Seven deadly sins of the policy document

Written contracts are difficult for consumers to understand, but they are vital.

Monday, April 18th 2016, 11:58AM

by Russell Hutchinson

As an industry we should pay more attention to them and make them work better for us. After years spent analysing hundreds of policy documents, as well as haggling over them in disputes, we have a view about what makes them difficult. These are the main problems with insurance contracts and our prescriptions for fixing them – and workarounds for those of us that still have to use them in the meantime.

1. Keeping it secret – here’s a tip. If an insurer makes it hard to look at their policy before you buy it, just don’t. If the terms of the deal aren’t properly the subject of the sales process, what is?

2.Too long – the client bought life insurance, which pays if you die. But the document is routinely dozens of pages long and some run to over 100 pages. They describe all sorts of things the customer did not buy. In this age of mass customisation and environmental consciousness I cannot understand why.

3. Too many hard words – they require a level of comprehension not common amongst the buying public. There are lots of ways of measuring this, but we have tested every single policy wording in the New Zealand market and every policy has at least one benefit described in language so complex it would be illegal in some parts of the world. Having said that some documents are considerably better than others.

4. Weird structure – you need to read the ‘base wording’ and the ‘schedule’ and the ‘benefit definition’ and check the special definitions of any words that are capitalised or shown in bold in the ‘definitions’ section. I suppose we should be grateful there aren’t two slightly different versions in different languages… but seriously, if you need multiple post-it notes to mark four places in the document to understand what gets paid, how can the average Joe or Joanne be expected to be across this? Weird structure is a legacy of a time when printing was difficult. But it ceased to become difficult to create personalised reports nearly twenty years ago. Today, you don’t even have to send most consumers a paper document. It is 2016.

5. Contradictions – when headings that are different to the content. When “exclusions” only lists half the exclusions and the other half are listed under “claims process.”

6. Formulae – Nearly half of all consumers cannot calculate a percentage, let alone tackle a formula for the amount paid on partial disability. Stephen Hawking was famously told by his publisher that for each formula he included in his first book he could expect sales to halve. Insurers deserve the same. At the very least, where a formula is used, a clear step-by-step example should be shown.

7. Not meaning what you say. I know of more than one insurer that routinely pays more than their policy wording suggests. I believe them too. Nice, good, decent, generous people. But why not change the document? We should have brochures, policy documents, and actual payment policies that line up. Consumers cannot rely on your undocumented generosity. The policy should mean what it says.

So what are the workarounds? Advisers help considerably. Requesting written examples and explanations from the insurer of the document are also useful, but not because they happen very often: insurers are reluctant to give them – but that is the point. If they are not willing to give their explanation in writing, as a policy endorsement, then I suggest that you rely on the standard document. That is what will come out when you argue over a claim, not the half-remembered telephone explanation – no-matter how well meaning.

Tags: Russell Hutchinson