A POOR credit culture is what characterises the Zambian society, it is reported. This means many people find it hard to pay their debts both at individual and corporate levels.
There is a high impetus to borrow or people resort to living on credit. It is common to find some with three to five loans from different institutions, especially with the springing up of several micro-finance companies.
As observed by Chika Onyeani in his famous book, Capitalist Nigger, as Africans we are preoccupied with consumption instead of production.
When one buys a car it is common for them to beautify it such as buying magrims or a big car stereo instead of buying insurance first so as to protect themselves against risks.
While 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.
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 is simply the transfer of risk to the insurance company at a consideration known as premium.
This perception is what needs to be changed and sometimes the law helps us in a way.
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 policyholders.
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
1. 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.
2. 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.
3. 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 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 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.com or on facebook search for Insurance Talk-Zambia page or call/text 0977 857 055
*The author is a chartered insurer with 10 years industry experience