The provision of a key fact sheet (KFS), even in highly idealised conditions, has not been a standout success, according to a study funded by the New South Wales Financial Rights Legal Centre to find out whether a KFS is more likely to nudge consumers towards making rational buying choices than simply providing a product disclosure statement, (PDS).
The study, carried out by The Conversation, involved providing survey participants various choices between buying a good, okay or bad policy. They were not told the policies varied in quality. The only information they had about each policy was a PDS or a KFS, or both, that was designed by The Conversation. They could also choose not to buy a policy.
The findings for when respondents were asked to choose between the good policy and the bad policy when presented with brief 'fact sheet' are:
- Picked the good one 76.2%
- Picked the bad one 9.5%
- Couldn't pick 14.3%
The best outcome was when participants were offered only a short KFS and not the longer PDS. In this scenario, 76% of participants opted for the good policy.
Yet even in this most ideal circumstance – a simple choice between an obviously good product and an obviously bad one on the basis of a clear two-page document – about 10% still chose the bad product and 14% bought no insurance at all.
The study involved 406 randomly chosen participants across Australia. They were asked to consider buying a hypothetical home contents insurance policy. The Conversation serves as an independent new sources.
When presented with KFS and PDS
Disturbingly, the worst outcome was when participants were presented with both the short KFS and the longer PDS. It was even worse than with the disclosure statement only.
When participants were required to choose between three products, the proportion choosing the better product. declined markedly. Using the KFS alone, only 41% chose the best product.
Federal legislation requires insurers to produce a product disclosure statement (PDS) and make it available to potential buyers.
They are not always easy to find on the insurer’s website and, even when they can be found, are usually long and complex.
No less a body than the Insurance Council of Australia has acknowledged that the exclusions and limits in the statements are often poorly understood.
To overcome this problem, it has been mandatory since 2012 for home contents insurers to also provide a shorter two-page KFS. It outlines in simpler language which events the policy does, and does not, cover.
The take-home message is that although being presented with the KFS appears to be marginally better than being presented with the PDS, or even both, it is far from a panacea.
Time to rethink mode of operation
These findings, along with other research on the lack of consumer comprehension of insurance terms and conditions, ought to prompt a rethink about putting the onus on consumers to make the best choices on the basis of the information available to them.
The government might instead consider mandating standard terms for consumer insurance products across the entire industry.
The inclusions and exclusions for all home contents policies, for example, would be the same. And also for motor vehicle, travel and other forms of insurance.
Consumers could be offered a choice between gold standard cover, which would provide the most cover, and silver and bronze, which would offer less.