A POOR credit culture is what characterises the Zambian society. This means that many people find it very hard to pay their debts.
There is a high impetus to borrow or people literally live on credits.
It is common to find people with three to five loans, especially with the springing up of several micro-finance companies.
This poor credit culture spans across industries. With insurance currently considered by many into the third or fourth tier of needs, it is rarely a priority when it comes to paying premiums principally to the less informed.
In reality, I have seen people who buy insurance on credit not because they cannot afford to pay cash but because of their perception or attitude towards it.
They tend to think of insurance as an investment!
Well, investment has its place in long term insurance but in general insurance it is simply the transfer of risk to the insurance company at a consideration known as premium.
On September 11, 2013, the Pensions and Insurance Authority (PIA) issued a public notice on the National Insurance Credit Standard which I will quote in part;
“The Pensions and Insurance Authority has noted, with concern, the tendency by some insurance policy holders, to default on the payment of insurance premiums.
“As part of the measures to deal with this situation, the Authority formulated standards to govern the provision of credit to policy holders. The following standards were issued by the Authority pursuant to the powers contained in section 5 (1)(g) of the Pension Scheme. Regulation Act, Cap. 255 and took effect on November 1, 2009.
Guidelines
•A contract of insurance shall cease to operate if premium is not paid within 30 days after the due date of premium, or such period as the contract will stipulate. The due date shall be the commencement of cover or the date stipulated in the contract of insurance.
• Where the business is placed through a broker, that broker shall remit the received premium to the insurer not later than the 30th day after the period within which the premium fell due.
• It is warranted that the premium shall be paid within 30 days from inception or renewal date of the policy. Where a premium installment plan agreement has been entered into between an insurer and insured, the terms and provisions of that installment plan shall take precedence.
In the event that this warranty is not complied with, the policy will automatically lapse from the date of the stated period. When the policy so lapses, any claim arising during the period of lapsation shall not be admissible even upon revival of policy.
The policy may be revived at any time within 30 days from the date of lapsation upon payment of the full premium.
The policy shall be reinstated with effect from the date of payment….”
From this notice the message is clear from the regulator on the timelines for paying premiums. The due date for premiums is the inception date of the policy meaning premiums should either be paid upfront on at inception. When premiums are paid on time it helps insurers create that much needed fund so that claims can be duly honoured as they come in.
Sometimes I get amazed by clients who do not pay their premiums on time but expect their claims to be paid.
Further they go to an extent pushing for their premiums to be offset against their claims; this is not a good practice and it is not insurance.
There are of course circumstances that may justify the offsetting of premiums from claims but by and large premiums should be paid before a loss occurs unless there is a premium payment plan in place.
The PIA public notice also made it clear to intermediaries that remittance of premiums should be made not later than 30 days upon receipt from the client.
Comments:webster@picz.co.zm or webster_tj@hotmail or facebook search for Insurance Talk-Zambia page or 0977857055
(The author is a Chartered Insurer with ten years industry experience)