Consumers and Complex Contracts

Paul Harrison has this fascinating article about an experiment to see just how much consumers understood about a particularly common, yet complex, contract: one for a smartphone plan. Reading this quietly at your desk or on your phone in the commute you might reflect on whether or not you read your smartphone plan. What about the contract when you updated your OS? You probably didn't look and you probably aren't alone. In fact, compared to the 'average' consumer - whatever that is - you are far more likely to have looked. So even if you did, you cannot assume that others would. You may have glanced at a few of the headings. Perhaps you visited the most commonly read section: the privacy information. 

But the good folks at Deakin University's Centre for Organisational Health and Consumer Wellbeing conducted a rigorous test to find out just how much consumers understood from their contracts. They even looked at it under different circumstances - giving consumers more or less information. Consumers given the lengthiest disclosures were not found to have the best understanding of the contracts. Some observations are made about the complexity of regulating a sector when the concept of informed consent is clearly flawed. In situations which are too complex for consumers to understand there is a risk that a good proportion of consumers are falling back on what they think they know, or a vague idea that it will be a fair deal. 

For insurers that provides us with three lessons: 

  • We should work hard to make documents more intelligible, and find ways to ensure that key points are communicated. 
  • We should recognise that we must test terms against what is reasonable - because most consumers will not fully comprehend them, when the inevitable complaints come, what do you want to be defending? 
  • Lastly, we should understand that regulators will be looking at this. The telecommunications market has many points of similarity with insurance: complex products, multi-year contracts, technological change, high rates of switching, lots of intermediated sales, overall it could be characterised as a widely-used product which is so complex that it is little understood. Insurance Sales and Claims Data

Jenée Tibshraeny has this excellent piece on the sales of insurance and the willingness of insurers to release claims data. If you are an adviser and easily offended by anyone talking about buying insurance direct then this might not be for you. But that would be a shame, because there is actually a lot of interesting data and quotes from insurers in the piece about claims rates overall and TPD claims in particular. 

The whole interest in the piece has arisen because of the ASIC investigation into claims rates. That was a really useful piece of work. Although some in the Australian media are trying to portray it as more evidence of bad practice among insurers, it is actually a really positive report for the industry. The industry pays lots of claims - typically in 90+% range and upwards. The report also showed the value that Financial Advisers add: clients of advisers got more claims paid than non-advised customers. There was only one blemish, really, and that was TPD. 

TPD has a bad reputation in Australia and New Zealand, but for widely divergent reasons. In Australia insurers don't like it much because the market has become highly litigious and almost everyone who is in work has TPD as a part of their superannuation scheme. So the cover is much more widely held and claimed on than in New Zealand. Here TPD is rarely bought and rarely claimed on. How rarely, we have no idea.

Regular readers will know that I am an advocate for more data. I love data and I think it helps make better decisions. I also think that advisers and customers are not quite the fools they are assumed to be by some commentators: they can use data responsibly. Some won't, of course, but they are probably making all the mistakes they will make right now.

But reluctantly I have to agree that NZ insurers are probably right to be cautious about releasing TPD data. There was a big change in TPD products about five years ago: the addition of 'partial' benefits in TPD. These arose because of negative media reaction when claimants suffered very substantial, and permanent, but not total disabilities, like losing a leg, for example. Mixing up the data from the older contracts with the new is a major risk. So is acting on your own if none of your competitors are going to share their data. This is an area where the action of an industry body or regulator can help a lot. Naomi Ballantyne is quoted as saying that she supports the idea of developing standards for the release of claim data in a recent goodreturns article, but recognises that there are technical challenges. Another challenge is this: if TPD does have a problem, with low claims rates, say, it will never be overcome by keeping it all a secret. It will only be overcome by making better products and being open about the value they deliver.

In the UK, the Association of British Insurers has had success in boosting market confidence in products through claims reporting. For them it wasn't about boosting direct over advice, it was about boosting all forms of sales through improved consumer confidence. That looks like a good goal to me. 


Slow News and Quick News

There is value in reading on the latest. I confess to having been a bit addicted to checking on the US election recently. I have been a grateful consumer of articles with date and time stamps - I want the latest in such a context. 

But there is value is slower news. Analysis, usually written days and even months after events, does matter. That's because, unless you are a day-trader, most decisions can be made a a more leisurely pace. In such a timescale it is far more useful to get a decent analysis. Both kinds of news are important, but there is a thoughtful defence of the monthly newsletter containing analysis at this link. That also happens to be the kind of content financial advisers should probably focus on providing for their clients. 


The "Robo vs Human" Construct is Wrong

I'm deeply frustrated by headlines about robo-advice at the moment. Any analysis which sets up the discussion as a binary either/or is just plain wrong. Looking at a channel choice as "Robo OR Human adviser" is simply wrong.

This reminds me of the trend in the 90s for "Internet Only" banks. Almost none of these exist today. Most successful banks offer multi-channel support for their customers. Most successful technology companies do too: I can buy Microsoft products online, in a store, and over the phone. I can get support for them that way too. I may never know when services like online chat to troubleshoot technical problems are provided by a human, or AI. 

But it isn't just big businesses that are changing. Small ones change too. Our family lawyers used to be incapable of dealing with us by email. Now they can. Most suppliers prefer payment using online banking, setting up appointments by text and email, and using apps to help with product selection. Which brings us back to advice. It is advice, in a way, just don't call it robo-advice okay. Advisers will be as likely to use IT to enhance their provision of advice and customer service offers as big business.


Southern Cross Product Changes

Southern Cross are making a number of changes to their Wellbeing range effective 7 November. They are adding medical oncology consultations and chemotherapy treatment to their list of Affiliated Provider-only healthcare services. More details are available on the Southern Cross adviser gateway. Here is a document they have put together for detailed FAQs about the changes.

Quotemonster High Users

Are you a high user on Quotemonster? You may want to consider the following tips if you use Quotemonster to do all your quotes:

  • Think about saving your quotes elsewhere. Quotemonster is not designed as a CRM and therefore we do drop old quotes off the system to allow for the site to continue running a good speed for advisers. Be sure to save copies of the Quotemonster reports you create in a CRM, or online storage such as Google Drive, OneDrive, iCloud, or Dropbox, a hard drive or another source of external storage.
  • Be sure to regularly check your 'Settings' button to ensure you are quoting the products you think you are. Occasionally we will add new products or an enhanced version of an existing product which will also be found in the 'Settings'

Talk to us - feel free to drop us a line or give us a call on (09) 480 6071. If you have any feedback or would like to ask questions we would love to hear from you.