Yesterday I bought a pair of headphones. They cost me £14 GBP. The shop assistant asked me if I wanted a 2-year insurance cover for them. It would cost £5.50 a year.
I promptly declined. I do when anyone tries to sell me anything. No matter the potential prudence of the purchase.
How much small print would I have had to read before signing on the dotted line?
And was this a good insurance offer?
My headphones tend to serve a couple of years before dying in my bag. So, perhaps not.
Nearly everything we buy these days comes with the advice of insurance cover.
Buying insurance for your smartphone is now the norm. Typical rates are around $10 USD a month.
For those selling car insurance, a 2013 analysis reported that for Direct Line, profits continually increase. They had a rise from £255 million in 2011 to £262 million in 2012.
The report argues that profits are used to benefit shareholders. They were to receive £101m in dividends rather than reducing customer costs. This was equivalent to £25 per policyholder.
These findings feed into a bigger issue... Getting insurance companies to actually pay out.
What they will and won't pay for should be set out in the Ts and Cs. When the terms and conditions lack transparency, they're unfair to claimants.
Here we will consider:
- How readable are insurance policies?
- What are the implications of difficult-to-read insurance policies?
- What steps can be taken to improve their transparency?
How readable are insurance policies?
Not very. Challenges around insurance readability are common.
A recent paper from the University of Connecticut on the topic argues:
"Consumers do not fully grasp their health insurance coverage because the jargon found in many health insurance contracts is impenetrable to most Americans".
The paper reports that the passages from their example contract generated a Flesch-Kincaid Grade Level between 13 and 24.
A sharp contrast to the average Rhode Islander reading level of eighth grade.
The cost of any potential confusion by insurance jargon is of particular concern for vulnerable people.
The study focused on people who have substance misuse disorders. In 2015, this constituted 7.8% of the US population. The California Society of Addiction Medicine set out to help. Their aim was to help consumers make informed choices about health insurance.
Focusing on bronze-level insurance plans, an expert panel assessed 16 policies from 10 providers.
Findings revealed variances in language. Depending on the provider, the term "facility" could be used to refer to:
- Urgent care
- Skilled nursing facility
- Residential treatment
- Ambulatory surgical centre.
The researchers note this: without an insurance background, the language could be confusing and misleading. They rely on the consumer to translate the jargon.
How well did insurance providers write for their intended audience? The researchers noted that the highly-ranked understood the consumer's unfamiliarity with medical jargon. So they made adjustments.
The researchers recommend that health plans have a reading grade level of 6.
What are the implications of a difficult-to-read insurance policy?
When faced with an unreadable policy, consumers will misinterpret it. Or, baffled by the endless footnotes and small print, won't even try to read it.
A UK consumer survey exploring car insurance policies confirms this.
Only 27% said they read their policy documents and Ts and Cs in full. 17% of this group claimed to have understood all the content.
Without comprehending insurance policy documents, consumers are vulnerable. The priority for the agents selling the policies is their KPIs.
Ensuring the most appropriate insurance coverage is secondary.
Improving the transparency of policies allows for more informed choices.
What can be done to improve the readability of insurance policies?
The creation of easy comparison tools by expert but impartial bodies. For example, the study on insurance plans for substance misuse disorders resulted in the Consumer Guide and Scorecard. This informed health insurance coverage in California for substance use disorders and mental health. The 20-page report was written for readability. The scorecard illustrates a role for associations. They should raise awareness and improve insight on issues impacting vulnerable people.
Emphasis on the benefits of using readability standards in the insurance industry. The benefits of insurance readability could extend to the insurer. A recent paper highlighted that improving insurance clarity reduces complaints. This saves the insurer money and time. Presenting information in an easy-to-read format could aid a buying decision. From this perspective, there is value to the supplier.
Continuing the campaign for Plain English. The movement for Plain English continues to gain momentum. There are now numerous examples of government policies in place for it. 44 of the 50 US states require that insurance contracts be written in Plain English. Strict rules for insurers to write for the public may be on the horizon.
What difference would change make?
A recent study explored the impact of more readable policies on consumers.
The researchers wanted to know:
(a) whether more readable contracts influenced consumers' views on their contractual position
(b) whether these contracts influenced consumer behaviour.
(c) whether consumers were willing to contest the contract if it did not meet expectations.
They compared new and old versions of car insurance contracts. The new versions have been edited for readability.
Those who received the readable contract expected more compensation.
These results affected the willingness of participants to take action in the event of a claim not being met.
More research is needed. However, this initial evidence supports the importance of insurance readability.