QUESTION

Business Law Report

Topic: CONSUMER PROTECTION ACT.

The assignment structure should be as follows:

Introduction

Outline the purpose of the report and the area of law selected and briefly state how you conducted the research e.g. – by accessing textbooks / legislation / case law etc.

Findings

1. Briefly summarise the main points of law which you have researched- you should include here citation of some case law and/ or legislation.
2. Explain how the law has impacted on   – or will impact business (you may consider the impact on business generally or select one type of business to consider (e.g. impact of defamation on the Media industry)

Based on your research assess the implications of the law for business operations.

1. 3.     How it effects the business
2. 4.     What it means for business
3. 5.     How it applies in business

SOLUTION

1.     Introduction

This business law report highlights the “Sec.2. Consumer protection Act 1988” that is the product liability section.  The purpose of this report is to analyze the impact of product liability law on the insurance industry. A defective product is the one which does not satisfy the reasonable expectations of the customer developed on the basis of commercial commitments in the form of marketing communication. The safety of the product cannot exceed the minimum and reasonable expectations of the customer because that will lead to curbed practices in innovation. The safety of the product also cannot be to an extent that it makes the consumer impossible to use the product for any beneficial purpose.

The following resources have been researched for completing this report:

• Bakker, M. R. and A. Gros (2004). Development of Non-bank Financial Institutions and Capital Markets in European Union Accession Countries, World Bank Working Paper
• UK FSA—Reforming Conduct of Business regulation, Oct 2006

UK Parliamentary and Health Services Ombudsman- Equitable Life: A

Decade of Regulatory Failure, July 2008

• Submissions by the Australian Law Reform Commission to the Department
• of Treasury Review of the Insurance Contracts Act 1984 (Cth)

Tarr, A. Insurance Law and the Consumer, Bond University Law

Review, Vol 1. 1989

Table 1: Implementation of the Consumer Protection Act 1987

2.     Findings

a)     Summary of main points of law

• Salient features of Section 2, Product Liability, Consumer Protection Law

i.          Any goods that are sold in the market for a price can be considered a product

ii.          Accessories/Parts required to manufacture the finished product can also be categorized as products but they are not covered for risk of damage.

iii.          Under (S.7) product liability is a no-fault liability which means that the consumer is not required to prove to the court that the manufacturer has provided a faulty product. The manufacturer can be sued and compensation can be claimed in any case.

iv.          Under (S.5) damage includes not only property damage but also personal injury and Death.

v.          Property damage specifically includes private property used by its owner for a specific beneficial purpose.

vi.          The parties liable to their consumers are Manufacturers, Own-branders, and Importers.

(ETS No.108, the 28 January 1981, Entry into force: 1.10.1985)

b)     Explanation of how the law has impacted business or will impact business

To analyze the importance of Product Liability Law, let us see the impact of the liability statute under section 2, consumer protection law on the Life Insurance Industry –

i.          Life insurance is a business of risk management. Life insurers manage risks of and indemnify the customer claim when those risks actually occur in the lives of their customers.

ii.          Customers pay a premium to the insurance company on a quarterly/semi-annually/annual basis.

iii.          Most commonly covered life insurance risks are retirement, loss of income due to old age and risk of bread-winner’s death.

iv.          The insurance company covers these risks under a certain life insurance product and promise to indemnify the customer, in case of financial hardships.

v.          The customer pays the premium year-on-year and expects the insurance company to address their loss which is covered under the life insurance policy.

vi.          The consumer protection act allows the government to verify and implement certain mechanism by way of which the behavior of insurance companies towards their customers can be monitored.

                      vii.          Some of these mechanisms are as mentioned below:

ü  Insurance Ombudsman

Insurance Ombudsman is a dispute resolution mechanism that helps the customers to record their grievances against the non-payment of genuine claims by the insurance company.

ü  Internal Dispute Settlement

This is a system of Arbitration that allows the insurance companies to resolve their disputes with the third party involved in the customer claim situation. The parties involved are the customer, the third party and the insurance company. This scenario is common during claim-settlement done under the liability insurance product.

ü  Privacy and Data protection

The customer shares extremely confidential and personal data with the insurance company. The consumer protection law also protects the customers against willful negligence of the insurance company in protecting the privacy of customer data.

