act, 2011
4
a clear definition and distinction of life insurance as well the scope and application
ofthe Act. 18
4.2 Pension and Insurance Authority (Zambia)
In as much as the economy was left to regulate itself through the market forces, the
government was alive to the fact that this would still lead to a state of chaos in that
the insurance industry may fail to produce efficient and effective packages to its
clients due to the anti-competitive behavior that may obtain in the insurance
business if it is not properly supervised and regulated. Regulatory measures were
put in force, these among others being the Pension and Insurance Authority. To
this effects, the PIA operates under the Insurance Ace9and the Pension Scheme
Regulation of 199620•
Before the 2005 amendments to the afore mentioned Acts, the PIA had no express
statute creating it. Initially only the office of the registrar of Pension and Insurance
was created by the Pension Scheme Regulation Act and likewise the functions of
the said office were set out in section 99 of the Insurance Act number 27 of the
1997 Act. The PIA is now established under part 2 of the Pension Scheme
Regulation (Amendment) Act number 27 of 2005. To this effect, section 4 (1)
states that: "there is hereby established the Pension and Insurance Authority which
shall be a body corporate with perpetual succession and a common seal, capable of
suing and of being sued in its corporate name, and with power, subject to the
provisions of this Act, to do all such acts and things as a body corporate may by
law do or perform."21
18 Ibid. 19 Insurance Act (cap 392), Laws of Zambia 20 Insurance (Amendment) Act, 201 I and The Pension Scheme Regulation (Amendment) Act No, 27 of2005 21 The Pension Scheme Regulation (Amendment) Act No, 27 of2005
5
The background to the establishment of the Pension and Insurance Authority (PIA)
was as a result of pressure from the international financial community. This was in
response to the requirement by the World Bank that in order for it to grant the
Zambian govemment the sum of US Dollars 70,000,000,00, it had to establish and
staff the authority by the 281h of February 1997. In this regard, the World Bank
states that it was important to have a regulatory body in the insurance industry so
as" to develop public confidence in these types of institutions. It is essential that
they be carefully and prudently manage and that risk and fraud, theft or others
abuses are minimized through vigorous of a sound and strict regulatory
regime."Hence, the enactment of the Pension Scheme Regulation of 1996 and the
Insurance Act of 1997 respectively. This fueled the establishment of the PIA.22
The amendment having the effect that the functions are now set out under section
5(1) of the Pension Scheme Regulation (Amendment) Act number 27 of 2005.
Consequently, the functions of the Authority are set out as being to:
a) Register and deregister pension scheme in accordance with this Act
and in consultation with the minister responsible for labour and social
security;
b) Register and deregister manager, administrators and custodians and
pensions scheme;
c) Regulate and supervise the establishment and management of
occupational scheme and insurance business;
d) License re-insurers, insurers, insurance brokers, insurance agents, loss
adjusters, claims agents and insurance risk surveyors;
22 Southern Africa Economies Summit paper presented by Mbikusita Lewanika, former director general ofthe Zambia Investment Centre.
6
e) Protect the interests of members and sponsors of occupational scheme,
and of shareholders and policyholders;
f) Administer and manage the fidelity fund established pursuant to
section 109 of the Insurance Act and settle claims against the fund;
g) Fonnulate and enforce standards in the conduct of the business of
insurance with which a member of the insurance industry must
comply;
h) In consultation with the competition commission, formulate and
implement measures calculated to encourage healthy competition and
eliminate unfair practices in the insurance and pension industry;
i) Advise the minister and the minister responsible for labour and social
security in policies relating to the pensions and insurance industries;
j) Advise the Government on adequate insurance protection of national
assets and properties;
k) Implement policies relating to the insurance pensions industries;
1) Promote the development of the insurance and pensions industry;
m) Set and enforce standards for the conduct of the business of insurance
and occupational pension scheme; and
n) Undertake such other activities as are conducive or incidental to the
performance of its functions under the Act.
