The Australian Securities and Investments Commission (ASIC) have called for home insurance companies to standardise their policy definitions to enable easier comparison of policies for customers.
Speaking before the Senate Economics Reference Committee, representatives from ASIC declared that differing definitions in insurance policies is a real problem facing Aussie customers at the moment.
For example, ASIC singled out two similar home insurance policies from different providers that had differing definitions for ‘actions of the sea’.
One policy defined it to include cover for tsunami damage, but the other policy didn’t.
ASIC also told the inquiry that most people don’t read the product disclosure statement (PDS) when buying insurance, instead relying on word-of-mouth recommendations.
ASIC Executive Michael Saadat said consumers don’t always understand the differences between policies.
“Where there are differences in definition, it’s not always possible for consumers to appreciate the differences those definitions create,” said Mr Saadat.
Recent research commissioned by the Insurance Council of Australia (ICA) found that 80% of customers either don’t read or don’t understand the product disclosure statements on their policy.
Australian Prudential Regulation Authority (APRA) member Geoff Summerhayes agreed that overly-long PDSs are outdated.
“The PDS regime came from a place of good intent, but I’m not sure if consumers are well served by 30,000 or 40,000-word documents,” Summerhayes said.
Insurance definitions in the spotlight again
Several insurance companies have been stung by dodgy definitions in the past.
Last year, CommInsure was at the forefront of an investigation by Fairfax Media and Four Corners into life insurance claims process lapses.
CommInsure were accused of deliberately trying to avoid meeting claims through the definition of “heart attack” used in their trauma cover policies.
One heart attack survivor was denied a trauma claim due to the strict wording of CommInsure’s heart attack definition, leaving him ineligible.
Other findings of the Senate inquiry
The Senate inquiry into insurance transparency found that insurance contracts were the only type of contract not protected by consumer law, and that many policies are over-valued.
Chief Executive of Victorian Council of Social Services (VCoss), Emma King, said, “Fundamentally, many insurance contracts sold are simply not worth the paper they’re written on.”
Speaking to The Guardian, Ms King said she believes that the insurance market has failed low income earners and other vulnerable people. Up to 4 million Australians on low incomes face significant barriers to accessing quality insurance.
“As a whole, it’s the view of VCoss is that what we’re looking at is a market failure,” she said.
“A failure to communicate clearly, a failure to offer suitable products, a failure to implement sufficient hardship policies, a failure to be socially responsible, and a failure to provide what is an essential service to all Australians.”
Another key finding of this inquiry was the discovery of all the bizarre things that can affect your car insurance premiums.
If you drive a white car, you could be getting a discount you don't even know about on your insurance. #9Today pic.twitter.com/mpEkeTeTRj
— The Today Show (@TheTodayShow) April 12, 2017
The inquiry into the insurance industry will continue on Thursday.
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