Transparency and the current product disclosure regime
Information asymmetry arises whenever one party to an economic
transaction has more or better information than the other party. While
information asymmetry can, in some instances, lead to undesirable outcomes, its
effect is not always negative in a well-functioning market.
A competitive and efficient insurance market requires consumers to be
well-informed. Information asymmetry that favours insurers can hinder consumer
decision-making because of a lack of understanding about premium pricing,
policy coverage and personal risk. This can, in turn, lead to poor consumer
outcomes, such as inflated premiums, underinsurance, or coverage that is
inappropriate to their needs.
Consumers' ability to make efficient and appropriate choices with
respect to insurance can be impeded by the absence or inaccessibility of
relevant information. In other words, information asymmetries can arise in
consumers cannot access the information they need (e.g. insurers
not providing information); or
consumers have access to relevant information, but it is not in a
usable format (e.g. it is too complex).
The second of these circumstances is of particular relevance to general
insurance. A lack of transparency in the general insurance industry with regard
to disclosure has resulted in significant barriers to consumers' ability to
make efficient use of product information. This issue is exacerbated by the
inherent complexity of general insurance products.
The Consumer Action Law Centre (Consumer Action) succinctly captured
this issue in its submission:
The general insurance industry in Australia is characterised
by a vast range of policies which include varied conditions, inclusions,
exclusions and definitions. Policies are not consistent and do not conform to a
minimum standard. Choosing a product can be a complicated attempt at guesswork.
This is largely due to the lack of transparency in insurance products.
Similarly, Professors Fels and Cousins submitted that:
The complexity of home insurance as currently marketed by the
insurers, and the lack of transparency in its pricing, makes it harder for
consumers to be knowledgeable about the product relative to suppliers. In
short, information asymmetry exists because of the high costs of being
informed. As a result of this, consumers exhibit inertia in shopping around.
The current product disclosure regime
The principal means of disclosure for retail classes of general
insurance, including home and motor policies, is the mandated provision of a
Product Disclosure Statement (PDS) to a consumer at the point of sale.
The current product disclosure regime for general insurance was first
introduced as part of the broader Financial Services Reforms (FSR) in 2001. The
objective of these reforms was to consolidate regulation of the financial
services sector and, by extension, give consumers a more consistent framework
of consumer protection in which to make their financial decisions.
The new disclosure regime aimed to supplement, but not replace, the disclosure
requirements already existing under the Insurance Contracts Act.
Under the current disclosure regime, insurers are obliged to comply with
a number of mandatory requirements, as set out in Chapter 7 of theCorporations Act 2001 (Corporations Act). For direct sales to a consumer,
insurers must provide a PDS at the point of sale. The Corporations Act also
prescribes the content that is required to be covered in a general insurance
PDS. In broad terms, a PDS must provide information about the features and
benefits of the policy being sold, including its terms, conditions, limits and
When insurance is sold through an intermediary, such as an insurance
broker, the intermediary must provide the consumer with a Financial Services
Guide (FSG). An FSG must disclose information about the financial services
offered, remuneration arrangements, and any potential conflicts of interest.
For general insurance policies, the FSG can be combined with the PDS in a
As previously noted, for home building and contents policies, insurers
must also provide consumers with a one-page Key Facts Sheet (KFS). In
accordance with the Insurance Contracts Act, the KFS provides an overview of
key policy features in a standard format. This additional disclosure
requirement was introduced as part of a response to the Queensland flood events
The objective of the current disclosure regime, as stated in the
Corporations Act, is to provide information that 'a person would reasonably
require for the purpose of making a decision, as a retail client, whether to
acquire the financial product'.
A number of stakeholders noted that, while the existing disclosure
regime came from a place of good intent, its interpretation and application was
shaped by the prevailing view at the time that more information was better for
consumers. As acknowledged by Mr Rob Whelan, Executive Director and Chief
Executive Officer of the Insurance Council of Australia (ICA), this traditional
view 'has led to a position in some cases where the PDSs are lengthy, onerous
documents to be able to get through as a mechanism for imparting information'.