It is very important to note that in the execution of its functions, the PIA has the
interests of the policyholders at heart. This is all due to the fact that the PIA does
realize and appreciate the fact that insurance business is one of sensitive fmancial
transactions which carry fiduciary connotations. To this effect, section 99 (c ) is
aimed at ensuring that insurance contracts do not contain obscure or ambiguous
statements or terms that are oppressive and alien to the policy holder. Another
7
function important to note is that the PIA makes recommendations to the Minister
on matters affecting the insurance industry. This is vital in that it will ensure that
viable policies and laws will be formulated. Furthermore, the PIA is well verse
with knowledge on the importance of insurance and thus is the perfect body to
advice government as regards protection of national assets. The significance of the
PIA is embodied in its mission statement, which reads;"To regulate the conduct of
the pensions and insurance industry through prudential supervision in order to
protect the interests of the pension's scheme members and insurance policy holders
and foster the industry's growth development and stability."23
To this effect, the PIA is mandated as the sole regulatory body to protect the
interests of the policyholders through the inspection of policy claims. In much the
same spirit, the Authority also addresses and entertains complaints that are
advanced to it against insurance companies?4 This is to ensure that insurance
business keeps and maintains its dignity and lives up to the reasons why it was
developed. This is basically because insurance contracts are based on promises
which need a force of enforceability should the time come. Another mandate is to
nurture the development and operations of the insurance business in light of the
existing market forces by checking on the conduct of the insurance business
players. To further fulfill the mandate of the PIA, the inspectorate division in
performing its monitory role of gathering infonnation directly from the insurance
companies, agents and brokers adding to the direct observance of the their business
operations at their business premises. The organizational chart of the PIA is that
more fundamentally it is run by a board through the Registrar whose office runs
the day-to-day operations of the Authority?5 The board also appoints the
23 The Pension Scheme Regulation (Amendment) Act No, 27 of2005 24 Insurance Act (cap 392), Laws of Zambia 25 Established under section 6(1) of the Pension Regulation (Amendment) Act number 27 of2005
8
Registrar26who is by law subject to the direction of the board in execution of his
duties. The Registrar has two deputies, one in charge of pensions and the other in
charge of insurance. Third on line is the Financial and Administration Manager.
The personnel does not end at this point but rather the line goes on but the above
are the more important and influential in the regulation of insurance business.
Although there is a section that will see the PIA sourcing its own funds for
operation, at present, the PIA does not have its own independent manner of
generating funds. As such it submits its budget to the ministry of Finance, which
then approves them accordingly, and funds the PIA. The supervisory fees are paid
directly to the central government making the allocation to PIA unpredictable and
thus it varies without notice depending on how much is in the government coffers.
This insufficient and erratic funding. Limits the PIAs ability to operate?7
4.3 Inadequacies of the Regulatory of the law
There is a shortage of professionally qualified manpower for more effective,
innovative and modernized management of the insurance industry. Some of the
insurance players are yet to fully computerize their operations28• It has also been
observed that some insurers were undercutting or charging premiums that are far
below the approved minimum rates to attract customers. This results leads to unfair
competition and robs the industry of revenue. Such an unprofessional act of non
compliance with the law affects both insurers and re-insurers and sometimes leads
to companies' inability to pay claims in the wrong run. 29 This is as a result of weak
monitoring mechanisms.
26 Section? (I) ibid. 27 Southern Africa Economies Summit paper presented by Mbikusita Lewanika, former director general of the Zambia Investment Centre. 28 Insurance Regulatory Authority ofU ganda, 2011 '"Mirco-finance Africa, Uganda: New Targets to Drive Growth in Insurance; Daily Monitor, 10 January, 2012
9
Looking at the level of publicity in Uganda there has not been adequate publicity
of the Complaints Bureau referred to under section 15(1) (f)30• Zambia too hasn't
done a very good job at publicizing the industry, most of the publicity that has
been done in this respect has been through the print media31• Upon this findings, it
can be undoubtedly be realized that the publicity given thereto was underestimated
given the number of people that have access to the print media (such as
newspapers), as compared to the electronic media e.g. radios and TVs.32 There is
not enough definition as to what amounts to co-operation as used in section 5633
which is required of the insurance company to be accorded to an inspector from the
Authority. This falls short in its bid to protect the insurance business in that it has
an implication that a person, who may be appointed by the Authority to carry out
such inspection, may claim an insurer's failure to co-operate with him over some
trivial issue that may not even form the fundamental purpose of the inspection.
Execution of the functions named above, by the Insurance Regulatory Authority
has not been easy, according to the Uganda Insurance Commission annual
insurance market report34 the commission was unable to conduct this inspection
due to both financial and personnel constraints.35 It follows that while the
Authority is quite essential in the insurance industry, which is an important earning
sector ofthe country, it is rather absurd that such an institution has to devise means
of earning revenue.36 The above situation qualifies the need for the Authority to be
self-sustaining body, if its objectives are to be achieved.
