Finance Consumer The problem with insurance disclosure documents

The problem with insurance disclosure documents

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Product disclosure statements don't seem to make insurance buyers more informed. Photo: Getty
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If you’ve ever tried to read the fine print of an insurance policy and found yourself utterly bamboozled by it, you are not alone.

New research from Monash University has found these dense, jargon-heavy documents – known as a ‘product disclosure statements’ or PDS – are doing little if anything to help conscientious consumers choose the right policy for their needs.

In fact, almost half of people who bother to read the PDS are still making the wrong decision.

The study asked about 400 Australians to choose an insurance policy from a shortlist of two or three products after being provided with the relevant disclosure documents and fact sheets.

Despite having access to this information, 42 per cent of participants choosing from two policies selected the worst, dropping to 35 per cent for those picking from three policies.

But by looking for certain important details and asking the right questions, consumers can take measures to avoid being stuck with bad policies, according to Dr Allan Manning, the managing director of loss and risk management consultancy LMI Group.

Understanding the definitions used within a policy is the first step, Mr Manning said, as it’s important to make sure you’re actually covered for the things you think you are.

Mr Manning pointed to examples of policies that list damage caused to property by overflowing stormwater drains as flood damage rather than rainfall damage, even where that property is outside a flood zone or even at the top of a hill.

Coverage limits are another facet that often catches people out, Mr Manning said.

“If you collect anything – stamps, books, plates, records, whatever you collect – the limits on these are often very small so you really need to make sure they’re appropriate for your collection.”

Exclusions also present challenges for consumers, Mr Manning said.

“If you have Airbnb guests or a foreign exchange student, that can affect your coverage. Some policies even have exclusions for alcohol, so if you’re having a barbecue and someone has a few drinks then falls over you might not be covered,” he said.

“A lot of people also watch shows like The Block and want to start renovating, but some policies include exclusions for doing your own repairs.”

Many cheaper policies will even include exclusions for “shoddy workmanship or design” of products, which could mean someone with home and contents insurance might not be covered if a fire in their home can be traced back to a cheap or poorly made alarm clock, as an example, and Australians need to look beyond price when buying insurance.

Insurance isn’t about price, it’s about protection. If you buy on price you’re going to get bad service or bad coverage.

“What’s the point of being with an insurance company if they’re just going to screw you over at claims time?”

A spokesman for the Insurance Council of Australia (ICA), which represents the Australian general insurance industry, said its own research has found consumers are more influenced by price rather than the policy detail.

“The industry has long been concerned about the inadequacy of the product disclosure regime set out in the Corporations Act,” he said.

The ICA’s own Too Long; Didn’t Read (TL;DR) report from October 2015 highlighted that most PDS are “not engaging and therefore not effective” as a means of informing would-be consumers of what they’ll be getting for their premiums.

The report suggested Australians could benefit from “more strategic” documents that highlight the important features of the relevant insurance policy and prompt consumers to think about key issues when purchasing insurance.

The TL;DR report was referenced in Monash University’s study,  but the ICA told The New Daily it would not comment directly on the new findings.

“The ICA will review the Monash report’s findings and discuss them with its members, however, it does not propose to respond at short notice to what are complex issues of product choice and competition,” the ICA said.

Instead, the ICA said it looked forward to an upcoming review of product disclosure effectiveness being undertaken by Treasury, with hopes it will lead to a more effective form of disclosure than what is currently available.

“Further research being undertaken by the ICA will put it in a good position to contribute strongly to the public policy debate on questions such as the usefulness of standard cover, standardised definitions, and the effectiveness of key fact sheets,” the ICA said.

“The industry would be concerned about any mandated imposition that risks oversimplifying products, reducing competition and undermining consumer choice. Price is only one consideration when buying insurance; consumers should be encouraged to buy the product that best suits their needs, and the cheapest product will not necessarily meet that criteria.”

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