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5 fixes for the insurance market

The cost of insurance continues to rise above the rate of inflation. Unsurprisingly, respondents to our insurance satisfaction survey were less likely to be content with premiums and value for money compared to other satisfaction measures, such as customer service. Health and life insurers did especially poorly here. Only 33 percent of respondents with health insurance and 29 percent with life insurance felt their cover was good value for money.

Nevertheless, most respondents weren't planning on switching insurers in the year ahead. Who can blame them? Shopping for insurance isn't fun, particularly when it's difficult to compare policies across insurers.

Here are five fixes that we think are needed to improve the insurance market for consumers.

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1. Make cover clearer

When consumers buy insurance, they tend to focus on premiums first, policies second. Premiums are easier to compare across insurers whereas policy documents can be dense, running to 40 pages or more.

To attract customers, insurers highlight the most marketable benefits of their policies: “new for old” (contents insurance), “no claims bonus protection” (car insurance). But the advertised features vary from insurer to insurer – and may provide an inaccurate gauge of the quality of cover.

We think insurers should be required to provide a one-page summary of core policy features, in a standard format, so it’s easier for consumers to compare what’s on offer. Our members agree. Of 7549 respondents, 91 percent said they’d find simplified summaries useful.

2. Improve price transparency

Research by the UK's Financial Conduct Authority found the pricing practices of insurers at renewal deferred consumers from looking for better deals. The failure of insurers to clearly display premium increases means customers may not realise they're paying more than necessary.

From April 2017, the authority is making British insurers display the past year’s premiums in renewal notices. It found customers presented with a direct comparison between past and future premiums were 11 to 18 percent more likely to switch or haggle with insurers.

We asked our members: would you find it useful if renewal notices contained the previous year’s premiums? Eighty-four percent of our respondents answered “yes”.

3. Publish complaints

By law, insurers are required to be registered with one of four dispute resolution schemes.

If you and your insurer can’t settle a dispute, you can make a complaint to the applicable scheme. But these schemes aren’t required to publish data on which insurers are subject to the most complaints (and which complaints are upheld).

Dispute resolution services in Australia and the UK publish disputes data on individual insurers. Both services say the data encourages insurers to up their game. We asked our members: would similar disputes information be useful here? Eighty-eight percent answered “yes”.

4. Fix unfair terms

In 2015, the Fair Trading Act was beefed up to ban unfair terms in consumer contracts. Unfair terms include those that give the company rights to unilaterally change the service or penalise the consumer for cancelling the contract.

But after successful lobbying by industry, insurance policies were largely excluded from the ban. These policies still contain terms that would most likely be considered unfair in other contracts. Some allow the insurer to make wholesale changes to your cover; others permit the insurer to keep a slice of your prepaid premiums if you cancel midway through the term.

We think insurers should be subject to the same rules as everyone else.

5. Deal with disclosure

When you take out or renew a policy, you must tell your insurer about “material facts” that could influence either its decision to insure you or the terms of your cover. If you want car insurance, for instance, you need to tell your insurer about past accidents, claims and vehicle modifications.

If you fail to disclose a material fact, your insurer can cancel your policy and refuse your claim. It doesn’t matter if your omission was deliberate or accidental.

Other countries have passed legislation to protect consumers in cases of accidental or innocent non-disclosure. The Law Commission proposed similar changes to our law as far back as 1998. It’s high time those proposals were dusted off.