Improving Consumer Education and Protection
AS A GENERAL RULE, INSURANCE IS NOT SOMETHING THAT IS GIVEN MUCH THOUGHT MOST OF THE TIME, FOR VARIOUS UNIVERSAL AS WELL AS CULTURE-SPECIFIC REASONS.
In the USA, for instance, which is a sophisticated market and one where insurance is a hotly debated topic (especially universal health insurance), a study conducted by LIMRA International, Inc., in conjunction with its 2013 Life Insurance Awareness Month, reported that life insurance was of priority for less than 40% of consumers. In Malaysia, this is part of a larger financial literacy problem, with 67% of Malaysian households “poorly prepared to deal with income shocks with savings of less than three months” 1, as Bank Negara puts it in its Financial Stability and Payment Systems Report 2013. Because of this lack of literacy as well as lack of interest, there is not much incentive for the general public to study insurance in detail, with the predictable result that insurance becomes something of a ‘black box’ for the average consumer. Worse, there may be a negative view of insurance amongst some, due to the ‘gap’ between customer expectations and actual coverage purchased – as evidenced by ongoing online forum discussions both in Malaysia as well as globally. The situation is not helped by the relatively few unscrupulous agents who misrepresent insurance sold, as one drop of bad milk spoils the whole container. Hence, there is a need to both better educate insurance clients, as well as mutually protect both parties from unpleasant incidents.
In general, a large proportion of people don’t like to read, even for pleasure2. Hence, insurance education cannot stop at simply providing pages and pages of small print and contract documents – most people will simply ignore them and file them away. There is also a need, when providing these documents, to use plain language and not simply use legal terminology; also, a friendly and consistent tone and manner are important. This is a necessity; even a body the size of the US Federal Government has recognised it as a particular problem in its own communications and has started to address the issue. In addition, insurers should consider providing concrete examples or even case studies which illustrate what kind of circumstances are covered (and not covered), not just use theoretical language, because most people can’t understand much if details of their insurance policy is presented only in abstract terms. Indeed, the IBS Center for Management Research has indicated that people learn more, and absorb complex matters better, through case studies than other traditional educational methods. It is also necessary to distinguish between how insurers market products to prospective clients, and how those same clients should be educated. While marketing should indeed involve both ‘push’ (active) and ‘pull’ (passive) BNM Report, Page 120 Page 32-33
strategies, insurance education requires more of a ‘push’ strategy, rather than a ‘pull’ strategy. That is to say, insurers who want to thoroughly educate their current and prospective clients must initiate the education process and not wait for such clients to come to them. This is in line with Bank Negara’s strategy, which includes collaborating with the Ministry of Education to ensure that financial education is taught both to students and teachers3, whether they think they need it or not. In this respect, the current collaboration between insurers and Bank Negara through the Consumer Education Programme (CEP) known as Insurance Info is a good start. This is not to say that insurers should concentrate everything on the ‘push’, and abandon the ‘pull’ strategy completely, since newer generations, used to the free-flowing nature of the Internet, will start engaging more closely with their chosen brands. It goes without saying that regardless of whichever strategy (or strategies) employed, individual insurers should make access to information low-friction, and the information itself needs to be easily digested. Nor is educating the insurance clients all there is to it. Education of the insurance channels (e.g. agents, brokers, bancassurance representatives) is also key to avoid misunderstandings or miscommunications between insurer and client. This goes beyond the examinations which MII handles, subsequent additional qualifications and CPE. Insurance channel representatives need to be well-grounded in ethics and the professional codes of conduct that govern them4, whether industry-wide or company-specific, and what this means in practical terms. Individual insurance companies must also thoroughly train their channels in the specifics of their own products – if the channel representative does not know what the product features and limitations are, the customer isn’t going to know either. In everything that has been discussed to this point, though, very little focus has been given to protecting insurance customers after the fact. Empowering the insurance customer through education alone only goes so far. After all, while education is significant in addressing the difference between initial customer concepts of insurance, and the level of insurance they end up buying, it is not the sole component in protecting customers. Insurance itself is all about protecting or shielding customers from the effects of adverse circumstances. When the inevitable happens, customers – who have a legitimate expectation that their losses will be compensated – will be understandably upset if, despite all their precautions, they do not receive the benefits they thought they were entitled to and paid for. BNM Report, Pages 120-121 http://bit.ly/TLit4f, http://bit.ly/1rSqmkj
There are already many protective measures in place to ensure that customers do not feel pressured into buying what they don’t need or didn’t want (e.g. the “cooling off” or “free look” period for life insurance policies). However, more can be done, especially through selfregulation, so that the insurance industry can avoid even more burdensome compliance with statutory or regulatory requirements. Bank Negara has stated its intention to establish a Financial Ombudsman Scheme5, which, if implemented, would be practically the remedy of last resort for the individual customer. It is to the insurers’ advantage that provide as many layers of complaint handling as practicable so that issues are resolved before being escalated to that level. To that end, insurance companies need to invest more smartly in their front-line and back-end infrastructure, improve the claims-handling process, and provide a constant and transparent communications stream with their clients6. In summary, the whole point of upgrading the way we educate and protect our clients is to maintain (or even improve) the public opinion of the insurance industry as a whole, as well as uphold the reputation of individual insurers. In order to do this in the most optimal fashion, our customers must not be looked at merely as income sources, but as lifelong partners in this business. Hence, their education and protection should not only be in the beginning of our relationship, but throughout the lifespan of their policies.
...our customers must not be looked at merely as income sources, but as lifelong partners
in this business.
BNM Report, Page 123 http://bit.ly/1qvH23c