ASIC has stated disclosures have been assumed to inform consumers to make good financial decisions, but in the real world they are much less effective than those writing them might have wanted them to be. I am sure that most people do not read the PDS. Likewise, most people don't read their insurance policy documents. They are too long, and customers are probably assuming that they would find it too hard to understand. They are probably correct in that assessment.
This is an immensely difficult area - because in an intangible purchase the contract is very, very, important. This is also a problem not limited to insurance: increasingly intangible services come packaged with legal agreements that are dozens of pages long, that would be read by fewer than one in a hundred people. Did you read the updated terms and conditions for the Apple Store when they popped up last? What about the terms for Amazon Prime? Instagram? Seemingly small differences in contracts can have large impacts on claims: consider how hard it is for a consumer to properly understand the difference between income minus offsets multiplied by 75% and 75% of income minus offsets.
What is to be done?
I don't agree that the contract is meaningless. We cannot issue insurance without a contract, and the contract has to mean something. We can't have a contract based on what the client wishes they had bought at the time the claim arises. This is a complex problem for which there is no one answer, but several strategies working together in concert. Consumers can buy complex packages of services and contract with confidence when these are all deployed together. Plain English policy wordings help. So do minimum standards, so it is valid for regulators to ask the question about products with very low rates of accepted claims, and low claims as a proportion of premiums. Policy comparison tools are important too in helping to shine a light on the most important features and clauses (of course I think that, owning half of Quality Product Research Limited). Advisers have a particularly important role to play: in explaining the likely terms, providing examples of how the policies work in the real world, and through past claims experience, showing confidence in the claims paying intent behind each policy. New technology and new attitudes can work wonders as well: automating some aspects of the claims process would be marvelous.
Click here to read more about the ASIC statement that sparked these thoughts.