'Insurance Ombudsman's institution plays an increasingly important role in improving public administration'

Muhammad Raeesuddin Paracha is the Federal Insurance Ombudsman, appointed in November, 2015. He has over 35 years of administrative experience at various key federal and provincial assignments. Since his appointment as FIO, he has embarked on a mission to create awareness about the institution. Business Recorder recently met Paracha to discuss the potential of the institution.
Business Recorder: How did the institution of mohtasib come into being and how has the journey been so far?
Raeesuddin Paracha: Institution of Ombudsman first established in Sweden in 18th century by Swedish King, Charles XII when he was in exile in Turkey and needed a representative in Sweden to ensure that judges and civil servants acted in accordance with the law. Later the institution of the ombudsman was firmly incorporated into the Swedish constitution from 1809. It proved successful and today such an institution is found in 110 countries of the world and some of which also have regional and provincial ombudsmen. The institution of ombudsman enjoyed its greatest popularity in nineteen sixties, when it was established on a mass scale by the Commonwealth countries and by other, mainly European countries. In only 1983 approximately 21 countries had the institution of ombudsman on the national level, and 6 had the institution on the provincial/state or regional level.
The role of the ombudsman is to protect the people against violation of rights, abuse of powers, unfair decisions and maladministration. Ombudsman institutions play an increasingly important role in improving public administration while making the government's actions more open and its administration more accountable to the public. Besides; provision of speedy justice without any cost to general public popularised the institution of Ombudsman in comparison to the regular judicial system where time and cost are the major bottlenecks for people.
The institutions of other Ombudsmen were later created in Pakistan, including Insurance, Banking, Tax etc to deal with problems of general public in relevant areas. In early nineties, private sector life insurance companies were allowed to operate in Pakistan; hence many new insurance companies were established or started by the general insurers, which resulted in widespread insurance activities in the Country. With emergence of insurance business on mass scale required relevant legislation to organise the functioning of insurance industry as well as legal forums to deal with problems of their clientele and hence the institution of Federal Insurance Ombudsman was established in 2006 by virtue of the Insurance Ordinance 2000.
The institution of Federal Insurance Ombudsman (FIO) offers policyholders or their beneficiaries a speedy and cost-free way in resolving their grievances having with the private sector insurance companies. The institution is dealing with variety of complaints pertaining to genera insurance including marine, property, motor vehicle insurance, and life including individual, group and health insurance etc and have disposed off thousands of complaints ever since its establishment without putting any cost on the Complainants or insurers. In recent days, insurance is pretty widespread now and involved in every sector of life from a farmer to an exporter who has to get insured crops, cattle to property, business, products, life and health to avoid potential risks involved. Insurance is mandatory these days for the employers to get their employees, for loanees to get their lives or for businessmen to get their businesses and properties insured. But on the other hand, no institution in the Country including the law colleges or universities offer courses relating to insurance business or litigation, which leaves the gullible clients in the hands of sellers who foul play while selling the insurance products. And when it comes to claims, the insurers do not disburse easily and reject claims by mitigating terms and conditions of their policies, which are usually not understandable for the policyholders due to lack of education or misrepresentation of the insurance agents.
BR: What are the major reported grounds of claim rejection under insurance policies?
RP: Claim repudiation/rejection in life insurance is non-disclosure or concealment of material fact at the time of policy issuance and in general insurance it goes to non-compliance of policy terms or warranties. The insurance is a contract of indemnity and based on utmost good faith and the insurers while dealing with the claims under individual life take advantage of this principal and repudiate claims on the grounds of non-disclosure or concealment of facts regarding health conditions. Some time insures go too far in dealing the claims under individual life and repudiate on the basis of hypertension, seasonal ailments or smoking habits, which a policyholder failed to mention in application forms, which are usually filled by their sales agents. Under general insurer it goes to warranties and terms of insurance policies, which are usually issued by the insurers without fulfilment of their obligations. For instance under a motor vehicle insurance, insurers do not verify ownership or other relevant documents prior to issuance of the insurance policies or issue polices without creating insurable interest of the policyholder but at the time of claim they asked to provide every single paper of the world from claimants to justify their claim. Hence, this institution came into being for speedy resolution of such grievances and we try to come to decision within 60 days from lodging a complaint. Such a feat is impossible at any other forum under the current judicial system of the Country in which a lengthy procedure of filing of cases and recording evidences is required to reach to a conclusion and that also cost the claimants and the insurers in terms of money and time.
BR: Out of the rejected claims, how many are reported to the FIO?
RP: Well it can surely be termed as our biggest dilemma - lack of awareness about this institution makes it difficult for general public to come to a proper forum. In our society, where most of the people are uneducated do not know about their rights, hence some of which who afford lawyers' fee go to them to take up their matter in courts and those who do not afford lawyers give up their rights. According to a study, 20,000-25,000 claims are rejected by the insurance industry each year but hardly 10 to 15 percent of those cases come to this forum, while some prefer other channels and remaining are unaware of their right to challenge the arbitrary decisions of the insurance companies. However, we are trying to educate public regarding this issue through publishing in news papers and by using some other ways to send a message that their rights are not unprotected anymore.
