Life policies from major insurers were recently described as ‘unreadable’ by the Auckland University of Technology (AUT), with a minimum of a postgraduate qualification being required to understand most policy wordings. This followed the regulators’ recent report into life insurers, which uncovered ‘significant weaknesses’ in consumer focus and conduct risk management.
Keegan Alexander insurance partner Crossley Gates has over 34 years of experience within the insurance sector; he spent 18 years at NZI advising on claims and regulatory issues, and drafted many of the policy wordings still being used by the insurer today. Gates spoke to Insurance Business about the growing need for insurers to revisit their policies, and the rapidly increasing importance of plain English wording.
“I developed a strong expertise in policy drafting at NZI; after years of seeing various claims I could see many areas where the wording could be improved, but that wasn’t happening,” Gates said. “As I moved up the chain, I came up with a whole new template to use across all wordings. Towards the end, I had drafted all the wordings being used by NZI at the time, and this meant I had an almost unusual level of exposure to policy drafting.”
“At DLA Piper I continued to specialise in policy drafting – not only for general insurers, but also for life insurers,” he continued. “This included a whole suite of life policies which I drafted from scratch, and that was a very valuable piece of experience. This is what I continue to do today, and I’ve likely got one of the longest periods of experience of policy drafting of anyone in New Zealand.”
Gates says that with the FMA and RBNZ’s recent report into life insurers, and the final report of the Royal Commission, it’s becoming increasingly clear that policy wordings need to be written in plainer English. He says imminent changes to insurance contract law will also mean substantial changes to policy wordings, and that the time is ripe for insurers to have a ‘more critical look’ at how they phrase their offering.
“Plain English wording is something I feel very passionate about, and it’s something that I adopted at NZI,” Gates said. “The NZI policies are now viewed as some of the clearest to read and understand.
“I see a wide variation in readability when it comes to the wordings that are out in the market, so I suspect the recent criticisms will generate the need for insurers to have a more critical look at their wordings. Improvements or changes often only arise as a result of a product change, but putting them into plain English for the sake of it hasn’t been very common.”
“A lot of the wordings that I see do need improving, as their readability is quite poor,” he concluded. “It would certainly be a good thing both for the product and the industry if insurers were to lift their game in this area.”