Focus: Highlighting the Government's
proposals for a new disclosure document.
Services: Insurance
Industry Focus: Insurance
Many of your insurance contracts and disclosure documents are 'lengthy', 'daunting' and written in 'dense legalese', according to the Minister for Financial Services and Superannuation. Insureds have become 'confused' about the scope of their cover. The Federal Government's solution? Require insurers to provide consumers with another disclosure document. It is called the Key Facts Sheet, and the Government has asked for your input as to how many words should be squeezed into it.
Background
In February 2011, the Federal Government announced that it had reached agreement with insurers that they would develop and implement a plain-English one page statement of the key features of insurance policies issued to consumers.
The Government then consulted from April to May 2011 on the form of the key facts statement. By that time, the 'one page' summary had already expanded to two pages, with explanatory information set out on the reverse side of the document.
At the end of February 2012, twelve months after the deal with insurers was announced, the Government issued a further discussion paper on what is now called the Key Facts Sheet (KFS) for Home Building and Home Contents insurance policies. The Government proposes that the KFS will set out:
- a description of the policy (its name and the type of cover it provides)
- in table form, a list of what is covered and what is not covered
- information about the cooling-off period
- details of excesses and sub-limits, and
- warnings.
How is the discussion paper different from the consultation paper?
- The Government rejected submissions that the KFS need not provide information about other policy types. Instead, generic information about each type of policy is proposed to be set out on the reverse side
- The KFS is not intended to satisfy insurers' obligation under the Insurance Contracts Act 1984 to notify insureds of any departures from the standard cover prescribed by the Act
- Sub-limits and excesses are to be disclosed on the front of the KFS unless they can be varied by the consumer, in which case generic information about them must be included
- The Government proposes that the KFS will display a variety of warnings including:
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- a warning that the consumer should consider carefully what is covered and what is not
- a health warning that the consumer should consider the financial impact of decisions they make about their insurance
- a further warning that if an excluded matter causes a loss then the policy provides no cover even if there was a concurrent covered cause of the loss;
- yet another warning that the KFS is not a substitute for the Product Disclosure Statement (PDS).
Comment
The proposed warning to consumers that the KFS is not a substitute for the PDS is particularly telling.
It appears to be an acknowledgment of the risk that some consumers will disregard the PDS and policy wording, and rely solely on the KFS when deciding which insurance product to purchase.
Increasing consumer awareness of the cover provided by insurance products is a worthy goal. In fact, it was the same goal sought to be achieved by the introduction of the PDS when transition to the FSR regime commenced 10 years ago this week.
While it is true that many PDSs are longer than necessary and that many consumers do not read them, it is naïve to think that providing consumers with more paperwork will actually encourage more of them to read their disclosure documents. Nor does it encourage product issuers to improve the clarity of their disclosure documents.
Perhaps a more focussed effort on simplifying PDSs would have been more successful at promoting consumer awareness than attempting to identify which terms of a financial product are universally important and then condense them into an A4 sheet of paper. On the other hand, perhaps the KFS is a missed opportunity for replacing the PDS altogether.
For better or for worse, the Government is now committed to the introduction of a KFS as a supplement to the PDS and policy wording. If you want to have your say on how the KFS should work in practice, time is running out.
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