CHOICE also noted the shortcomings of this outdated view on disclosure;
in particular, the fact that it does not take into account the substantial role
that behavioural biases play in shaping consumers ability to make efficient
Traditionally the role of disclosure was based on a theory
that consumers are rational agents who will make welfare maximising decisions
if provided with full information. While this theory has long been questioned,
policy and regulation has been slow to catch up. Traditional models assume
economic agents, such as consumers, have an infinite capacity to take in and
process information; are neutral to how it is presented; can anticipate and
take the future into account; care only about self-maximising; and treat gains
the same as losses. In contrast, behavioural economics recognises that
consumers have limits on the amount of information they can take in; are
affected by presentation; tend to be poor at anticipating the future; care
about people and fairness; and are more concerned about losses than gains.
These are known as 'behavioural biases'.
ASIC also discussed this issue, observing that the perceptions
underlying existing disclosure regulation are out of step with contemporary
understanding of consumer behaviour:
The rationale for relying on disclosure to protect and
empower consumers assumes that consumers are rational decision makers who, when
given information about a financial product, will be able to read it, and as a
result of doing so, understand the product. However, consumer research,
psychology and behavioural economics indicate that a consumer's decision making
is affected by behavioural biases.
Government and industry action to
The efficacy of disclosure practices for general insurance has come
under increasing criticism in recent years, largely driven by numerous natural
catastrophe events and subsequent inquiries into the industry.
The Queensland flood events of 2011 resulted in a number of people being
adversely affected due to inadequate general insurance cover. Government
consultation on this issue highlighted a level of consumer confusion regarding
what is and is not included in their insurance contracts; in particular, the
extent to which contracts provide cover for flood and what flood cover means.
In an effort to reduce this confusion and enable consumers to make
better informed decisions about the purchase of insurance contracts, the
Parliament passed legislation amending the Insurance Contracts Act in 2012.
This legislation provided a legislative framework for a standard definition of
flood and, as previously noted, to require insurers to provide a KFS for home
building and contents policies.
The general insurance industry has also responded to concerns raised
with regard to the existing disclosure regime and its potentially detrimental
effect on consumer outcomes. As discussed in chapter 1, in 2015, the ICA
established the Effective Disclosure Taskforce (the Taskforce) to investigate
and develop initiatives for improvement with regard to product disclosure for
In its report to the Insurance Council Board, the Taskforce observed
...a major shortcoming in the disclosure regime has been its
sole focus on the provision of information, without the necessary regard for
the consumer's ability to make use of that information.
In this regard, a distinction should be drawn between
mandated disclosure and effective disclosure. Mandated disclosure sets the
minimum benchmark required by law. However, effective disclosure cannot be
achieved simply by reference to the minimum legal requirements. Effective
disclosure needs to be informed by the core concept of transparency;
information that encourages effective decision-making and is of more relevance
to the individual.
Deficiencies in the current disclosure regime
The remainder of this chapter examines in detail the deficiencies of the
current disclosure regime for general insurance as raised by participants in
the inquiry. To this end, it also explores how the lack of transparency in the
existing disclosure regime could be addressed to assist with consumer
understanding and facilitate comparability between products.
Pricing transparency at the point
The risk-based nature of general insurance makes it a relatively complex
financial product, as premiums are bespoke to individual consumers. From a
consumer perspective, this complexity is obfuscated by a lack of transparency
with regard to how general insurance is priced.
Professors Fels and Cousins emphasised this point in their submission:
Few consumers would disagree that insurance is a relatively
complex product. The pricing of insurance also generally lacks transparency.
The pricing of insurance is largely based on (amongst other things) technical
risk factors, including the risk of a claim occurring due to various types of
natural and non-natural peril events, however not many consumers—particularly
purchasers of home insurance—would have a level of financial literacy that is
sufficient to enable them to understand how this pricing works.
During the course of the inquiry, the committee canvassed a number of options
to improve the transparency of general insurance pricing. In particular, the
committee considered the disclosure of the previous year's premium on insurance
renewal notices and component pricing of insurance premiums.
Disclosure of the previous year's
Several submitters proposed that the disclosure of the previous year's
premium on renewal notices for home, strata and car insurance would be a simple
but effective way of increasing transparency around premium pricing. As well as
encouraging product comparability, some reasoned that such an approach would
also improve competitive tension in the general insurance market.
CHOICE argued that the disclosure of the previous year's premium 'would
allow a consumer to assess any increase and decide if they should seek
Similarly, ASIC contended that 'any unexplained significant price increase
should prompt consumers to shop around for alternative policies that may better
suit their needs'.
Support for this strategy can be found in the United Kingdom. In 2014,
the Financial Conduct Authority (FCA) trialled the provision of different types
of information at renewal to test whether this prompted consumers to switch.
