The Financial Services Commission (FSC) has indicated that it is open to discussion regarding the continuation of insurance premium insurance financing (IPF).

The issue was brought to the fore by Managing Director at British Caribbean Insurance Company (BCIC), Peter Levy, on Taking Stock with Kalilah Reynolds recently. 

Levy had indicated that the FSC was intending to ban IPF, which allows insurance companies to offer a loan to policyholders to pay their premiums.  The policyholder then repays the insurance company in monthly installments with interest.

According to Levy, a ban on IPF would affect thousands of people who are unable to afford the full cost of the premium up front.

However the regulator’s Director of Insurance, Raymond Knight, sought to clarify their position on the most recent episode of the show. 

“In no way is a ban imminent,” said Knight. 

However, Knight indicated that the FSC was concerned about a potential conflict of interest for insurance companies and intermediaries who were offering the insurance coverage to the policyholders on the one hand, and a loan with interest payments to pay off said coverage on the other.

Director of Insurance, Financial Services Commission (FSC), Raymond Knight.

“This was just one of 12 areas that we raised [in our concept paper issued to the insurance industry last August] and it got the attention of a particular company…Where the conflict arose in our mind is that they seemed to be separate contracts,” he said.

Knight also pointed to complaints from the public regarding a practice that appeared to

infringe on the policyholder’s right to full disclosure. Specifically, he said there was a provision which allowed the termination of the policyholder’s insurance contract without the policyholder’s knowledge, if the policyholder is in default regarding payment on the premium financing contract. This practice would occur even with the premiums being fully paid up to date through premium financing.

He said while a similar practice of termination on default loans can be seen in other financial institutions such as banks, adequate notice or forewarning usually precedes the action.

“So it’s the notice, no matter who is offering the loan, that we were concerned about. If you had gone to an independent person and asked to borrow some money in relation to that, the issue would still arise if there was no notice,” he said.

Knight said the situation also presented an opportunity for companies to capitalise further on clients.

“If someone is offering a loan that’s a little more than what is needed by the policyholder there would be a possible incentive for the insurance company to offer a higher premium because it carries a higher premium financing opportunity to earn for the company,” he said. 

As a result of concerns also raised by members of the insurance industry regarding the concept paper, Knight said the FSC has put a stop order on its proposal and has committed to reviewing their position.

At the same time, he said the absence of controls to support insurance companies and intermediaries offering premium financing will influence increased misconduct in the marketplace. 

He said the regulator will be insisting on adequate disclosures going forward as part of the solution to mitigating the concerns, even as it continues its review.

He said the goal would be to craft a set of guidelines in consultation with the interested parties to ensure fair conduct to customers while still allowing the insurance companies and intermediaries to offer premium financing.

“It hasn’t gone on deaf ears that there are ways and means of mitigating the conflict but we have to examine critically how that mitigation could be done. We looked at other jurisdictions and saw that there were significant disclosure requirements and that there were more than one regulator involved in the oversight of this activity when it was allowed for insurance entities [and intermediaries] to offer premium financing,” he said. 

“We would have to look at those rules and see how we could apply them and if the necessary infrastructure exists in Jamaica to support that,” he added.

New episodes of Taking Stock with Kalilah Reynolds premiere Tuesdays at 8pm on YouTube and kalilahreynolds.com

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