Disclosure docs don’t help people choose better insurance

Government-mandated disclosure doesn’t help people make better purchasing decisions when it comes to insurance, according to a world first experimental study.

Entitled “(In)effective Disclosure: An experimental study of consumers purchasing home contents insurance,” the study, conducted by Monash University Professors Justin Malbon and Harmen Oppewal, examined the effectiveness of home contents product disclosure statements (PDSs) and key fact sheets (KFSs) in assisting consumers to select the best policy that suits their needs.

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.

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And 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.

The study also showed there was no simple and consistent effect of disclosure. In other words, while participants were more likely to forego purchasing an insurance policy when they had only access to the PDS the results did not find a clear pattern of understanding where people were provided more or less disclosure information.

It also showed that purchasing decisions were not affected by the way in which the consumer viewed the disclosure, that is, either via a computer or smart phone.

Professor Oppewal said that the question needs to be asked whether disclosure is an effective tool at all for aiding consumers in choosing an insurance policy.

“Mandated disclosure may serve other purposes … 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,” he said.

Professor Malbon said while there is clearly considerable room for improvement in mandated insurance disclosure documents, when people keep making the wrong decision even in the most ideal of circumstances, “you have to wonder if there is a better way”.

“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,” Malbon said.

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This probably doesn't come as a surprise to too many people. Other of course than to the politicians and regulators who impose these shorts of requirements to make the public think they are doing something. The same is undoubtedly be true about the mandatory Privacy and Credit Guides that Mortgage Brokers are required to issue. Often the banks and other lenders also require Brokers to get customers to sign their specific Privacy and Credit Guides on top of the Broker/Aggregators documents. The reality is that this proliferation of documents generally adds very little value to the end customer, but the process adds costs and delays and create customer frustration /confusion. The information needs to be available to customers, but more importantly regulators need to develop an understanding of how customers and suppliers actually engage and interact in a meaningful manner.

perversely, I think that the documents enable the provider or their lawyers to say "we told you". "It is all in the PDS" Consumers simply expect life insurance to pay out if the insured dies, disability insurance to pay out if disabled, house and contents insurance to pay out if house or contents damaged etc. The sort of disclosure that might possibly work would say. These are the situations where your policy WILL NOT pay or where it will be complicated to make your claim :..... 1....2....3..... etc, and please initial beside each point.

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