Insurance product disclosure statements are too complex and failing consumers, sparking the necessity for companies to overhaul the way they communicate with customers, the Insurance Council of Australia said.
An ICA taskforce, chaired by insurance lawyer Michael Gill and targeted at how to improve disclosure, recommended exploring new forms of communication with customers who ignore product disclosure statements (PDS) due to their complexity and technical jargon.
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. Rob Whelan, ICA
“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,” ICA chief executive Rob Whelan said.
The ICA launched its taskforce to tackle disclosure in the insurance industry during July, following scrutiny of the industry’s practices in the federal government’s financial system inquiry. Among its recommendations are integrating insurance calculators into the sales process, especially for home insurance.
The taskforce is also recommending new forms of electronic disclosure and targeted information for individual customers. It is also asking the government create a “central portal” for natural hazard data to help consumers figure out their insurance needs.
“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,” Mr Whelan said.
The findings come at a critical time in the insurance industry, as customers prepare for the onslaught of bushfires and storm season that come with the Australian summer. During the past 12 months, Cyclone Marcia in Queensland has wreaked $522 million in damages, while the Brisbane hailstorm has cost $1.34 billion.
Residents of NSW and Queensland also wore a $354 million hit from storms earlier this year, while a Sydney hailstorm in April cost $413 million.
Suncorp Group’s new personal insurance boss, Gary Dransfield, said the company was looking at new ways to tackle the issue of improved disclosure. The group is linking an animated video to support the PDS for its Essentials by AAI product, and Suncorp had invested in an automatic sum-insured calculator.
“Too often legal requirements are driving documents that fall short of what customers really need. We must be innovative and relentless in our focus on giving customers everything they need to understand their purchase and make an informed decision,” Mr Dransfield said.
The ICA, which counts some of Australia’s biggest insurers among its members, said there was a distinct lack of evidence about how PDS documents influence customers’ decision making, and this was a big barrier to improving disclosure. The industry body is looking to embark on consumer research to identify the best ways to revamp the current disclosure system.
“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,” Mr Whelan said.
“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.”