When we hear confused complaints from consumers who thought they had bought flood insurance, only to find their homes were inundated by “river rising”, not flood, it is clear our insurance companies have much to answer for. Tricky wording, obscure clauses and a sales culture where staff are rewarded for the premiums they bring in, rather than doing the right thing by consumers, are hallmarks of an industry that deserves much of the criticism it gets.
But the floods have also highlighted, again, the unpalatable fact that many consumers spend more time researching a new TV or car purchase than important financial contracts.
Whether insurance, mortgage, a credit card or loan contract, an investment or a contract for financial advice, Australians are too prone to taking things on trust.
One of the glaring shortcomings of our regulatory requirements is that they rely heavily on disclosure. Depending on what sort of financial product or service you’re buying, there’s a long list of what you must be told, covering everything from fees and charges to commissions, risks, key terms in the contract, exemptions or exclusions, penalties if they exist and what to do if you have a complaint.
But nowhere in all this legalese is a guarantee that you must understand what you’re being told. With products such as investments, advice, and insurance, the disclosure often turns out to be counterproductive. A common theme in submissions to last year’s raft of inquiries into financial products and super was information overload.
Faced with a thick document full of lawyer-speak, many consumers throw up their hands and rely on what the person selling the product tells them – even if that person has a vested interest in making the sale.
Contracts are often hijacked by legal departments intent on making sure every “i” is dotted and every “t” is crossed – in triplicate.
When it comes to flood insurance, insurers have a legal obligation to clearly inform their customers of any exclusion in the policy that relates to flood damage.
According to the Financial Ombudsman Service, if the insurer doesn’t meet this obligation, the policy becomes a “prescribed contract”, which means flood cover may be deemed part of the policy even if that wasn’t the insurer’s intention. To avoid this happening, the insurance contract must specifically exclude flood damage in unambiguous terms.
That would seem to be enough to prevent any misconceptions but it is painfully clear that many consumers either haven’t read these exemptions – or have simply misunderstood them.
House and contents policies are by no means alone in presenting enormous hurdles for consumers who want to be able to understand exactly what they’re buying and to compare different offerings.
They provide a good example of the many problems financial consumers face.
It is scandalous that there is no standard industry definition of key terms such as storm damage and flooding.
Industry lobby group the Insurance Council of Australia blames this on consumer groups that objected to its proposed common definition back in 2008.
As it stands, policies can distinguish between flooding, flash flooding, stormwater, rain run-off, riverine flooding, inland flooding, sea surges, other types of sea-related damage – and probably a few more. For a home owner who simply knows there’s water everywhere and their house is wet, it can seem like splitting hairs.
Nor are home buyers usually given critical information – such as whether their home is prone to flooding – as part of the home-buying process.
So not only do you have to wade through different definitions and exclusions but you also have to do your own research to find out if you even need the cover.
Hopefully the post-flood soul-searching and inquiries will deliver a better deal for insurance consumers but don’t hold your breath waiting. These questions have all been debated before.
The real lesson for all financial consumers – whether you’re at risk of flooding or not – is to pull out those insurance and other contracts and give them a thorough check.
What does the fine detail say? Will the contract really deliver what you want from it or are there escape clauses that could leave you exposed? What does the contract require you to do? Are there penalties that could apply if you run into problems and fail to meet your side of the bargain? Are there hidden costs you didn’t know about?
With Canstar Cannex recently highlighting the traps in those attractive zero or low-interest balance transfer offers on credit cards (things such as subtracting your repayments from the balance transfer and charging interest on new spending, high revert rates once the interest-free period ends, no interest-free days on the transfer and, where you transfer from more than one credit card, different interest rates), it is clear that it is not just insurers that can turn around and bite you when you least expect it.
Source : The Sydney Morning Herald