30 Insurance (Amendment) Act, 20 II 31 Uganda Insurance Commission, Annual Insurance Market report, 200l.p.l5 32 Ibid 33 Section 56 cap 213, (Amendment) Act, 2011 34 Uganda Insurance Commission Annual Insurance Market Report, 1999/2000.p.l 35 Ibid. p.l 36 Ibid. p.l
10
4.4 Measures taken by the Insurance Regulatory bodies to rectify
inadequacies
Despite the above mentioned weaknesses in the Insurance Regulatory Institutions,
the institution has taken the following steps to rectify its weaknesses and ensure
enforcement of regulatory laws. The Insurance Act of Uganda37 has made
tremendous reform in the regulatory body in the following ways; first it has
enhanced professionalism in the insurance sector by requiring all licensed players
to be members of the Insurance Institute of Uganda (IIU) and providing a levy on
the policyholders by the insurers, which is to be remitted to IIU for training and
certification of training programmes.38 The Insurance Act of Uganda has enhanced
the development of the insurance sector in Uganda by increasing the available to
an insurer from 10% to 15% of the security deposit, where the insurer suffers a
substantial loss from liability to claimants which cannot be met from the resources
of the insurer39• The Act provides for a Policyholders' Compensation Fund to be
used to compensate the policyholders of an insolvent insurer. 40
4.5 The Role of Agents and Brokers in Insurance Business
In today's business transactions, and in consideration of the time factor and with
the emergence of the specialization it is not a wonder that people in the business
world and other fraternities engage other people to transact on their behalf. These
other people are generally referred to as agents and in the insurance business, there
are others known as brokers by virtue of the business they are engaged in. In this
discussion, insurance agents will be looked at in light of them either representing
the insured or the insurer as the case may be. The general rules of agency law
37 Insurance (Amendment)Act, 2011 38 Insurance Institute of Uganda: Overview of the Insurance Industry, 2011 39 Insurance Regulatory Authority, Annual Market Report, 2010 40 Ibid.
11
apply to the agents in insurance business. In this regard, the agent either has
express authority or implied authority to act on behalf of the principal and as such
enter into binding contracts with third parties and legally bind the principal to the
contract so entered into. The express authority is that which the agent gets from the
principal either orally or in writing while implied authority is that which the agent
is expected to have and which the exercise of it is incidental to the authority given.
Fmthermore, it is said to be that which the third party may reasonably imply as
being the agent's authority.41
A broker is defined as, a person who on behalf of an insured person or a person
who intends to take up an insurance policy, arrange insurance policies42• To this
effect, a broker is for all intents and purposes, an agent of the insured. This makes
the brokers position in insurance somewhat peculiar. This means that the brokers'
position in insurance and who ultimately approaches a broker relies on the
knowledge and judgment of the broker in concluding a contract of insurance on
their behalf. As such, with the protection of the innocent insured on the minds of
the lawmakers, they have put in places regulatory safeguards and guidelines of
insurance brokerage business. In so doing, section 20 of the Act43 forbids a broker
from carrying out any business other than brokerage business. But if they so wish,
they must apply to the Registrar for grant of permission to do so with the caveat
that such other business must be ancillary to the insurance brokerage business. The
primary method of regulation is essentially licensing. The Act thus provides that a
person who holds out as being licensed as a broker when in actual fact is not, will
on conviction be liable to a fine not exceeding twenty thousand penalty units or to
41Mandic, RK, Feldman, R, Graven, The Role of Agents and Brokers in the market for Health Insurance. P. 1" edition December, 2013 42Insurance (Amendment) Act No, 26 of2005 43Section 20 of the Insurance (Amendment) Act No, 26 of2005
12
imprisonment for a period not exceeding two years, or both.44 To ensure that the
vice of holding out as licensed broker or agent is taken seriously and avoided at all
costs, the Act also put the insurer on its guard by providing that an insurer who
accepts and does business with an unlicensed agent shall on conviction be guilty of
an offence and shall be liable, on conviction, to a fine not exceeding thirty
thousand penalty units. 45
44 Ibid 45 Section 23ofthe Insurance (Amendment) Act No, 26 of2005
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5.1 Summary
CHAPTER FIVE
CONCLUSION
The study reveals that to a great extent, there exist contain similarities in the legal
frameworks of Uganda and Zambia on the subject of insurance law but most
particularly, in the regulatory approaches of both jurisdictions. This includes
among others the establishment of regulatory institutions to oversee the proper
functioning and operating of the insurance industry. However, there are some
noticeable divergences in the extent legal frameworks of both countries. A typical
example here is the modes of finding of the regulatory bodies of both countries. In
Uganda, the IRA is empowered by the law to retain regulatory fees as part of its
internally generated revenue, whereas in Zambia, such fees and remitted to the
central government account. This has created the problem of underfunding which
to a large have negatively affected the PIA in carrying out its statutory mandate.