The trial, which was conducted with over 300 000 consumers, found that:
The inclusion of last year's premium on renewal notices had
the greatest impact, prompting between 11% and 18% more people to either switch
provider or negotiate a lower premium when prices sharply increase.
The ICA noted that, as part of its work on implementing the
recommendations made by the Effective Disclosure Taskforce, it is also
facilitating a trial of the disclosure of the previous year's premium at
renewal. The ICA further advised that:
The objective of this disclosure is to enhance transparency
around any premium changes for renewing consumers. Two insurers have committed
to trialling this disclosure, and the Insurance Council is facilitating
information sharing across the industry around the impact of such disclosure on
consumer behaviour. If the trials result in positive consumer outcomes, wider
implementation of this disclosure can be encouraged.
IAG is one of the insurers trialling this approach, implementing
disclosure of year-on-year premium comparison on the Renewal Certificate for
its NRMA Insurance Comprehensive Motor policy in 2016.
In addition to disclosing the previous year's premium, the Financial
Rights Legal Centre (Financial Rights) asserted that insurers 'should also
explain why the price has increased'.
The ICA expressed a similar view, stating that:
...adequate explanation of why there has been a movement in
that premium also is required, because a simply bold-faced comparison of two
numbers actually is misleading. That is because, for example, asset prices
increase, therefore they have to have a different sum insured and that can
change the premium rate. If you compare that to the previous year, it looks
different and you have not explained why the difference is. You have to be able
to explain these numbers and not just have a bold-faced number. That means that
the insurers have to go to some lengths to be able to do that accurately.
However, IAG raised concerns with regard to this proposal, commenting
that there are practical difficulties in providing such information on every
We have not got to that yet on every individual insurance
renewal, because for every renewal the price is made up of many, many different
components and being able to explain that on every insurance renewal would be
beyond the bounds of practicality. Clearly, when customers speak to us then we
would try and explain to them. Often there is a bit of a constraint on our
customer-facing people to be able to do that at an individual policy level, but
they would certainly be able to talk generally around the reasons why there
might be pressure on insurance premiums.
While there has been broad industry support for this particular change
to disclosure around premium pricing, ASIC advised that 'legislative change
would be required to compel all insurers to do this'.
Financial Rights echoed this view, submitting that disclosure of the previous
year's premium on renewal notices:
...would need to be mandatory for all insurers as encouraging a
voluntary disclosure of this sort would encounter problems from those insurers
(especially smaller insurers) wishing to avoid being the first to move.
Disclosure of component pricing
The committee also examined the disclosure of component pricing as a
possible means of increasing the transparency around premiums for home, strata
and car insurance.
Financial Rights advocated strongly for this proposal, arguing that by
requiring insurers to provide information as to the components in their premium
pricing, consumers will be better informed about their personal risk. Moreover,
Financial Rights emphasised that this approach would provide consumers with
increased understanding about 'what effect mitigation strategies may have on
reducing insurance premiums or what behaviours or conditions might increase premiums'.
Financial Rights explained that component pricing would provide a
'signal to consumers of the risk factors taken into account when premiums are
set', also making the point that this 'risk signal' would be particularly
helpful in parts of Australia that face severe weather risks.
In support of this proposal, Mrs Margaret Shaw, herself a North
Queensland resident, commented that:
With regard to transparency, with any type of insurance there
is no breakdown of how premiums have been calculated, and so people cannot work
on improving certain areas. In most cases, there is no option to opt out of
unwanted cover. We do not even know what the cyclone component is.
When questioned by the committee about the potential for component
pricing at an individual product level—that is, breaking a premium down into
broad factors such as the base premium, taxes, cyclone and flood components—Mr
Whelan from the ICA told the committee:
Yes, I think that is possible. An interesting part of that is
the amount that goes on top of the base premium, taxes, which we quite happily
point out to consumers.
Product transparency at the point
As previously noted, for retail classes of general insurance, the PDS is
the principal means of disclosure to a consumer at the point of sale. A PDS
must provide information about the features and benefits of the policy being
sold, including its terms, conditions, limits and exclusions.
In the years since their introduction, PDS documents have come to be
perceived by government, consumer groups and the insurance industry alike as
overly complex, lengthy and not conducive to consumer comprehension. Research
into consumers' buying behaviours has consistently found that few consumers
read the PDS when buying general insurance products.
For example, in 2013–14, ASIC commissioned research into consumer
behaviours when purchasing home insurance.
