Research: disclosure docs don't help us choose insurance

A study has found that disclosures mandated by the government do not help us to make insurance purchasing decisions. The research, (In)effective Disclosure: An experimental study of consumers purchasing home contents insurance, was conducted by Monash Professors’ Justin Malbon and Harmen Oppewal.

The effectiveness of home contents product disclosure statements (PDSs) and fact sheets was examined, with over 400 study participants across Australia. Participants were invited to buy a home contents insurance policy from three rankings: good, okay, and/or bad policies.

While this research is on general insurance, the crossovers tend to apply to all forms of direct insurance where consumers don’t understand what they are buying, or how to read a PDS effectively.

Key findings include:

  • Over 40 per cent of the participants opted for the very worst policy on offer, despite being given plenty of time to review the disclosure documents

  • When there were three policies on offer, 35 per cent chose the worst policy, and 46 found and selected the best policy

  • There didn’t appear to be any clear pattern of understanding when people were provided with more or less disclosure information

  • Participants were more likely to not buy a policy when they only had access to the PDS

  • It didn’t matter how the person looked at the disclosure documents as to their purchasing decisions

Professor Oppewal said, ‘In these circumstances the question needs to be asked whether disclosure is an effective tool at all to aid consumers in choosing an insurance policy. Mandated disclosure may serve other purposes, including informing the purchase choices of highly literate and motivated consumers, guiding consumers through the claims process or ensuring they have a clear guide as to the limits of their policy when there is a dispute, but the findings indicate that even in ideal circumstances, disclosure does not ensure that consumers make better decisions nor does it help their chances of obtaining suitable insurance cover.’

Professor Malbon said, ‘There is clearly considerable room for improvement in mandated insurance disclosure documents, but when people keep making the wrong decision even in the most ideal of circumstances (and with starker differences in policy coverage than usually exists), you have to wonder if there is a better way.’

The researchers noted that maybe it was time to rethink the disclosure document in favour of something simpler and more useful. People are routinely unaware of just what sort of product they have purchased.