People often forget the fact that insurance companies are there to make profit and hence overstep at times to save themselves from paying claims. In the concealment patterns, we have observed that the insured party usually doesn't have a part in filling the insurance form. Agents often take the signature from potential clients on blank forms and fill in the details later. Being a contract of good faith medical examination (in life insurance policies) is discretion of insurers who conduct medical examination prior to policy issuance under high risk policies. And then information given in application forms is made the reason for non-disclosure or concealment at the time of the claim because the form is signed by the policyholders but in actually a very small percentage of policyholders fill the form themselves.
BR: What precautions would you suggest the policyholders?
RP: Primarily, the form should be filled carefully, especially the medical section by declaring every detail pertaining to health conditions or medical history. More importantly the terms and conditions should be read very carefully and consult friends and family members in case the terms are not understandable. The policyholder should make sure that after getting an insurance policy, premiums are being paid in time and on regular basis because non-payment of premiums results in policy lapse hence termination of risk coverage or total loss of paid amount. We see this particularly in bancassurance-a very effective distribution channel for insurers to sell their products through banks to their worthy customers. In bancassurance, the bank associates indulge in aggressive sales of life insurance to unsuspecting captive clients without explaining the nuances and non-apparent implications of the insurance policy. Their interest is only to close the deal of 'offer and acceptance' and make their part of commission to achieve their financial targets in first year but when it comes to next year they do not bother that the premium has been paid or not. The insurers later refuse to entertain the claims on the ground that the premiums were not paid and hence there was no risk cover. We have dealt with some claims where the policyholder authorised banks to deduct premiums from their accounts but the banks despite having funds in relevant accounts failed to do so but the insurers refused to entertain the claims on the account that policyholder failed to pay premiums. Therefore, the policyholder should be vigilant by providing correct information and going through the form with due care while getting the insurance but also during the currency of insurance policy by paying regular premiums and by keep getting updates of its status with regular intervals.
BR: Could you share some examples of cases settled by your institution?
RP: There are many cases of different nature under different areas and amounts involved which can be shared and as I have told earlier that we have dealt with hundreds of complaints but would like to share some interesting cases of recent past. In a case, where insurance company was denying payment of a claim worth of more than Rs 45 million under a marine cargo insurance policy for last three years. After hearing of the complaint, the insurance company settled the issue with the claimant/complainant by paying them Rs 30 million due to intervention of this Secretariat. In another instance, a chemical warehouse in Lahore claimed robbery of goods worth Rs 30 million between Friday and Monday that when their staff came on Monday, they discovered broken locks and the warehouse was emptied. The insurance company rejected the claim on the ground that the policyholder did not comply with the terms and conditions of the policy by having an armed guard for 24 hours at insured property. It was revealed that in fact there was no armed guard on the insured premises and the stock of Rs 30 million worth was unattended at the time of alleged robbery. Besides; the claimant could not establish his claim by documentary evidence showing that there was any stock worth of Rs 30 million in the warehouse and hence the decision went in favour of the insurance company. Likewise, in a case of theft of motorcycle, the insurance company rejected the claim on the ground that the owner of insured motorcycle did not have a valid driving license, which was a mandatory requirement for claim payment. The insurance company admitted that they do not call valid driving license at the time of issuance of the policy because they believe that a person having a motorcycle should have a valid driving license, hence they issued policy in good faith. The loss was established and admitted but the insurance company was trying to avoid claim on term which they had waived at the time of issuance of the policy and hence directed to pay the claim.
The majority of cases come to this forum under life insurance policies where insurance companies repudiate claims on the grounds of non-disclosure or concealment of facts without substantiating their decisions with any plausible evidence. In an instance the insurance company was denying payment on the ground that the claimant failed to provide a statement of treating doctor from abroad where her husband died during his job. The claimant had provided every other document, including death certificate issued for the country of work, union council death certificate, dead body transportation bills and certificates etc but could not provide a statement from the doctor who treated the policyholder at the time of his death, the insurance company was directed to settle the claim.
BR: Which insurance sector accounts for the most reported complaints?
RP: Well as said earlier that we have more complaints from the life insurance sector than from general insurance. The reason can be given that in life insurance, the claimants are less privileged people who do not afford personal attorneys to look after their daily affairs. In contrast, in contract in general insurance the contract is between two companies having their in house attorneys/law offices who take up matter on other forums like courts. The claimants under life insurance after hearing that there is a forum where they can fight for their rights without any cost or legal complication, file their complaint with us. The main challenge for us as an institution is the lack of awareness but the number of complaints in all sectors of insurance is significantly growing.
BR: Can you tell briefly about the procedure of filing a complaint on this Forum for our readers?
RP: There is only two steps procedure to file a complaint before this Forum. Policyholder or claimants who think they are being mistreated by insurance companies; firstly send their insurance company a grievance notice that their grievance be settled in 30 days. In case the insurance company does not resolve their grievance in 30 days they can approach us by just writing their complaint on a piece of paper (in Urdu or English) and attaching a copy of their insurance policy and other available record relevant to their complaint. They can also lodge a complaint through our website http://www.fio.gov.pk and our staff will assist them vigilantly without any charges. We promise free service and a decision on their complaint within 60 days.