Confusion reigns for policy definitions

Conflicting opinions have emerged within the financial services industry about the concept of introducing standard definitions of critical illnesses for Australian life insurance products.

The key disagreement relates to who is responsible for creating a better understanding among clients about insurance policy features — insurers or advisers.

The Risk Store’s Sue Laing said she supported the introduction of standardised definitions as a way to eliminate confusion — for both advisers and consumers — when recommending or choosing particular products. Laing noted that even financial advisers had a hard time understanding the terminology used in Product Disclosure Statements, with definitions of illnesses varying from one life insurer to the next.

“There is no question trauma insurance is the least understood product in the market, and that’s because it was developed as a huge raft of incomprehensible wordings,” Laing said.

Adviser Brian Handley from Brian Handley and Associates argued policy holders deserved clarity and certainty around policy definitions and that the industry “has to get rid of ambiguity in their contracts”, adding it would be conducive to a stronger take up of trauma insurance.

“If the market got the message that the industry was standardised, they would have more comfort and trust in our industry, which is still lacking to a large degree,” Handley said.

Mark Kachor, managing director of risk research company DEXX&R, argued that while definitions might differ between insurers, the differences were not great.

“The definitions all refer to medical thresholds and [insurers] all refer to similar thresholds — they refer to accepted methods of measuring a disease,” Kachor said.

Association of Financial Advisers chief executive Richard Klipin argued against the concept, saying the introduction of total consistency for definitions would jeopardise competition in the market.

“It’s like having one bank or one telco. You’d end up with a vanilla product without the ability for companies to compete and, indeed, for advisers to offer tailored solutions to their clients,” Klipin said.

Laing, however, pointed to the UK’s example of standardised definitions, in which insurers were able to add unique features to their products to increase competition.

“There are all sorts of things they can do there to innovate on service levels that advisers will take notice of and they will gain a competitive edge on the basis of service propositions,” Laing added.

Both Klipin and Kachor agreed that while more could be done on the clarification of definitions, it was the adviser’s role to “know their product and what they are selling”.

The national manager for risk insurance at RI Advice Group, Col Fullagar, said there was a need for the industry as a whole to provide more clarity on product definitions to create greater understanding for clients and less risk exposure for advisers. However, he said total consistency in product definitions was not the answer.