Debunking the Myths of Insurance Law in the Arab World: A Guide for Local Companies
Many workers in the insurance industry believe that the judiciary in Arab countries, including Kuwait and the Gulf states, does not properly apply insurance principles. I also used to believe that after reading several judicial rulings issued against insurance companies, which seemed unfair at that time and do not achieve the objectives of the insurance policy.
However, after working as a loss adjuster I discovered that such belief is exaggerated and inaccurate. Yes, there are some cases where judgments were different than what we believe is accurate from insurance perspective. Yet, after careful inspection of such judgments, majority of the reasons, if not all, have nothing to do with the insurance law itself. Reasons often stem from weak representation by lawyers, insufficient legal documentation, or inadequate reports by loss adjusters. Judges make decisions based solely on evidence presented in court; what is known may differ from what can be proven legally.
The belief that the judiciary does not apply insurance principles properly comes from the conventional, yet inaccurate, wisdom shared by workers in the insurance industry that insurance law is universal, and applied uniformly worldwide. In this region, the most popular professional insurance certificates among insurance workers are from the United Kingdom, where insurance originated. As a result, companies often use British insurance law practices as their primary source and reference. This reference and source is almost always used in all insurance policies, claims and cases, which cost local companies vast sums of money when a claim is brought before the court of law.
There is a clear misunderstanding between insurance principles and insurance law. Insurance principles, such as Utmost Good faith, Subrogation right, etc., are what insurance law is based on. Whereas insurance law is how to apply such principles. Insurance principles are indeed universal and applied uniformly worldwide. However, applying such principles in the insurance law differ from one country to another. And in order to clear the misunderstanding, one needs to know how such principles were arrived at.
In a nutshell and concisely, Insurance principles were arrived at by judges who were assigned to decide lawsuits brought before courts by insurance policy stakeholders. The decision, which is an insurance principle if it was a precedent, is based on prevailing situation when interpreting the case, and used for similar future cases. Judges in similar future cases will use such decision either as it is, amend it, or change it based on what changed in the circumstances of the initial case. As circumstances change with time and place of conflict, the interpretation of the initial insurance principle arrived at changes. Therefore, while the essence of insurance principles is similar, the interpretation and application of these principles varies with time and from country to another. Hence, the misunderstanding among the majority of those working in the insurance industry that insurance law is universal and applies uniformly with all of its conditions and provisions in all countries.
As a consequence of this grave misunderstanding, local insurance companies take conditions and provisions of insurance policies from international reinsurance companies and apply them literally without knowing the mechanism of proper application of the local insurance laws. Local Insurance companies are bound to apply local insurance laws and pay any amount resulting from decisions by the local court and thus adversely affect the three major insurance policy stakeholders: Insured, Insurance company, and Reinsurers.
What compound this grave mistake is the insistence of most loss adjusters to strictly apply the terms and conditions of insurance policies without knowing local laws, persuading local insurance companies and international reinsurers to follow suit. The insured then turns to the court to resolve the dispute. And when the court decides in favor of local laws in interpreting the dispute, other parties to the dispute invoke that local courts do not properly apply insurance principles.
Therefore, local insurance companies should familiarize their employees with local insurance laws, and their compatibility with the terms and conditions of the insurance policies issued by international reinsurance companies. Local insurance companies should also appoint a loss adjuster who is aware of the differences between these laws and the policy’s terms and conditions. A knowledgeable loss adjuster will help reduce the probability of losing large sums of money that could have been avoided by proper and practical application of local insurance laws. This will go a long way towards changing the false belief that the judiciary does not apply insurance principles properly and that insurance law is universal, and applied uniformly worldwide.