This article was written by Mandy Tsang, Travis Toemoe and Madeleine Goodsir.
The Treasury has released a Discussion Paper this month on Disclosure in General Insurance: Improving Consumer Understanding. The Paper seeks consultation from the Australian community on the 2017 Senate Economics References Committee's Report and its recommendations for improving consumer understanding, transparency and accessibility to the insurance industry.
Issues for discussion
The Report's recommendations aim to encourage consumer friendly disclosures of policy terms and conditions that assist customers in comparing insurance products and making more informed decisions.
In broad terms, the recommendations which are considered in the Paper are to:
- include premium increases and component pricing in renewal notices;
- review the standard cover regime and its disclosure requirements;
- create a standardised definition of key terms; and
- review the utility of key facts sheet.
The Paper also seeks comments on modern and innovative approaches to disclosure of policy terms and conditions, for instance through the use of interactive technology and smart phones.
Haven't we heard this all before?
The insurance industry and other regulatory bodies have conducted considerable inquiries focusing on the need to standardise insurance policies and terminology. Reviews have also focused on improving consumer understanding through less complex and more engaging disclosures.
The Senate Report draws upon these findings and recommendations of previous inquiries. In response to the Report, the Treasury was tasked to develop proposals to improve consumer understanding and access to information in December 2017. The Paper seeks stakeholder's input on these issues.
The impetus for the Paper may have arisen from the growing pressure to address consumer concerns after the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services. Indeed the Paper notes that responses to the Paper may be used to inform the Government's response to the Report of the Royal Commission.
Preliminary observations
Not a matter of more but better disclosure
A common theme in previous inquires and in the Paper is that consumers are provided with the required information but not in a manner that promotes understanding. The challenge is how to regulate the way disclosure is made for insurance policies in order to promote better consumer understanding.
Simplicity is not the only answer. As discussed in the Paper, the utility of Key Fact Sheets are in question. Insurers have also noted that the use of simple and standardised language could restrict effective comparisons between policies and actually mislead consumers into purchasing unsuitable insurance.
Insurance policies are inherently complex documents. Regulations also prescribe what details are required to be disclosed to consumers. There is a real tension between meeting these demands and providing a succinct consumer friendly document.
The law will need to keep up with technology
Whilst reforms have been made to the Insurance Contracts Act and financial services regulations to facilitate online/digital disclosures, obstacles remain. These obstacles, however, may very well be designed for consumer protection. Regulatory reforms to allow more innovative ways to provide disclosure will have to balance improved consumer understanding with consumer protection for those who may not be as technologically savvy.
How to have your say?
The Government is taking submissions until 28 February 2018 and can be made by post or electronic lodgement.
To review the discussion paper click here.
