Insurers minimising advice exposure - ASIC
An Australian Securities and Investments Commission (ASIC) review of the sale of home insurance has confirmed the degree to which the absence of advice and reliance on documentation such as Product Disclosure Statements (PDS) have contributed to the issue of under-insurance.
The ASIC review found that while all general insurers provided consumers with comprehensive information and disclosure for home insurance products mainly through websites and within PDSs, most consumers did not read the disclosures and those that did not always understand the scope of the insurance.
It said one of the reasons for this was that when consumers were faced with complex decisions or large amounts of information they experienced what was referred to as ‘cognitive overload', "which can affect how consumers process information and can weaken the use of critical decision faculties".
The ASIC report also suggested that those consumers who went to the trouble of phoning insurers for greater detail were often referred to the contents of a PDS, even when the documentation had not actually been received by the consumer.
The report also noted that some telephone sales scripts appeared to adopt a no advice or factual information model despite the insurer in most cases being licensed to provide general or personal advice.
"Feedback from insurers is that they do this to minimise the risk that any advice provided will trigger regulatory requirements associated with personal advice," it said.
The ASIC report said the review findings "highlight the limitations of disclosure".
"The rationale for relying on disclosure to protect and empower consumers assumes that consumers are rational decision makers who, when given information about a financial product, will be able to read it, and as a result of doing so, understand the product," it said. "However, consumer research, psychology and behavioural economics indicates that a consumer's decision making is affected by behavioural biases, and that financial decisions are motivated and influenced by a complex mix of internal and external factors.
"We therefore consider that further work is needed to examine how behavioural insights can be used to experiment with different options to help ‘nudge' consumers toward better understanding the insurance they are purchasing so that it meets their needs," the ASIC analysis said.
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