Deciphering the insurance code

ROB STOCK

On the cover of the ANZ Asset Protector policy is a stunning younger woman reading a novel.

She's reclining on an immaculate white sofa. A fire burns behind her in her obviously well-to-do lounge. She's made it. She has assets to protect.

And she's calm, exhibiting not the slightest hint of stress or concern.

It's unlikely she'd look that way, if instead of her novel, she was ploughing her way through the insurance policy that provides the protection she is so obviously enjoying.

Then a furrowed brow and a confused look might be more likely, because though insurance documents have come a long way in the past 20 years, but they are by no means light reading.

It's perhaps unfair to start with ANZ, because it has put a lot of effort into making its policies attractive, readable documents, including getting the font and spacing right to enhance readability, and including pictures to make abstract concepts concrete.

Many other insurers do not yet measure up to its standards.

But as Susan Taylor, the chief executive of Financial Services Complaints Limited, points out- the obligation is on the policyholder to understand the policy they are signing, even though they are not easy documents to read.

As much insurance is sold direct or bought from banks, people must face up to the challenge of reading them or suffer the consequences.

In the worst cases policyholders can find claims are rejected because they have inadvertently failed to do something the insurer expected of them. In extreme cases, the insurer will also cancel the policy. It is also common for people to find their insurance doesn't cover everything they thought it did. The reverse is also sometimes true, with people having cover they don't realise they have, and so do not utilise it.

So how do you approach reading an insurance contract?

Insurance Ombudsman Karen Stevens said the starting point is actually to try.

"The first critical thing is to actually read it, because in most cases, we find that people don't read their insurance policies, full stop."

"Often people won't read it until after they make a claim, or even after they make a claim, but only when a claim has been declined."

Assuming you have got yourself in the right space to begin reading (see sidebar), the first thing to do is leave your assumptions at the door.

"People will assume, often wrongly, that they will be covered for something when they are not," said Stevens.

Reading insurance is, in the first instance, about confirming you are going to get the cover you want.



　

But the policyholder also has to understand the instances when the insurer will not pay.

Take life insurance. It pays the sum insured in the event of the insured person's death. But that is only partly true.

A policy may not pay in some instances, such as if the insured commits suicide in the first 13 months of the policy, if they were breaking the law such as engaging in a knife fight they started when they died, if they were drink-driving, or their death occurred as a result of the use of illegal drugs.

These are known as "exclusions".

But policies also tell policyholders about their duties to the insurer, and policyholders should be in no doubt that a claim may not be paid, if they fail to do something their insurer expects of them.

Stevens said: "Your obligations are quite extensive and significant."

To calculate the premium it needs to charge, a life insurer will ask whether you smoke. If you said you didn't, and after your death the insurer found you were lying, then the insurer would be within its rights not to pay.

Some of the obligations on policyholders can be hard to grasp from policy wordings.

For example, if a car insurer finds a policyholder's car tyres were bald when they skidded off the road and hit a lamppost, they might well decline the claim because the policyholder had failed to maintain their car to a reasonable state of repair.

Insurers have tried to make reading policies easier.

Generally, there will be sections to the policy, breaking it down into bite-sized portions.

Often policies will actually give advice about how to read them.

State's comprehensive contents policy, for example, seems long at 16 pages, but it is presented as a series of manageable sections like: "Reading your policy", "So what must you tell us?", "What your policy covers", and "Exclusions that apply to the whole policy".

It is important to also remember that a contract of insurance is made up of more than one document.

There's the policy document, but also the insurance certificate, which contains information on exclusions specific to you. Each year a renewal notice is sent out, which also goes unread by legions of us.

The truth is though, that many people struggle to get the information they need from complex documents.

New Zealand tests adult literacy based on what proportion of people can manage comprehension set at five levels, with level 4 tasks demanding "the integration of information from a long passage, the use of more complex inferences, and the completion of multiple-step calculations requiring some reasoning". This roughly describes understanding an insurance contract.

In 2006, testing found just 18 per cent of women aged 45 to 54, and 19 per cent of men, tested at levels four or five.

That illustrates that no matter how well-written documents are, insurers must do more.

Some people are better visually, and insurers are becoming more interested in multi-media approaches to communicating with their public. Southern Cross Healthcare Society, for example, is working on videos to be posted online to help people understand the cover they have and how to make claims.

Asking for help from family can also be a good idea, said Anthony McPhail, head of member services for Southern Cross. Insurance advisers can short-circuit the whole process by not only explaining policies to you, but selecting the ones that best suit your needs, he said.

But there is also the problem that some concepts are just difficult, and that sometimes insurers interpret things differently to the way we expect.

When you are unsure of something, you can ask your insurer, though their answers form part of the contract with you. Stevens suggests you record them or have the insurer put them in writing, because one day you might need to prove what was said to you.

There is helpful information on the Insurance Ombudsman's website.

For example, say you are struggling to understand what the term "gradual damage" means, the Ombudsman's searchable index provides case studies dealt with in this area.

And her case notes give insights into aspects of insurance that reading a policy will not reveal.

Some show insurers refusing to pay legitimate claims, acting unreasonably or seeking to pay out less than they are obligated to, requiring the policyholder to battle for their rights.


Sunday Star Times