The research found that:
...two in every 10 consumers (20%) who took out new insurance
or considered switching read the PDS. However the qualitative research
undertaken as part of our review in REP 416 found that 'reading' the PDS
generally meant reading selected pages, not all of it.
As emphasised by several inquiry participants, the current form and
content of PDSs can result in poor consumer understanding of what their general
insurance policies actually cover. As a consequence, consumers may not learn
what they are covered for, or in fact, not covered for, until an event occurs
for which they need to make a claim. Moreover, the complexity of PDS documents,
including their generally considerable length and use of complex and sometimes
inconsistent terminology, impedes product comparability. This difficulty in
making like-for-like comparisons between product offerings can result in
consumers selecting a product on the basis of price alone, rather than
considering a product's value or whether it provides a level of cover
appropriate to their needs.
Mr John Rolfe emphasised the difficulties that consumers face when
trying to compare general insurance products using PDS documents:
There are novels that are shorter than product disclosure
statements. It is extraordinary. They run to 30,000 words. It would take hours
to read just one of them. So let's say you were going to look at half a dozen
of them before you picked an insurer. It is beyond belief that anyone would do
that. So no-one is ever really going to know the detail of their insurance
The inefficacy of existing PDS documents as a tool for enabling informed
consumer choices is exacerbated for consumers prone to having low financial
literacy, such as people for whom English is a second language or low-income
earners. Good Shepherd Microfinance emphasised this point, submitting that PDSs
'are impenetrable to most of us, let alone those who have low levels of
literacy and numeracy'.
Industry stakeholders that appeared before the committee were aware of
the issues raised with regard to PDS documents, and noted that 'effective
disclosure has been a priority project for the industry over the past two
However, some industry stakeholders also made the point that much of the
content of PDSs is mandated by legislation and, as such, is beyond industry
For example, Mr Nicholas Scofield, General Manager of Corporate Affairs
at Allianz, informed the committee:
I know our home PDS has about 17,000 words; five thousand of
those are regulated by the government. We have to put them in, whether they are
about privacy, the duty of disclosure, the financial ombudsman service, the HIH
Claims Support Scheme—there is a whole lot of regulated content.
Some industry representatives also noted that there are certain
restrictions imposed by the current regulatory framework that prevent insurers
'from doing some of the things we would like to do' with regard to product
For example, QBE submitted that, 'under the current regulatory regime, an
insurer's ability to communicate electronically with its customers has been
constrained and is still restricted'.
ASIC also commented on the current restrictions to electronic disclosure
in its submission to the inquiry, explaining that:
In July 2015, ASIC made two new legislative instruments to remove
barriers to electronic disclosure in the Corporations Act.
Provisions in the Insurance Contracts Act and Electronic
Transactions Act 1999 may prevent some insurers from relying on aspects of
the relief we provided for electronic disclosure in 2015 under these
instruments. ASIC does not have powers to address these issues; legislative
change would be required.
The committee understands that ASIC is currently working in consultation
with the industry and Treasury on this issue and encourages the continuation of
A case for standard insurance
As previously discussed, a well-recognised shortcoming of the current
disclosure regime for general insurance is the difficulty that consumers face
in comparing products on a like-for-like basis, and the implications that this
can have regarding consumers' ability to make informed decisions when buying
Submitters to the inquiry raised a number of regulatory and industry barriers
to product comparability that, if addressed, could increase the efficacy of
product disclosure for the benefit of consumers. These include the operation of
the standard cover regime under the Insurance Contracts Act and inconsistent
use of policy terms across the industry.
Standard cover regime
As noted in the previous chapter, Part 5 of the Insurance Contracts Act
and related regulations set out the standard cover requirements for a number of
prescribed classes of general insurance contracts, including home and motor
insurance. Under the current standard cover regime, an insurance contract can
provide less than standard cover if:
the insurer 'clearly informed the insured in writing (whether by
providing the insured with a document containing the provisions, or the
relevant provisions, or the proposed contract or otherwise)'; or
'the insured knew, or a reasonable person in the circumstances
could be expected to have known' that the insurance contract provided less than
the standard cover, or no cover.
As explained by Mr Gerard Brody, Chief Executive Officer of the Consumer
Action Law Centre, 'the idea of standard cover was that people could expect a
basic level of cover and could compare a particular policy to the standard'.