The study has shown that the laws governing insurance in Uganda and Zambia are
not central to claim settlement, however the Insurance Regulatory Authority has
issued guidelines to insurers. In addition they have embarked on educating
policyholders on timely reporting and documentation of claims in order to enable
to faster claim settlements. To further handle claims the Authority has a complaint
bureau which acts as a court of first instance, it allows both the insured and insurer
to bring forth there complaint and the bureau handles them. In the case that the
bureau fails then the parties can seek remedy in the courts of law. The study
reveals that there is a high growth rate of fraudulent claims in the insurance
industry. This is therefore affecting many insurance companies. The law regulating
the insurance industry provides for legal action against the insurer in case they
1
don't comply or take advantage of policy holders. However, the current law does
not provide for legal action against policyholders and counterparties who defraud
the insurers which therefore becomes a challenge.
5.2 Recommendations
Despite the fact that many insurance companies are satisfied with service levels for
their policyholders, there is still room for improvement. The study has therefore
come up with the following recommendations in line with the findings:
(a) Increase claims settlement limits for branch and district offices
This would work for the benefit of the policyholder by reducing the lead time from
claim notification to claim settlement. It would remove the bureaucracy whereby
the branch or district office has to notifY the head office to settle the claim on
behalf of the branch or district office. The process of branch and head office
information interchange is usually slow, making policyholders wait longer than
they would have to if the processing for the claim was done at the branch or district
office only. This waiting time by customers could be improved if the clients'
information was kept electronically and was readily exchangeable between the
branch office and the head office. An altemative approach would therefore be
maintaining the claim limits for branch and district offices but improving on
information processing to reduce waiting period to ensure restitution takes place
quickly that way, avoiding inconveniencing the policyholder who is in need of
urgent restitution.
(b)Need for continuous upgrading of infrastructure and computerization
The Insurance Regulatory Authority of Uganda and the Pensions and Insurance
Authority of Zambia should embrace information technology in monitoring and
regulating the insurance industry. On this point the following needs to be done:
2
(i) The Insurance Regulatory Authority of Uganda and the Pensions and
Insurance Authority of Zambia need to upgrade its internet websites, and
preferably set it up as in insurance portal through which insurance
companies and members of the public can have access to detailed
infmmation regarding the Uganda and Zambia insurance industries.
(ii) All the insurance companies operating in Uganda and Zambia should be
prevailed upon to implement enterprise wide infmmation systems
capable of automating the claims. Underwriting, reinsurance and finance
functions. This research has established that lack of information systems
in insurance companies can lead to fraud and risks of mistaking
policyholder benefits. The Authorities should therefore issue prudential
guidelines to the insurance companies to ensure full automation.
(c) There is need for insurers' service representatives to explain technical
terms to customers who may not understand the language on proposal
forms
There is a tendency to take it for granted that customers thoroughly understand the
policy form. A number of policyholders who find language forms to be highly
technical would appreciate sale representatives taking time in explaining the
technical language on the forms.
(D) Need to set up an inspectorate department
This is to monitor and follow insurance transactions particularly claims settlement
to ensure claims are settled within the official 21days period. This unit would be
used to check variances from the normal and ultimately putting in measures for
reducing incidences of adverse variances.
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With the above recommendations, it is imperative, at this stage that the law
regarding insurance in Uganda and Zambia be developed to suit the current
developments and advancements in society, especially within the area of
technology and other fields, for instance, there should be an enactment to expressly
regulate micro-insurance in Uganda and Zambia. It is when the proper regulations
are in place that the insurance companies will adjust to micro-insurance on a large
scale comfortably.
4
REFERENCE
Books
1. Cockerel, H. (1976) Insurance. London. Arrowsmith Limited.
2. Colinvaux' slaw of insurance, sweet & Maxwell 7th
3. Creswell, J. (2003). Research design: Qualitative, qualitative and mixed method
approaches.
4. Dr. Lael Brainard, what is the Role of Insurance in Economic Development.
2008
5. Ed. John birds, Birds Modern Insurance Law, 81h
6.Eschbom, Regulation and supervision of micro insurance, 2004.
7.Harold Ingrams; "Uganda; A crisis of Nationhood". Her Majesty's Stationery
Office. 1960
8. Herman, J. (2002). Making collaborative commerce happen. Retrieved from
http://portal.acm.org/citation.cfm?id=1225318.1225711.
