Factors leading to regulatory reform in insurance : the case of the principle of utmost good faith (Doctoral dissertation).

Abstract

In a world of rapid change and dynamic business operations, reform has become very much part of the business environment, with insurance industries set to align their working models and associated processes, to be able to respond to modern needs and demands. Pertinent to this scenario, is the topic of this research which explored the factors leading to regulatory reform in insurance by using the long-standing principle of utmost good faith as a case study. More specifically, this study attempted to explore and investigate the following research questions to address potential research gaps in the field: a) What are the factors that generally lead to reform and what are the consequences of ignoring the signs pointing to the need for reform? b)What are the factor variables related to the reform (by regulation) of the principle of utmost good faith and are these variables influenced by (i) demographics and (ii) jurisdiction of the respondents? c) Which factor variables are the most agreed upon when assessing the need for reform of utmost good faith? and d) Should Malta (as a case study) upkeep its current practice of the utmost good faith principle? Henceforth, the study established the general factors that influence reform through a desk-based literature review, adopting the PRISMA systematic review protocol. These factors where consequently tested by means of questionnaire using utmost good faith as a case study. The results of the emergent factors of the questionnaire were used as a basis to structure an interview, targeting eligible stakeholders that could provide insight as to the position of Malta with respect to reform of the principle of utmost good faith. The study was opportune as it comes at a time when the UK (on which Maltese practice in insurance is reliant) has recently reformed its century-old principle, considerably changing the application of the principle from the way it was previously practiced on the basis of the Marine Insurance Act 1906 (UK). The researcher conducted a systematic review to identify existing literature on reform using the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) methodology to filter the results. Answering research question (a), the systematic review revealed that the factors that influence reform in general are five propositions, namely Country Institutions and Legal Systems, Customer/Stakeholder influence, International Business, Technology and Socio-Economic trends. From these five propositions, twenty-two statements were derived and used to construct a questionnaire which served to test whether these propositions were also applicable to the principle of utmost good faith, keeping an open mind for any new or different factors. This questionnaire was distributed via a purposive sample which targeted potential respondents holding experience, qualifications, expertise, role, repute and contribution made to the industry. Therefore, the respondents were mainly stakeholders, particularly insurance and legal experts and those working in a position to influence reform. Most respondents were reached via e-mail, LinkedIn and other social media platforms (being a period when COVID-19 was at its peak) resulting in a return of 1794 responses out of a distribution of 2300 questionnaires (a response rate of 78.0%) from which the study required a minimum sample size of 385. The data was then subjected to Exploratory Factor Analysis (EFA) and inferential testing to answer the second research question (b). EFA supported a four-factor solution. In fact, the four factors that were revealed by the questionnaire and that have an influence on the reform of the utmost good faith principle were redefined as follows: Institutional stakeholders and the political-legal framework, The market, consumer influence and the socio-economic environment, Socio-technological environment and Insurance practice and international business. Moreover, in response to questions b(i) and b(ii), the study showed that respondents’ age, gender, level of education, occupation and the jurisdiction from where the respondents hailed, had a negligible impact to no impact at all, on the responses, which in itself strengthened the results as these variables did not distort or bias the emergent findings. With respect to the factor scores, ‘the market, consumer influence and the socio-economic environment’ ranked the highest in terms of what the respondents considered the most important factor which could potentially trigger reform, followed by the factor ‘Socio-technological environment’ thus addressing question (c). Emergent from the interviews, the position of Malta and the corresponding research question (d), revealed that the principle of utmost good faith is not up for reform anytime soon and is not a priority in the legislative agenda, apart from the fact that a good number of interview practitioners defended its well-meaning application. This is of interest to all stakeholders, especially insurers, who are constantly monitoring the external environment and responding to change, as and when this arises, typically sprouting from the ever-changing needs and demands of the modern consumer. It is also a finding which is of interest to the Maltese industry as a whole, in the context of its relations with international counterparts, as any changes in insurance practice will need to be looked into if indigenous insurance market players, operating under the Maltese legal and regulatory frameworks, wish to remain competitive and business-savvy. The study provides valuable information for the insurance industry, regulators, stakeholders, and scholars regarding the need (or otherwise) to reform the principle of utmost good faith. The findings may help insurers respond to trends and achieve contract certainty. The research also opens up opportunities for scholars to further explore the position of utmost good faith in other jurisdictions and other insurance principles, sectorial matters, and industry positions.