Most consumers are purchasing home and contents insurance without the benefit of any insurance advice, leading to underinsurance and other problems, ASIC has found.
ASIC yesterday released the findings of two reports in home insurance sales, found that most insurers in the space had adopted ‘no advice’ or ‘factual information’ models.
“[This] means they are unable to provide consumers with the information and/or advice they needed,” the reports states.
“Most consumers ‘guessed’ the sum insured value, often using faulty assumptions to do so.
For telephone sales, most consumers were not referred to available tools, such as sum insured calculators, to assist in estimating the sum insured.”
The reports also found premium price was dominant concern for consumers.
“For these consumers, most insurers attempt to reduce the premium by reducing the sum insured and/or increasing the excess, potentially increasing a consumer’s risk of underinsurance,” the report states.
According to ASIC research, just one in five consumers say they read product disclosure statements (PDS).
“However the qualitative research . . . found that ‘reading’ the PDS generally means reading selected pages, not all of it,” the report states
“Some consumers in the research did not know that policies differed.
“They assumed that all home insurance policies were the same and therefore asked insurers few questions about their policy.”
Insurance Council of Australia Acting CEO Karl Sullivan says the uncertain boundary between personal and general advice discourages general insurers from providing more tailored information to consumers about their policies.
He says insurers require greater confidence that they can provide basic information specific to the consumer’s needs without crossing the line into personal advice.
“ASIC’s report is a welcome contribution to the policy debate on financial advice and disclosure in the general insurance industry,” he says.
“Though the ASIC review and the accompanying research show some gaps in consumer understanding of the products they purchase, overall insurers and their staff are serving the needs of their customers by providing information within the constraints of the current regulatory framework.
“However, the experience of ICA members is that this framework unnecessarily restricts the ability of licensees to provide simple product advice.”
NIBA CEO Dallas Booth says consumers who want insurance advice should consult an insurance broker.
“NIBA’s position has always been that if people need advice and assistance around insurance they should get it from a qualified insurance broker, who has the training and expertise to assess their insurance needs and advise them what insurance products best cover those needs,” he says.
“Insurers who are selling in the direct market have an obligation to fully and clearly explain what their policies cover and don’t cover.
“But at the end of the day if people are seeking insurance advice, then they should be getting that advice from an insurance broker.”
To read the full reports, click here and here.