Are insurance product disclosure statements too complicated?
At times, insurance disclosure statement fine print seems about as decipherable as hieroglyphics.
But hopefully, this is going to change before too long. In a review of product disclosure statements, an Insurance Council of Australia (ICA) taskforce has recommended insurance companies explore new forces of communication with consumers who are often getting caught out by the complexity and technical jargon in product disclosure statements that they can’t understand or ignore.
The taskforce worked on the recommendation of the Australian government’s Financial Systems Inquiry and is made up of representatives from the insurance industry as well as veteran insurance lawyer who is the chair of the inquiry. Mr Whelan pulls no punches when he describes the importance of the inquiry and its work, “Product disclosure statements have become so focused on complying with financial regulations and limiting an insurer's liability that their value to customers has been greatly diminished. If consumers don't understand the policies they're buying, it can result in major financial losses, angry customers and possible reputational damage for the insurer – everyone loses.”
The recommendations for the industry are wide and far reaching. The taskforce recommends everything from new forms of electronic disclosure and target information for individual customers, as well as asking the government to create a “central portal” for natural hazard data as a means of helping consumers figure out their insurance needs should a natural disaster strike.
Another startling finding from the ICA is that there is a distinct lack of evidence as to how PDS documents are influencing customer’s decision making, and this is providing a barrier towards proper disclosure. As a part of their review, they industry body is looking at the best ways they can revamp current disclosure systems for important product disclosure information.
Mr Whelan says, “A substantial consumer research program will ensure the industry avoids spending time and money implementing product disclosure innovations that are ineffective or even detrimental to consumers. The ICA would also like to see the Australian Securities and Investments Commission rethink its guidance on the ability of insurers to give advice over the telephone to customers," he said. "Clearer, simpler, more effective product disclosure that closes the knowledge gap between insurers and their customers is a vital part of the solution.”
All in all while some of these findings are particularly startling, it is comforting to know that the decision makers are aware of this and are making efforts to rectify the problems.
Related links:
Our simple guide to insuring jewellery
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