However, some submitters argued that the standard cover regime is no
longer fulfilling its intended purpose, and that the way the regime has been
framed in legislation makes comparison between general insurance products 'nigh
This is because, under the current product disclosure regime, an insurer can
comply with the requirement to 'clearly inform' a consumer when a contract
provides less than standard cover simply by providing them with a PDS.
Mr Brody elaborated on this deficiency of the standard cover regime:
The problem is that all an insurer has to do to comply with
the standard cover regime is give the consumer a product disclosure statement.
This is a ridiculously low bar. Case in point: the recently published industry
commissioned research shows that 80 per cent of people do not read their PDS
when they buy insurance. It is fair to say that standard cover is not a
reality. We have no minimum standard for insurance and no benchmarks for
Mr Brody went on to propose that 'standard cover could be revived to
provide some kind of default cover or safety net, but it would require much
more from the industry than a PDS'.
Similarly, Mr Dallas Booth, Chief Executive Officer of the National
Insurance Brokers Association of Australia (NIBA), suggested that it is timely
for a review of the standard cover provisions with input from the insurance
industry, government and consumer groups.
Mr Booth also contended that:
I believe that if we can have a comprehensive review of those
standard form covers, people would not have to receive, would not have to read
a PDS statement because they would get the cover that they are expecting to
receive. We have certainly suggested to government very recently that it is
time for those form provisions in the contracts act and regulations to be
reopened and to be thoroughly reviewed.
Several submitters raised the inconsistent use of definitions across
insurance policies as a barrier to product comparability, and proposed
standardisation of key policy terms as a way of helping to address this issue.
Given the complexity of general insurance products and associated
disclosure documents, inconsistent definitions risk misleading consumers into
thinking they have cover for certain events when in fact they do not.
CHOICE elaborated on this point, submitting that:
A good disclosure process can be defeated if key definitions
are not standardised. This is particularly the case in insurance where a
definition, potentially hidden 100 pages deep in a PDS, can radically alter the
value of a policy.
Mr Michael Saadat from ASIC echoed this view, commenting that:
...where there are differences in definitions, it is not always
possible for consumers to appreciate the nuances that those differences can
create and, if you do have a different definition, what the implications of
that are from a coverage perspective.
Regulatory action has been taken in the past to address the inconsistent
use of definitions in insurance, with a standard definition of 'flood'
introduced for home and contents policies in 2012. This move to standardise the
definition of flood was considered by the general insurance industry and
consumer groups as a positive step to improving consumer outcomes.
However, as noted by CHOICE, 'it did not deal with the broader systemic problem
in insurance sales' and 'there remain a slew of terms which appear to have
different definitions depending on the policy'.
CHOICE emphasised this point by providing the example of the term
'actions by the sea':
For example, home insurers use different definitions for
'actions of the sea'. ANZ excludes loss or damage caused by 'actions by the
sea' however it does not define a tsunami as an action by the sea and will in
fact cover loss or damage caused by a tsunami. By contrast Coles considers a
tsunami to be an act of the sea and excludes damage or loss 'caused by high
tide, tidal wave, tsunami or other actions of the sea'.
Industry representatives expressed some reservations regarding proposals
to standardise policy terms. For example, in giving evidence to the committee,
Mr Whelan from the ICA remarked that standard definitions could 'commonise the
However, in responding to questions on notice, the ICA noted that its
Effective Disclosure Taskforce had 'identified possible benefits from proposals
such as the use of standard definitions' and that the ICA will be undertaking
work to improve product comparability in consultation with regulators and
Mr Scofield from Allianz also expressed a general willingness of the
industry to consider standardising definitions, remarking that:
I think we would all agree that having a standard definition
of flood has been of great advantage to the industry and to consumers. I do not
think we would be averse to standardising some other definitions like actions
of the sea in a similar way.
Efficacy of Key Facts Sheets
As previously discussed, legislative changes requiring insurers to
provide consumers with a Key Facts Sheet (KFS) for home building and contents
policies were introduced in 2012. This was done in an effort to reduce confusion
and enable consumers to make better informed decisions about the purchase of
The contents, format and provision requirements for the KFS is
prescribed by regulation.
In broad terms, the KFS provides information on whether a policy provides cover
for each of a number of listed events, as well as any specific conditions,
exclusions or limits that apply to each event. Ms Alexandra Kelly, Principal
Solicitor at the Financial Rights Legal Centre, summarised the intent behind
the KFS as an effort to 'try and inform the consumer, in a clear snapshot, of
the key facts about the product'.
