18th Sep 2018
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Alarming findings about the fine print on insurance policies
Author: Ben Hocking
The issue with insurance fine print

How do you choose the right insurance policy for your needs?

If you take the time to read the product disclosure statement, you might think you are protecting yourself from making a bad decision, but a new study suggests you may be wasting your time.

Monash University examined the effectiveness of home contents product disclosure statements (PDS) and key fact sheets (KFS) in assisting consumers to select the policy that best suits their needs.

The (In)effective Disclosure study involved 406 participants across Australia who were provided a PDS and/or a KFS and were invited to identify a home contents insurance policy as ‘good’, ‘okay’ and/or ‘bad’.

The study found that:

  • up to 42 per cent of participants chose the worst offer, despite being given the time and opportunity to review the disclosure information
  • when able to choose from three policies, 35 per cent chose the worse policy and only 46 per cent found and selected the best policy
  • there was no simple and consistent effect of disclosure – while participants were more likely to forego purchasing an insurance policy when they only had access to the PDS, the results did not find a clear pattern of understanding when people were provided with more or less disclosure information
  • purchasing decisions were not affected by the way in which the consumer viewed the disclosure (i.e. computer or smart phone)

“In these circumstances the question needs to be asked whether disclosure is an effective tool at all to aid consumers in choosing an insurance policy,” said study author Professor Harmen Oppewal.

“Mandated disclosure may serve other purposes, including informing the purchase choices of highly literate and motivated consumers, guiding consumers through the claims process or ensuring they have a clear guide as to the limits of their policy when there is a dispute, but the findings indicate that even in ideal circumstances, disclosure does not ensure that consumers make better decisions nor does it help their chances of obtaining suitable insurance cover.”

Co-author Professor Justin Malbon said there was considerable room for improvement in the disclosure documents.

“When you look at the fact that sectors like the shipping industry have simplified their own insurances down to a choice between three standard term policies for cargo insurance – and these people live and breathe insurance risks – it is hard to understand why we expect everyday consumers to figure it all out,” Professor Malbon said.

“It may be time for a serious rethink on disclosure practices.

“We should consider requiring insurers to offer a standard set of gold, silver and bronze cover across the industry. That way the market can compete on price, and not confound consumers about what is covered and not covered when they make claims under their policy.

“The government has standardised the terminology for flood cover, it should go further and standardise all terms such as for robbery, fire, earthquakes and so on.”

Karen Cox from the Financial Rights Legal Centre said the research showed that disclosure statements were too confusing for consumers.

“Our experience with speaking to consumers on our Insurance Law Service phone line is that people are regularly unaware of what insurance they have purchased, confused about what is covered, and unable to understand their documents when they do in fact read them,” Ms Cox said.

“The Government and the insurance sector need to take a close look at the results of this study.

“If the policy goal is for people to be purchasing insurance that best suits their needs, this research confirms that further efforts to improve disclosure are misplaced.

“Instead, policy makers should look to minimum standards for policies, or star rating systems that people actually understand.”

Do you find choosing insurance cover confusing? Do you think insurance terminology should be standardised to make it easier to understand?

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    COMMENTS

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    Old Geezer
    19th Sep 2018
    11:14am
    It is not the fine print but how they interrupt the fine print that is the problem. What is black and white to the consumer has many shades of grey to the insurance provider.
    OnlyDaughter
    19th Sep 2018
    4:51pm
    Wow, I agree entirely OG. It is entirely how they interpret the fine print. And in addition, it is how their insurance assessor interprets them. Some of these assessors are mongrels. I think they get extra money for refusing claims. The truth is you never know how good your insurance policy is until you claim. And then it's too late.
    Knows-a-lot
    20th Sep 2018
    2:17pm
    Watch the 1997 movie "The Rainmaker" for an insight into this.
    HS
    19th Sep 2018
    11:20am
    Do you find choosing insurance cover confusing?
    -YES- The PDS can have some 75 pages of confusing garbage-
    Do you think insurance terminology should be standardised to make it easier to understand?
    -Yes- In particular legal, "by-definitions" for example when "black" is defined as "50 shades of grey". So it's not black after all but, 55 ways of screwing you!
    Take credit card self-definition of transactions over Internet 1) you can buy toilet paper with XYZ name on it, over Internet, it's treated as credit transaction but 2) when you buy a piece of paper with Lotto and Lottery name on it, it's defined as a "cash transaction" and incurs a fee of $2.50 plus interest on the fee! A perfect example of "gouging" also known as "swindle".
    KSS
    19th Sep 2018
    12:49pm
    So use a debit card to buy your lotto tickets on-line then if you can't get to a shop! Problem solved.
    Rae
    20th Sep 2018
    12:57pm
    There are certain products you can't use debt for. Gambling obviously although I didn't know about that but certainly buying foreign currency can only be done with cash or your own funds from a deposit account. There must be other financial products as well that require your own funds and not bank debt.
    Golden Oldie
    19th Sep 2018
    11:28am
    PDS's are so lengthy and complicated that it is hard tp make any sense of them. The English language has so many words with different meanings that it can be interpreted in different ways. Terms and Conditions, and Privacy Statements on computer sites are also rediculous, you have to agree with these to continue with whatever you are doing or you cannot continue, but anyone who has the time to read 60+ pages online, and remember and understand the document is very unusual. I wish commonsense would come back, instead of having companies doing their best to exclude every event that may be possible and to exclude liability.
    Old Man
    19th Sep 2018
    11:30am
    What annoys me about home insurance is that the land value is included in the cover. If you buy a house for, say, $500,000 a proportion of the cost includes the land on which the house stands. If you choose a lesser amount, the insurer will claim that the house is underinsured and will reduce any payout in proportion to their figures.

