Simplify the Way at Reading Documents

At the time of buying insurance, investing funds into the financial products and taking out a loan, customers are required to be fully aware of all the terms and conditions and rights and responsibilities of both the customer and the product issuer.

However, most customers can not read the complex and lengthy documents like product disclosure statements, prospectuses or key fact sheets as simplified materials. It could bring in the horrible result, for example, many Australians realise the insurance policy could not cover the natural disasters after suffering heavily from bush fires and floods. It improves the way of protecting the homes and contents if people read the policy documentation carefully and find out the specific risk exclusions. Legislator, regulators and industry bodies require the customers to read the rules but can’t make them read with great understanding.

There is an independent disclosure task force in 2015 established by the Insurance Council of Australia (ICA) in examining product disclosures and customer behaviours. The research shows that the diverse customer range requires the industry to be nimbler and more innovative. Moreover, the customers are expected to not only focus on the policy price but also realise the importance of selecting the right type and cover level with industry actions.

Another 2018 research by two Monash University professors also shows that there is a high percentage that customers still don’t choose the best product event they do read all related documents. Justin Malbon from Law school and Harmen Oppewal from Business school in Monash University, randomly select 406 Australian participants to purchase a home contents insurance policy with a PDS or key fact sheet from three different choices under the title of An experimental study of consumers purchasing home contents insurance. There are many people make decisions based on the price and brand with the fact that only 46% participants found and selected the best policy while 42% chose the worst insurance product.

Australian Securities and Investment Commission (ASIC)strengthens the enforcement power to ensure all retail financial products fully followed the Corporations Act and warn the industry to prosecute issuers and distributors and ban products if necessary.

The regulatory complexity brings in many problems and there are still challenges unless the issues of providing the right disclosure level are solved. ASIC’s product exemption power will be a game changer for helping to protect customers with intervention, and it is also important for current laws to improve their simplification and modernisation. Since the multi-layered approach is required to deal with the regulatory complexity issue, corporations and preparers need to take the plain English readability viewing point for documents. Regulators, lawyers and accounting bodies also have an important role in devising the financial documents as the way that customers can read easily. As one of the problem methods, creating a simplified system for insurance products and disclosure practices is regarded as not easy in offering a standard set of gold, silver and bronze cover with only price differences across the industry by insurers.

According to ICA’s prospective, the complex issues of business product choice and competition will not be addressed in a short time, and the industry would be concerned about the mandated imposition that risks oversimplifying products, reducing competition and undermining consumer choice. Besides, price is one of the considerations in purchasing insurance and customers need to concern more aspects in considering the choices. There are some more important decision rules including choose the best one that meet consumer needs while the cheapest product not usually achieve the goal.

Some companies provide the differentiating benefits and features and even purchasing guides including side-by-side company or product type comparisons to help the consumers better evaluate their choices. There is one example that a bank may provide the catalogue of the checking account options with every option’ features. However, the customers may feel confused about which is the best one to select with only quantity of approach information but no guidance from the bank.

Customers need market tools to identify and compare the features that are the most related and suit their demands. De Beers’s use of the “4 Cs” strategy in cut, colour, clarity and carat for framing and vexing diamonds, which is the classic instance for simplifying the purchasing process and making the informed decision.

Are you confused about reading the conditions and rules in purchasing any business product? Book a free consultation with us today to get some advice!

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