During the course of the inquiry, the committee examined the
effectiveness of the KFS as a means of improving consumer outcomes when buying
insurance. Some inquiry participants expressed concerns regarding how the KFS
is being implemented and proposed that there is scope for improvement in how it
For example, Ms Kelly contended that the KFS is not meeting its intended
purpose, commenting that:
It had a good intention, but it was not consumer tested. What
we have seen, and we have reviewed hundreds of key fact sheets over the years
of various products, is that some of them are so poor they just say, 'Refer to
your product disclosure statement'; others are almost misleading with oversimplification
of what is in them. In my experience of answering the hotline, and I have
answered thousands of calls, only one consumer has ever raised it with me as
being something that has actually informed them about their cover. In my view,
it does not meet the intention it was designed or suggested to try and meet.
Mr Booth from NIBA expressed a similar view, arguing that the KFS has
resulted in an oversimplification of what is covered by relevant policies and
is therefore potentially misleading to consumers:
The key facts sheet was introduced approximately two years
ago. I think it was a federal government initiative. At the time, we expressed
concerns that a key facts sheet would result in oversimplification of the terms
of the policy. We believe that that has happened and we believe that there are
examples particularly in relation to home buildings and home contents policies,
where the key facts sheet could actually be quite misleading to the relatively
uninformed consumer. We have expressed concerns to government and to relevant
authorities that the key facts sheet in its current form is an
oversimplification of policy terms and conditions and can be not only unhelpful
but in fact in some circumstances misleading.
Industry representatives also commented on the tendency of the KFS to
oversimplify insurance policies. For example, Mr Scofield from Allianz noted
that two distinct policies can appear to offer the same insurance cover from
the information provided on their respective KFS:
I can tell you that we have a key fact sheet for our defined
events policy, where you are covered for listed events like earthquake, fire et
cetera, and we have a key fact sheet for our accidental damage policy, which
provides a broader coverage, because it will cover things that get damaged, in
a sense, through just about any cause. The only difference between our two key
fact sheets for those two policies are the two words at the top that say
defined events or accidental damage. They are very different policies. One has
a much broader level of coverage and will as result have a higher premium.
Ms Kelly suggested that the KFS could be redesigned, but stressed that
consumer testing would be required if this was to occur.
Similarly, Mr Brody from Consumer Action articulated that 'what we have not
seen is a detailed evaluative study of those key facts sheets' and that this
'would be a useful step in determining what sort of disclosure actually works'.
Transparent disclosure that encourages understanding and promotes
informed decision-making lies at the heart of robust consumer protection. To
that end, the committee is deeply concerned by the apparent lack of
transparency in the general insurance industry with regard to product
disclosure, and the detrimental effect this has on consumers' ability to
effectively compare similar insurance policies.
The committee recognises the efforts being made by the general insurance
industry, led by the Insurance Council of Australia, to improve product
disclosure practices and encourages the continuation of this work. However, the
committee is of the view that more needs to be done to support and protect
consumers in purchasing general insurance products appropriate to their needs.
The committee shares stakeholder concerns that some aspects of the
current product disclosure regime for general insurance are ineffective in
enabling consumers to make informed decisions. Evidence received during the
inquiry highlighted several areas of the existing disclosure regime and
regulatory framework for general insurance that are not operating to support
consumer outcomes, and would benefit from considered review and possible
legislative reform. The committee broadly agrees with the opportunities highlighted
and, as such, makes the following recommendations.
The committee recommends that the government strengthen the
transparency of general insurance pricing by amending the product disclosure
regime in the Corporations Act 2001 to require insurers to:
disclose the previous year's premium on insurance renewal
explain premium increases when a request is received from a
3.77 The committee recommends that the government initiate a review of
component pricing to establish a framework for amending the
Corporations Act 2001 to provide component pricing of premiums to
policyholders upon them taking out or renewing an insurance policy, as well as
an assessment of the benefits and risks to making such a change.
The committee recommends that the government initiate an
independent review of the current standard cover regime with particular regard
to the efficacy of current disclosure requirements.
3.79 The committee recommends that the government work closely with
industry and consumer groups to develop and implement standardised definitions
of key terms for general insurance.
The committee recommends that the government undertake a review
of the utility of Key Facts Sheets as a means of product disclosure, with
particular regard to the:
effectiveness of Key Facts Sheets in improving consumer
understanding of home building and contents policies; and
merit of extending the use of Key Facts Sheets to other forms
of general insurance.
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