Paul A.J. May shares top advice to improve SL insurance industry

By Shabiya Ali Ahlam

Renowned chartered loss adjuster Paul A.J. May came to Sri Lanka for the 30th year to facilitate a session hosted by Amãna Takaful Insurance, to share his expertise and knowledge with the local business community and insurance industry specialists.

A representative sent by Lloyds of London to deal with claims which arose from the Central Bank attack in 1996, May recommended that a clearer link between the insurance industry and the Loss Adjusting Association of Sri Lankan should be established. In addition to being the Chairman/CEO of Concordia Consultancy UK, May’s professional activities include being a Director at the Institute of Risk Management and he was also the Past President of International Federation of Adjusting Associations (IFAA), Chartered Institute of Loss Adjusters (CILA) and the European Federation of Loss Adjusting Experts (FUEDI).

Just few hours after his arrival in Sri Lanka, May spoke to the Daily FT on the insurance industry from a global and local perspective. Having over 40 years of experience in insurance internationally, he also gave pertinent advice on how insurance in Sri Lanka could be further improved. Following are excerpts from the interview:

Q: You are known for loss adjusting. What is it all about?

A: It’s about three questions – is the loss covered under the insurance policy? If it is covered, how much should the insurance company pay? And if the insurance company does pay, could it be recovered from some other organisation that may have caused the problem? It’s as simple as that.

Q: How can companies reduce the insurance premium paid?

A: For any sensible person, when you present two situations where one has no security system and a high possibility of a fire indoors while the other is a very well cautiously run business, you would certainly charge the carefully run business less. It depends on how well the risk is managed.

Q:  Risk management – is it an expense or an investment?

A: I think it is a necessity. Look at it this way, when you are walking along the road and you want to cross it, do you look left and right before crossing or do you simply cross? Is it an investment to look both sides before crossing? No, it is a necessity and risk management is just that.

Q: Being in the industry for over 40 years, how, in your view, has the practice of risk assessment and management evolved?

A: It has changed things greatly. Now the processes are much easier and are more comprehensive in terms of data analysing and record keeping. Digital photography and IT has allowed the easy exchange of information all over the world within a short period of time. To transfer information, we now have to just email or use drop-box. The ways and means of doing things have become much more convenient today.

Q:  Being an expert on fire insurance, what would you say are the essentials one needs to consider when applying for a policy related to fire insurance?

A: Firstly, it’s only natural that no one would want their property to burn down. The idea is not to have the policy as a first line defence and it that sense, risk management should be placed first while the policy should be treated only as a safety net.

Q: How important is it to consider fire insurance?

A: If you are an organisation or are a shareholder of one, you have a responsibility to look after the assets which would include stocks and equipments whereas you also have responsibility for the future earnings of the business. So if you don’t protect it with insurance, you are being negligent by being careless.

Q: What advice would you give when it comes to picking the best package?

A: I have been coming to Sri Lanka for 29 odd years and when I first came here, there weren’t many insurance brokers and it was very much a state insurance industry. If you call for insurance policies, the policies that land on your table would be more or less the same. However, now there is lot more choice and competition.

I think a number of criteria need to be looked at, possibly with the help of an insurance broker to assist with the selection process. Few elements that should be considered would be the financial strength and track record on paying claims while it is also important to look at the track record in helping since some insurance companies take the money after issuing a policy and you don’t hear anything from them for the next 12 months. Insurers develop a partnership especially through risk management and that is an added value when selecting a premium.

Q: Occurrences of natural disasters are become more frequent now. On instances when disaster strikes, how do you think insurers and loss adjusters should act?

A: I am not sure of natural disasters becoming common now but what I think happening is that people and business are beginning to place themselves in the way of natural disasters, so there are more buildings in areas prone to earthquakes and floods. As loss adjusters, we are always prepared for disasters and are a bit like a medical service. We know that what’s required is money and it is money that has to go back into the system.

After the Central Bank explosion that took place during the war in Sri Lanka, I dealt with those claims. I went on the electronic media in the country to confirm that I had been sent on behalf of major insurers and Lloyds of London to give people confidence that there was financial support since we didn’t want people to lose confidence very quickly. In that sense, we are always ready to be available not just to our clients, but to the wider community as well.

Q: Your advice for policy holders on such instances?

A: Disasters happen on two levels – human and financial – and it is the human level that has to be dealt with first. It is very important to make sure matters are all right when people have been killed or injured. The insurance companies realise that it may take some time with spreadsheets and paperwork as the main thing is that they are dealing with human problems. And once that’s been dealt with and decided upon, getting the business back into operation could be focused on.

Q: Under what circumstances is faith in insurance lost?

A: I don’t think everyone has faith in their insurance because some people buy the cheapest they can and soon forget about it. It’s more the case of the insurer delivering on the promise. People should be more confident in a market that is regulated by the Ministry of Finance and others that they will be receiving compensation. However, they must do something for it if they want the money. It is a two way, back and forth process.

Q: What in your opinion on the ongoing trends in the insurance industry?

A: I think everyone is realising that they have to protect their assets.  In most countries, the population is getting older so everybody is looking to protect their assets going into old age. Younger people are realising that maybe they are not going to inherit straightaway since if parents and grandparents are going to live longer, maybe getting granny’s house by the beach may never happen.

The younger generation has to spend more time building up their capital while the older has to preserve. The greatest driver now is regulation where companies have to have certain protection and risk frameworks.  If you are with your friends and one would say that she doesn’t have insurance for her car, these days you might be shocked and might even think that she is unethical or of low morale.

Now, there is a higher expectation in protecting oneself.  If you have a terrible accident, kill other people in your car and are unable to compensate because you haven’t brought insurance, that’s not very nice. There is more of a morale drive as well.

Q: What are the new insurance products that would emerge?

A: For Sri Lanka, there is a very old product that still hasn’t matured enough and that is business interruption insurance. Businesses run on a 12 month account and if they have a big fire towards the end of their policy, it may be two years before they get their business back. They should really be forecasting two years forward on their profits but then they look at how much their premium is and choose not to opt for it.

That is the biggest mistake they could make. The protection of their business, profits and money that can come straightaway from that policy is fantastic. Economies like Sri Lanka suffer at a national level by companies not having business interruption insurance because when they close down, they take longer time to recover.

Q: Every product has its life cycle. What insurance product or products do you think will die off in the near future?

A: Life insurance as a product could probably be refreshed, as at the moment it looks a little like a gamble. You pay some amount every month and see who dies first. The pure Life business could be revisited and applied more carefully for business insurances. I feel that it needs to be explained more carefully.

Let’s take for instance that a father of a family dies when his wife and children are still in need of support; having life insurance at that point would be incredible. If he doesn’t, it could be quite challenging as the family would have to depend on assistance from their well wishers. The topic is quite sensitive, so much so that it cannot be put in marketing literature. Life insurance linked into business I think needs to be revived.

Q: Your advice to insurers and loss adjusters?

A: The insurance contract is very simple – party one is the insurer and party two is the policy holder, and everyone else including the broker, loss adjuster and others, are in there to deliver what the insurer has promised to do. A clearer link between the insurance industry and the Loss Adjusting Association of Sri Lanka needs to established and a more formal dialogue should take place so that practices, procedures and protocols can be discussed in a high level manner. That would clearly be a step towards change for the loss adjusting and claims industry.