Policy wordings: words matter
01 November 2013 | Magazine Archives FAnews & FAnuus | Short Term | Jonathan Lewarne, Rudolf Britz, Momentum STI
The short-term insurance industry has recently seen many laws come into play, and the strong message is that words matter. The industry must undertake a whole new kind of fairness, which is why it is so important for policy wordings to be reviewed and re-assessed accordingly.
This is also the reason why there is much debate around these policy wordings. But what exactly is the aim of a policy wording document?
Momentum Short-term Insurance’s Head of Client Care and Sales Jonathan Lewarne says, "It explains the conditions of the contract insurers have with their clients, and defines what cover is available from them. This allows a broker to advise their clients on what needs to be covered, how it should be covered, and what the client needs to do to ensure that they have valid cover in place. The intention is for the wording to serve as a guide for the broker to ensure that they have correctly advised a client and, in doing so, ensuring the client’s financial wellness.”
Clear understanding an advantage
Momentum Short-term Insurance’s Chief Actuary, Rudolf Britz, adds that the overall purpose of policy wording is to ensure that there is an understanding of what is covered. "Policy wording also makes the relationship between the insurer and the broker more transparent,” he says.
Britz continues, "Good policy wording would be easily understood by the broker and, in turn, their clients, and there is good value in that. It gives insurers the opportunity to have a smoother business process for both brokers and clients. It creates a comfortable environment for all parties involved.”
Lewarne agrees and emphasises the fact that it serves as a guide for brokers to use when offering advice to their clients. "Policy wording should be simple and easy-to-understand, which will ultimately ensure that there is no ambiguity in what is covered, or in the terms and conditions associated with the cover. Both brokers and clients should be comfortable with the wording, as it will avoid a lot of potential issues during the all-important claim stage.”
A touchy subject
But why are policy wordings such a touchy subject? "To a lesser extent because insurers can talk about why they would and would not entertain claims, and it is at that point where the contentiousness comes in,” says Britz. "Policy wordings are critical to understand whether the claim would be entertained or not. Industry self-regulation, as manifested by the Ombudsman of short-term insurance, is a major factor and I believe that self-regulation is taking the lead in being the most contentious issue, and that is a good thing.”
"Insurers with easy understandable policy wording should know that they have a competitive edge,” says Britz.
Lewarne adds that products should always be structured in line with what the market offers. Maintaining the easy-to-understand approach with the wording, to ensure that brokers can offer world-class products and to ensure that clients understand the cover, all at the same time, is what the real focus should be.
"Interactive policy wording documents, in PDF format, which allows a broker to easily get to the relevant section of the wording to make the advice process even easier, is a step brokers will welcome,” says Lewarne.
So what does all this mean for the future?
"Policy wordings may become less contentious where regulatory regimes have more prevalence. We believe policy wordings in easy-to-understand language, and policies which are aligned with available products, will have a major impact on the industry in terms of companies’ claims philosophy,” concludes Britz.
