Plain language policy wordings: What does it mean for the industry?

The new Consumer Protection Act requires that policy wordings and other insurance documents be written in simple language so a policyholder can read these once and fully understand what benefits they have purchased and what events are not insured. How will the industry respond?

According to the new Consumer Protection Act (CPA), the insurance industry’s documents must be easily understood and not against the spirit of consumers needs.

Firstly, a significant amount of work will be required to rewrite insurance policy wordings to make them easier to understand.

Secondly, with regard to ‘consumer needs’, Christelle Fourie, managing director of MUA Insurance Acceptances, recently summed it up eloquently: “Insurers will need to make sure that no terms in the policy document are unfair, unreasonable or unjust. The courts will have the power to rule in favour of the insured and thus against the insurer on the basis of any ambiguous clauses.”

Context

Speaking about the CPA, Conflict of Interest (COI), amendments to the FAIS Code of Conduct and Treating Customers Fairly (TCF) regulations, Fourie further commented that: “All the recent developments and regulations point to the fact that, as financial services providers, we must conduct our business with integrity and professionalism by putting the interest of the customer first.”

It is good to see that the insurance industry is slowly, but surely, becoming more professional.
Hiding behind legalese and unintelligible clauses will no longer be possible.

I have often mentioned that the word ‘indemnity’ is not applied to all claims - now legislation will ensure that insurers not only explain exactly what ‘indemnity’ is, but also abide by the explanation. This is good news for consumers, but unfortunate for insurers who have been using ‘insurancese’ to get out of paying claims in a way that truly ‘indemnifies’ the insured.

How will the industry respond?

The concern is that insurance industry players often tend to think that certain statutes will not apply to them. Many brokers thought that the FAIS Act was not something they had to worry about. They had heard that they had to earn a certain minimum NQF credits, but they did not think it applied to them. The deadlines even had to be extended to accommodate those who felt that these requirements did not apply to them.

The same will happen with the latest requirement to write the Regulatory Examination 1 by the end of next year. Many believe the examination is unnecessary for those who have been in the industry for many years, and any way, the FSB will extend the deadline. And since not everyone has tothe write the second examination – despite the confusion about which recognised qualifications will qualify for an exemption - many assume they are OK and will not have to worry about this.

Will it be any different with the CPA requirements for simple language policy wordings? What is the industry doing to comply with the latest statutes? Some companies are trying to re-word their documents. Others are waiting to copy what competitors do and will try to make these copied products look better. But the response is not quite what would be expected of a highly professional, proactive community of specialists who are responsible for the wealth of our nation.

Impact of the new requirements

Once the industry realises that this statute will not go away and will, in fact, apply to every player, two things are likely to happen:

1. the legal profession will use our easier-to-understand wording against us more often; and
2. the consumer will begin to understand thatwhat we do not want to cover all the risks they face.

Many will try just to change the word ‘insurer’ to “us” or “we” and the word ‘insured’ to “you” or “your”. Nice try, but not acceptable.

Can it be done?

As a practical example, let us convert the old arbitration condition, which is no longer applicable in SA due to the PPR and FAIS, to plain language.

Old arbitration condition:

If any difference shall arise as to the amount to be paid under this Policy (liability being otherwise admitted) such difference may be referred to Arbitration in accordance with the Arbitration laws for the time being in force in the Republic of South Africa and at such place as the Association may determine.

Plain language version:

“If you disagree with the amount we offer to settle your claim you must notify us and both you and us must each appoint an independent legal adviser who shall agree on the appointment of an independent referee to discuss your disagreement. All three the legal experts must investigate all the information about your claim and about our offer. If you still do not agree with the ultimate decision of the legal advisers you then must appoint a different legal adviser to issue summons against us allowing the South African High Court to make a final decision as toon the amount we should settle your claim.”

By taking out the legalese and insurancese the wording is usually longer, but more direct in what it means and how it is to be applied. Years ago I suggested that any document we draft for insurers should still by checked by a plain language concern to check to see if the wording conforms to international legislation. This advice remains relevant today.

More complicated matters

The arbitration clause is, however, an easy example.

Defining a concept such as ‘indemnity’ will be a different challenge. The industry will not be able to use the word ‘indemnity’ without defining what it means. How will a policy wording explain that the insurance company agrees to place the insured in the same financial position as before the event that caused the loss?

Taking this step further, insurers will have to define concepts such as ‘riot’. Or will the industry conform to the old legal definition that stated that if a reasonable person believed that a riot is/was taking place then a riot is/was taking place? How will concepts such as ‘latent defect’ or even ‘inherent vice’ be explained?

Exciting future

I consider thea future of plain language policy wordings to be exciting. We are developing new products that are compliant with the CPA, easily read and understood, but are also fair to all, not just the customer. Insurance industry players will need a lot more training than they did in the past.

The old adage that ‘we have being doing it this way for 100 years and we are not interested in change’ will now become ‘how are we going to comply with the new laws?’ One of my favourite policy wordings, that is well overdue for change, is the BI wording. I look forward to re-wording this document. Exciting news.

Ours remain a dynamic industry in which new opportunities open up regularly, and those who can spot these within the challenges and can apply lateral thinking to come up with novel solutions to operate within the new laws, will thrive on this new playing field.