Discharge vouchers as certainties

For an insurance broker, one of the things that give you job satisfaction is getting a call from your client a few days after executing a discharge voucher that he has received his cheque or his account has been credited. It is so fulfilling. Sometimes, some of such happy clients become your best marketers. Discharge voucher is the last stage you get to before a claim is paid. Usually when an incident that is likely going to lead to a claim occurs, the policy holder should notify his broker as soon as possible (or notify the insurance company directly if he does not have a broker). The insurance broker will in turn notify the insurance company. The insurance company will forward a claims form which the broker will guide the policy holder to complete or complete on behalf of the policy holder. Together with supporting documents, the completed form is returned to the insurance company. If the insurance company is satisfied with the information and documents provided, it will go ahead and process the claim. Where it needs to carry out further investigation, it will do so either to confirm the genuineness of the claim or the estimates the broker/policy holder has submitted. In large or/and highly technical claims an adjuster is appointed to investigate and advise on the proper offer to make to the policy holder.

Disputes might arise, but after all parties have come to an agreement on the offer, a formal offer document is sent to the policy holder to complete. That document is what we referred to earlier as discharge voucher. It simple language, it is a document where the insurance company accepts liability for the amount stated in the DV. In the discharge voucher, the insurance company will input the claims number, the policy number, date the DV was issued, name of policy holder, the agreed sum of the claim in words and figures and a declaration. The only blank spaces are left for policy holder to fill in his personal and account details and signature. Blank spaces are also left for a witness’ details. The point I am making here is that DV is freely issued by insurance companies after they have reached an agreement with the policy holder. In some climes like India, there is even room for a policy holder to go to court to plead that he was coerced into signing the DV and getting his claim. If he has a strong case he can get more compensation from the insurance company. But in Nigeria, the policy holder signs a declaration discharging the insurance company from further obligations.

Once he executes a DV, a policy holder is supposed to go to sleep because his claim ought to be paid within a reasonable time, usually between two days to two weeks. Such prompt settlement of claims boosts confidence of the insuring public and enhances the image of the insurance industry. Insurance is a promise to provide certain reliefs on the occurrence of certain events. Take away claims payment from insurance and there is nothing left, not even carcass. Prompt payment of claims also helps brokers to get referrals from satisfied clients. It also leads to repeat business and more patronage from existing clients. It is therefore very unsettling for an insurance broker and his client if payment of a claim is unnecessarily delayed. Unfortunately, in the last few years a few insurance companies have fallen behind in paying their claims after issuing discharge vouchers. One month delay can be tolerated, but some of these delays are inexplicable and inexcusable. I just helped a client to get payment for a discharge voucher that was issued in 2017! I am on another case where the discharge voucher was issued in December 2018. These situations are not good enough for the insurance industry.

In the ‘90s, while I was on the underwriters’ side of the insurance industry, I ignorantly flowed with the argument that a strong capital base is good, but treaty capacity* could help insurance companies with low capital base to meet up with their obligations. Not anymore; underwriters are risk bearers, so they need a strong capital base; they need to be very liquid to meet their obligations promptly. That is why I am in support of the recent directive of the National Insurance Commission (NAICOM) for underwriting firms to increase their capital base. In addition, I am in support of the stand of NAICOM that buildings will not form part of the recapitalisation requirements for underwriting companies. What underwriting firms need is cash; enough money to meet their claims obligations promptly, money to deploy technology to improve their operations and money to train their staff. Fixed assets cannot do these for you. Those companies that have buildings and other fixed assets should sell them, collect the cash and use it for their recapitalisation. A strong capital base, where much of the capital is in fixed assets (buildings and other landed property) is not good enough.

We must weed out underwriting firms that cannot meet their obligations. Even if there are only two insurance companies falling behind in meeting their claims obligations, it rubs off negatively on the entire industry. Here, our case is that of justice delayed is justice denied, as far as delay in payment of claims is concerned.

The insurance industry already has more than enough issues on its plate. After 58 years as an independent nation, the industry’s annual gross premium is still less than N0.5b, insurance penetration is less than 1%, the industry contributes less than 1% to our national gross domestic product, we are peripheral players in the financial sector and in financial inclusion. There are many other minuses. Let us sort out those issues that are within our control. The giant has slept for too long, it is time it woke up.

*I am not trying to diminish the importance of treaty capacity. Reinsurance helps insurance companies to punch far above their weight. But it is good that insurance companies have strong capital base and good fundamentals. That way, they can retain a reasonable portion of the risks they assume before ceding risks above its retention to reinsurers. Most of these reinsurers are outside our shores, so when insurance companies retain very little and cede the rest of the risk, it goes with premium and the inevitable capital flight. If an insurer focuses on the little commissions it earns on these businesses it cedes, it unwittingly turns itself into a broker rather than the risk bearer that is.