ü  Publishing paying ability ratings

Insurance companies are consistently rated by credit rating agencies on the basis of their claims paying ability. Although insurance regulatory bodies are apt in monitoring the insurance company’s claims paying ability, it is also the sole responsibility of the insurance company to publish the amount and number of claims paid every year. This data helps in building customer trust towards that particular insurance company and the insurance mechanism as a whole.

c)     How it effects business

Due to the timely publication of claims data and mortality data of a particular region it becomes easier for the insurance company to comprehend a particular risk. By way of understanding the risk, insurance companies can rate the risks with confidence. It also helps in maintaining transparency and integrity between the insurance company and customer. Insurance per se is a business that is based on knowledge, research and integrity. Apart from the required business acumen in the insurance industry, ethics play a big role to maintain a long-term relationship with the customer.

3.     Discussion Summary

It can be observed from the above discussion that insurance law is closely related with the issues of maintaining trust, integrity and commitment by all the concerned parties who use the insurance mechanism. It is also necessary for the insured to be transparent about the personal and business data provided to the insurance company for insurance purposes. In cases where the customers do not share the correct data with the insurance company, paying the right claim becomes an ethical dilemma for the insurance company.

Consumer protection law applies to the insurance industry on the basis of following elements:

1. Data transparency through publications
2. Accuracy in the data shared between customers and insurance companies
3. Adequate maintenance of the insured asset by the customer
4. Accuracy in valuation of the asset before insuring to avoid the case of under-insurance or over-insurance.

5.     Recommendations

The consumer protection law has set legal parameters for the insurance industry under which the insurance companies operate during the time of claim-settlement, policy administration, marketing and underwriting of the insurance product. Being the highest authority that monitors all the above mentioned areas in insurance, the act certainly offers adequate rights and duties to the government authorities. Although exercising these rights and duties by way of moral conduct may be a matter of personal discretion many a times. This is one of the main reasons why developing countries as well as developed countries face the problem of corruption in every walk of life. To counter this scenario the government and industry leaders should form a committee that also holds the claims manager responsible in the event of a genuine insurance claim being rejected. Policy administration includes many responsibilities on part of the insurance managers such as timely issuance of the insurance policy document and issuance of the cover letter prior to the issuance of insurance policy document. In spite of legal parameters being set to monitor best practices in the insurance administration of scenario there is plenty of room for making errors. Underwriting the risk is an activity that builds the strong foundation for insurance company’s claims paying ability. Underwriting and all other risk rating activities go under the keen observation of auditor. But still there can be gaps between the expected and actual performance of the underwriters. This is because they are under the constant pressure of the marketing team and customers for timely premium quotations. Now, increasing the turnaround time for the issuance of premium quotations by underwriters could make a world of difference in the insurance business. Right quotations will lead to right premium payment, and right premium payment will lead to the right claim-settlement. Similarly, if valuation of insured assets every year is made a mandatory norm by the government, it would stream line the survey work conducted by the insurance companies. Each loop hole in the insurance sector operations can be filled to create a flawless system under the surveillance of the law.

(Commission on Financial Services and Insurance, 30 May 1997)

6.     References

1. Directive on Protection of Consumers in Respect of Distance Contracts, 1997/7/EEC
2. Directive on the Distance Marketing of Financial Services, 2002/65/EC
3. Directive on Comparative Advertising, 1997/55/EEC
4. European Commission Recommendation on the principles applicable to the bodies responsible for out of court settlement of consumer disputes (98/257/EC) and on the principles for out of court bodies involved in the consensual resolution of out of court disputes (2001/310/EC).
5. Policy statement: Nature and consequences of pyramid activities in life and accident insurance: Commission on Financial Services and Insurance, 30 May 1997
6. Council of Europe Convention for the protection of individuals with regard to automatic processing of personal data (ETS No.108, the 28 January 1981, Entry into force: 1.10.1985) and Explanatory Report
7. International Association of Insurance Supervisors Insurance Core Principle No. 25 —Consumer Protection Guidance Paper No. 4 on Public Disclosure by Insurers, 2002
8. United Nations UN Guidelines concerning computerized personal data files adopted by the General Assembly on 14 December 1990
9. OECD: Good Practices for Enhanced Risk Awareness and Education in Insurance Issues: 2008
10. OECD Guidelines for Good Practices for Insurance Claims Management: November 2004

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