Research commissioned by the Insurance Council of Australia (ICA) has concluded that product disclosure statement (PDS), were falling short of their primary purpose – helping consumers buy insurance that meets their needs.
Insurers will now explore new strategies and tools for providing policy information based on the findings of the study into how consumers buy insurance.
The research was a key recommendation of the Insurance Council of Australia’s Effective Disclosure Taskforce, which noted a lack of evidence about how consumers made decisions on which policies to buy.
ICA CEO Rob Whelan said: “Insurers want to make the policy information they provide clear, simple and easy to navigate. The Product Disclosure Statement (PDS) is the key means of doing this. Unfortunately many customers find these legal documents too long and complex.”
Whelan said the findings suggested insurers should look beyond the PDS to ensure customers understood the details of the policies they were buying.
After the presentation of the findings at the ICA Annual Forum, NIBA CEO, Dallas Booth said: “Yes, it is important that we provide good information in a way that makes sense for people buying insurance but even then it will be confusing and difficult for many people. And the role and need for professional advice shouldn’t be underestimated.”
The research, undertaken by The Lab and Nature, confirmed that most customers (about 80 per cent) don’t read the legally mandated PDS before purchasing a policy.
Other key findings included:
- Consumers focused most on price when buying insurance, rather than policy detail
- Most consumers believed they had considered all of the details when buying insurance, even though most do not look into policy exclusions and limits
- Policy renewal letters were the most trusted and commonly used document for insurance customers
- While most consumers (88 per cent) were confident they understand the detail of their policy, actual understanding of policy exclusions and limits were poor
- Many consumers do not consider the specific risks they need to cover when purchasing insurance
- Policyholders who had previously made claims were typically better informed, and more likely to read the PDS.
“The PDS will remain central to policy disclosure, but insurers are developing innovative methods to make them easier to search and digest,” Whelan said.
Mr Whelan said it was crucial that consumers understood the features of the policies they were buying, rather than simply focusing on price.
“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,” he said.
The full report can be found here.