9. Halsbwy Laws, Insurance, vol.20 1998.Reissue
10. Hardy Ivamy, Case Book on Insurance Law, 4th. 1984
1l.Hodgin, R. Insurance Law, text and materials. 2ND (2002) published in Great
Britain
12. Kaunda, K.D. (1979). Humanism in Zambia- A Guide to its Implementation.
Zambia. Government Printers.
13. MacGillivary, Insurance law, 9 nd 1989, London
14. Moller T and Steffensen M, market- Valuation Methods in Life and Pension
Insurance. 2007 Cambridge university press.
15.Professional programme. Insurance law and Practice. The institute of
Company Secretaries ofindia, printed at Tan Prints/July, 2014
16. Roberts, A. A History of Zambia. ( 197 6) London
17.Smith, k and Dennis, k. Essential ofMerchantile Law. (1965) London.
5
18. Taylor, L. M. Administration m Zambia, London. (1980) Manchester
University Press.
19.Vaughan, E.J. Risk Management, (1997) New York: Wiley.
REPORTS AND JOURNALS
1. Asian Development Bank. (2000). Country Review of the People's Republic
of china Insmance Regulatory Commission (CIRC). Retrieved June, 2012
fromwww.adb.org/Documents/studies/PRC Insurance/ attachments. pdf.
2. IMF code of Good Practice on the Transparency in the Monetary and
financial Policies. Declaration of Principles. July 2000
3. Insurance Information Institute. (2008). Compulsory auto/ uninsured
motorists,Retrievedfromhttp:/ /viww. i ii.org/media/hottopices/insurance/ comp
ulmy
4. Insurance Regulatory Authority, Annual Market Report, 2010
5. Insurance Regulatory Authority, Annual Market Report, 2015
6. Pension and Insmance Authority, Annual Report, 2006
7. Report of the committee on Economic Affairs and Labour on the Insurance
(Amendment) bill, N.A.B 20 of the fourth session ofthe national Assembly
Appointed on the 21 51 of January, 2005
8. The Insurance Regulatory Authority, Roles, 2012
9. Uganda Insmance Commission Annual Insurance Market Report, 2000.
PAPERS AND OTHERS
1. Dickson, P.G.M. (1960). The Sun Insurance Office 1710-1960; the history
of two and half centuries of British. London: Oxford University Press.
Pp.324
2. List oflicensed Insurance Entities 2006 obtained from PIA
6
3. Mirco-finance Africa, Uganda: New Targets to Drive Growth in Insurance:
Daily monitor, 10/01/2012
4. Mr. Fola Daniels paper, Insurance Regulation in the African Environment:
commissioner for Insurance, Nigeria National Insurance Commission.
5. Presentation by Mbikusita Lewanika, former Director General of the Zambia
Investment center to the southern Africa Economies Summit.
6. The Daily Hansard dated the 14th of December, 1967
7. The New Vision: Challenges Faced by the Insurance Industry, July 13, 2013
8. The President's speech on economic reforms at Mulungushi. 9th April 1968
published by Government Printers.
7
APPENDICES
APPENDIX 1: QUESTIONAIRE
Kampala International University
School of law
COMPARATIVE ANALYSIS OF CLAIMS SETTLEMENT OPERATIONS
UNDER INSURANCE LAW: UGANDA AND ZAMBIA IN PERSPECTIVE
Questionnaire
1. (a) Where there any forms of Insurance practiced before colonialism in
Uganda ... ?
(b) If so, is it possible that they had laws governing them?
2. How did they economic war declaration of 1970s- 1980s affect the growth
of Insurance in Uganda? (documents if available)
3. How did the devaluation of the Ugandan cmTency affect the msurance
industry?
4. How does the Insurance Act deal with the question of the claims
settlements? (Documents if available).
5. Is the Uganda legal framework on insurance law effective in regulating
claims settlement and the insurance industry? (documents if available)
8
6. What measures should be undertaken to improve claims settlements m
Uganda?
7. What are the challenges facing the insurance industry and the law regulating
it in Uganda in tenus of claims settlements? (the two separate please)
8. How does Uganda compare to Zambia in terms of the laws implementing
claims settlements and claims settlements in general? (documents if any)
9
APPENDIX 2: THE INTERVIEW GUIDE
Kampala International University
School of law
COMPARATIVE ANALYSIS OF CLAIMS SETTLEMENT OPERATIONS
UNDER INSURANCE LAW: UGANDA AND ZAMBIA IN PERSPECTIVE
Interview Topics
1. History of insurance and insurance law in Uganda (pre-colonialism to date)
2. Development ofthe insurance industry in Uganda.
3. A comparison of Uganda and Zambia Insurance law on claims settlements.
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