Helping consumers understand the important points in a product disclosure statement is where brokers can really show their value.
How often do you just click on ‘I agree’ when you’ve updated software on your one of your many gadgets? How many user agreements would you have scrolled through, and accepted, without reading?
Most of us probably agree to thousands of pages of contractual terms in dense, unintelligible legal jargon in our daily lives.
And insurance consumers are doing the same when they purchase their policies.
In fact, about 80 per cent of customers do not read a Product Disclosure Statement (PDS) before purchasing a policy, recent research into consumer attitudes commissioned by the Insurance Council of Australia (ICA) has found.
In a panel discussion at the ICA Forum in Sydney recently, lawyer Michael Gill, who chairs the Effective Disclosure Taskforce established by the ICA Board that conducted the study, said the PDS system “was set up for failure from day one”.
The independent taskforce was created to review the effectiveness of, and recommend initiatives to enhance, product disclosure for consumers. It comprises experts from industry, consumer movement, academia and behavioural sciences.
The taskforce’s report, “Too Long; Didn’t Read. Enhancing General Insurance Disclosure”, provides insights on how the insurance industry can close the consumer expectations gap when it comes to policy information and PDSs.
Not surprisingly, it found insurance PDSs are too complex and failing consumers. Not reading the fine print puts insurance consumers at risk at claims time, especially if they are rejected, and this in turn, is maligning the image of insurance in the wider community.
Consumers, it appears, are relying on online quotes, call centres and renewal letters for information on their insurance, with the report saying they are “the most commonly used and highly rated source[s] of information”.
The research also found most consumers considered the price and level of cover as the only two factors necessary to make an informed decision. Other product features that consumers looked for when deciding on a policy are coverage and exclusions, excess costs, competitive pricing, brand and good customer service.
In reviewing its results, the taskforce stated that the industry needed to do more “to ensure that consumers are not just focused on the price of a policy, but are… selecting the right type and level of cover”.
Why does this matter to brokers?
NIBA CEO Dallas Booth believes that the future of insurance broking is in brokers adding value to the insurance purchasing process and improving the comprehension of PDSs among their clients is a great way to do just that. Brokers can be the bridge between the risk that underwriters can cover and the eventualities a client wants to be covered for.
“Brokers exist to help clients and can do a lot to benefit the industry if consumers are clear on the details of their policy coverage. Surprises at claims time reflect poorly on the industry,” he says.
Gill said in the report: “Not everyone can be an insurance expert. Insurance terminology is difficult. Insurance law is complex. And the English language, with its uncertainties and vagaries, will always present challenges. Thus, the industry has a role in being the principal provider of assistance to ensure that the average Australian gets the product that they truly need.”
The taskforce considers that a major shortcoming in the disclosure regime has been its sole focus on the provision of information, without the necessary regard for the consumer’s ability to make use of that information.
ICA CEO Rob Whelan agrees it is time to consider alternatives to the PDS.
“The PDS will remain central to policy disclosure, but insurers are developing innovative methods to make them easier to search and digest,” he says.
Whelan also emphasises that it is crucial that consumers understand the features of the policies they are buying, rather than simply focusing on price.
“Customers are exposed to dozens of brands offering multiple policies that differ on price and features. Finding the most appropriate one can sometimes be challenging,” Whelan explains.
“If a customer doesn’t understand a policy’s exclusions and limits or buys the wrong level of cover, they can end up financially devastated. For insurers, these situations create angry customers, bad publicity and costly disputes. It’s in everyone’s interest to avoid misunderstandings.”
The ICA says it is working with members to develop “effective disclosure principles that are informed by the findings of the research”.