Despite a strong push from the government and insurance sector to increase transparency, raise standards and reform contract laws in favour of consumers, a recent Consumer NZ survey found that the relationship between insurers and customers seems to have remained as rocky as ever.
With only 13% of customers having faith in the advice of their insurer, the key issue remains a fundamental lack of understanding and trust.
Consumer NZ chief executive Sue Chetwin says the results of its recent survey has highlighted ‘significant problems’ in New Zealand’s insurance market, and many customers remain badly informed on what their premium payments are actually getting them. The Insurance Council of New Zealand (ICNZ) has since responded to its comments, saying that, despite public opinion, consumers do get a fair deal.
ICNZ chief executive Tim Grafton said that despite the poor public perception, the statistics were actually fairly good, with only 10% of customers experiencing issues according to an MBIE study conducted last year. But if this is the case, then why is the perception of insurance so far removed from the reality?
“Just 13% of consumers were confident they could trust insurers to give them good advice,” Chetwin said, commenting on the results of the study. “Many were unsure about the cover provided by their insurance policy and what they were getting for their money. Only 18% felt they fully understood the terms of their policies.
“The survey also found one in four had experienced a problem with their insurer. The top complaint? Having a claim unreasonably declined.”
Insurance brokers got a particularly bad rap in the survey, with Chetwin highlighting that those who had bought cover through an insurance adviser were more likely to feel that they had received a bad deal. This was increasingly prominent among customers who had brought life insurance.
“Life insurance brokers get paid on commission, which can be as high as 200% of the premium,” Chetwin said. “Commission-based selling comes with a huge risk that the broker will put their earnings ahead of what’s right for their customer. The results of our research suggest selling insurance this way is leading to poorer outcomes for consumers.”
According to Tim Grafton, this lack of trust is down to a combination of various factors including lack of insurance understanding, the nature of insurance in itself, and the high-profile publicity that insurers inevitably receive when things go wrong. He says that insurers certainly have a responsibility to tackle that perception head-on, but that consumers must also actively build their understanding of the contracts that they enter into – that is, to actually read the terms and conditions before signing.
“The issue in trust is partly because many people don’t actually read their policies, so there’s a misalignment between what the policy says and what the consumer expects right from the outset,” Grafton told Insurance Business.
“Another factor is the relatively low level of financial literacy, and that makes it challenging for people to understand what insurance can and can’t do.”
“There’s also this fundamental conundrum that most people buy insurance, but the value of that insurance is only realised if the worst happens to you – and you don’t want that,” Grafton continued. “Because claims are a fairly rare occurrence, people have difficulty trying to measure the value of that peace of mind. The media is also part of it because good news stories don’t sell, so they’ll pick only the rare and exceptional, which then becomes seen as the norm.”
Grafton says that if insurers do nothing about these lingering stereotypes and negative perceptions, then the future of public trust looks fairly bleak. He says making products more accessible to customers is the clear starting point in rebuilding that trust – and that means clear language, and strong communication.
“Not many people give due focus to the contracts that they sign nowadays,” Grafton said. “But producing simpler products and making strenuous effort to write policies in plain English is what insurers need to be doing a lot more of, as well as providing the opportunity for consumers to build the various policy elements up themselves.
“Better communication, plain English and simple products are key to restoring public trust.”