Simplified policy wordings: a delicate balancing act
The complexity of insurance policies is a legacy issue that has been exacerbated by an ever-evolving legal and statutory environment.
The introduction of the Treating Customers Fairly (TCF) regulation greatly impacted how policy wordings are structured and put the onus on the insurer to produce contracts that are simplified and consumer-facing.
Legally binding contracts
However, insurance policies are legally binding contracts that must be able to withstand scrutiny by the courts when claims arise. An ambiguous wording can cost all parties involved considerable time and money, when the intent of cover must be established in a court of law, because the wording is unclear and subject to more than one interpretation.
In such cases where the policy wording is interpreted in a court of law, insurers are at risk of being exposed to claims that were not intended to be covered by the policy. The flip side of the coin is that the insured party is at risk of being denied coverage under a policy they have purchased, due to unclear language.
Therefore, the balance between compiling policy documents that are clear and understandable, and ensuring that an insurer covers risks as they intended, is a delicate one to strike.
Readability in insurance policies
A study conducted by Willem H. Van Boom, Pieter Desmet and Mark Van Dam, for the Journal of Consumer Policy suggested that higher levels of readability in insurance policies correlated with high levels of consumer trust and confidence in the sense that has increased their confidence around claiming and what is covered. There was also evidence that increased readability assists with the consumer’s willingness to engage in legal action, in the case of subsequent claim denial.
What this presents for insurers, is a catch 22, but not an impossible one to navigate. A more comprehensive and complex wording ensures clear intention is demonstrated and less debate at claims stage which is beneficial to all parties. To the contrary, offering more readable contracts promotes customer-centricity in an industry that seems historically one-sided. Interpretation of coverage is where intermediaries have been historically invaluable and as the comparison, digital and disintermediated markets expand, the plain language versions become even more critical.
Part of an intermediary’s role is to analise the needs of the insured and assist in presenting them with options and alternatives. As an expert in the insurance industry, the intermediary is trained to interpret the inner workings of policy wordings. They are in the best position to convey the meaning of the clauses to the insured party in simpler terms, without the use of jargon or legal terminology necessary for the proper functioning of the contract itself as well as to compare between different insurer suppliers.
The South African perspective also needs to be considered. As a country with 11 official languages, the accessibility of policies to a larger consumer base relies heavily on whether those policies are available in languages that are often overlooked: Venda, Northern and Southern Sotho and Tswana.
Herein lies a unique opportunity for insurers and intermediaries to gain a competitive edge, by serving the underserved and broadening their reach. Their approach will depend largely on their business model, their commercial objectives and how they would like to be perceived in the marketplace by potential clients and industry competitors. As such, there is no blanketed solution.
Reviewing and revitalising wordings
The simplification of policy wordings is a mammoth task that would involve many parties and across many classes of business. It is, however, possible with a timeframe that would need to be product- and purpose specific. Intermediaries will play a crucial role in this process of reviewing and revitalising policy wordings as they provide insight from a different perspective of interpretation garnered during client engagements when issues and discrepancies are picked up – these must be communicated to insurers.
In a world of changing legislation, ensuring certainty for all parties to the contract, requires the review and updating of policy wordings on a continuous basis, rather than allowing them to stagnate over several years. Furthermore, changes must be clearly communicated to clients and intermediaries, to ensure a meeting of minds.
Thato Monaheng
Underwriter (Liability)
SHA
and
Mbalenhle Thabethe
Underwriter (Liability)
SHA