    Secondly, back in the old days (Gee I use that phrase a lot) if a house was destroyed by some means, the insurer sent a cheque for the amount insured less any excess. Today the insurer has a dwelling built identical to the original and I'm sure that the cost of rebuilding is much cheaper than the amount insured. We are being ripped off.
    blind
    19th Sep 2018
    11:43am
    Old man you need to catch up. Your first paragraph is a total furphy, there is no contribution clause in today's policies and the land value is never included. Your second statement is partly true, yes insurers will rebuild but to say that they are saving money is again plainly wrong.
    Old Man
    19th Sep 2018
    11:53am
    Thanks blind, when you say "today's policies" I'm unsure what your time frame is. One of our children just completed a home purchase in July and the insurance was for the full amount of the purchase. The amount was queried because of my suggestion and the answer was as I have stated above.

    Our insurer routinely increases the sum insured each year with a commensurate increase in the premium. I went onto different insurers' websites, described the house and each one came up with a cost to replace of about 19% less than our insurer. I wonder what a builder would quote to build a similar house?
    Old Geezer
    19th Sep 2018
    12:12pm
    The land value is not included in your policy at all. Your policy is the cost to rebuild your house to the same as it is now.

    Yes insurers increase your policy each year so you pay more. You have to decide if that I what it would cost to replace your house and contents.

    Also check that a new online policy is not cheaper than your renewal. Seen one the other day which was $300 cheaper by taking out a new policy the same online to what they wanted on the renewal. It is called the lazy tax on existing customers.
    Old Geezer
    19th Sep 2018
    12:15pm
    Many PDS are the same with just a different cover on them too as there are only a few underwriters but many people branding the same insurance polices. Check cost of same policy direct from the underwriter. I have seen some with huge differences.
    pedro the swift
    19th Sep 2018
    11:43am
    Insurance(of any kind) is a business,folks.Its in place to make a profit for the owners. Nothing else. Get over it .Of course the name of the game is to avoid paying out any claim where ever possible. Thats why they issue complex documents to cover their arses. The less the average joe understands the better for the insures at claim time.
    Old Geezer
    19th Sep 2018
    12:13pm
    Travel insurance is cheap as they simply don't insure risky people.

    19th Sep 2018
    1:08pm
    Din you can’t read - whose problem is that ?
    Old Geezer
    19th Sep 2018
    1:52pm
    Agree people fail to read the PDS and then wonder why they are not covered. Dumb or dumber me thinks.
    pedro the swift
    19th Sep 2018
    2:40pm
    Its called "caveat emptor" or "the devil take the hindmost" or "stuff you Jack, I'm making a quid out of this".
    Anonymous
    19th Sep 2018
    2:47pm
    It's actually called "Do your bloody homework and stop blaming others for your carelessness"
    or "Stop ripping off the providers by changing your mind after the fact"

    It's like changing your insurance policy to include earthquake or tsunami cover after a your house has been destroyed
    Knows-a-lot
    20th Sep 2018
    2:24pm
    Some of us have lives to live, olbaid, and no time to waste trying to decipher gobbledegook.
    Anonymous
    20th Sep 2018
    2:28pm
    Youre not "leading" much of a life if you let shit happen to you.

    Looks like youre more of a follower than a leader
    Knows-a-lot
    20th Sep 2018
    2:16pm
    The fine print is there to screw the customer and allow the insurance company a way out from having to pay you when you make a claim.
    Anonymous
    20th Sep 2018
    2:18pm
    Shame you didnt learn to read fine print in school.
    Must have taught large font reading only at your school
    Knows-a-lot
    20th Sep 2018
    2:26pm
    Shame you're a Lieberal Party troll. I learnt English to the highest level - as well as having a PhD and other accolades. I do not read gibberish in insurance-company legalese.
    Anonymous
    20th Sep 2018
    2:34pm
    no wonder u vote labor - no common sense


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