Standardised wordings and plain language: a major headache

Instead, they must navigate the minefield created by the Competitions Act, the Consumer Protection Act (CPA) requirement for plain language in policy wordings and the pending Treating Customers Fairly (TCF) regime. Will the rigorous and often counterintuitive demands made by these Acts tear the industry apart? To answer this question we must consider the history of policy wordings.

"Through the 1970s and early 1980s, there were dozens of different wordings for the same type of commercial lines insurance cover,” says Barry Taylor, Chairman of the Short-Term Insurance Executive Committee at the Financial Intermediaries Association of Southern Africa (FIA). "This made it difficult for brokers and their clients to compare covers when changing from one insurer to the next, particularly with regard to what was covered and what was excluded.”

In 1987, the South African Insurance Association (SAIA) introduced a standard wording for all types of commercial cover to address brokers’ concerns. The standard wording, known as Multimark, was widely accepted by the industry and was expanded upon over the next two decades as Multimark II and Multimark III. But this document was not the saviour it set out to be.

"Insurers were adding unique endorsements to their policies over and above the Multimark terms,” says Taylor. "Brokers would then create their own wordings to offset the ambiguities created by insurers’ endorsements and variations.”

The Multimark template was shelved in 2007 and replaced with the Standard Business Policy Guidelines. This followed concerns that Multimark was in conflict with certain provisions in the Competitions Act, most notably Section 4(1)(b)(i) which prohibited agreements between, or concerted practices by competitors regardless of pro-competitive or efficiency benefits.

Was this the correct course of action? How can it be considered anti-competitive to set up a structure that allows both consumer and his or her broker to compare covers? In the absence of such a framework, there is greater uncertainty that ultimately leads to disputes at claims stage.

There is no compulsion for any insurer to use the standard wording, there is no prohibition from amending the cover provided, nor the form or quantum of the premium, and there is no price fixing between companies, so the Act is surely not contravened.

Professor Robert Vivian, Professor of Finance and Insurance at Wits, takes a no nonsense approach to the ongoing regulatory intervention in day-to-day insurance business. In a 2012 opinion piece in the Financial Mail he wrote, "Proposals to interfere with insurance contract terms and conditions will dramatically reduce competition, stifle innovation, inhibit new product trials, encourage consumers to buy their insurance from more innovative foreign jurisdictions and undermine the sustainability of the local industry.”

"The FIA supports the Treating Customers Fairly principle of clear and understandable wordings,” says Taylor. "But we are concerned with the overarching trend that is forcing insurers towards a one-size-fits-all model that could stifle innovation and competition.”

He adds that the industry has always operated on the basis of the intention of the insurer. "As long as the insurer’s intention is made clear at policy inception, when the insurer proposes for the cover, this intention forms part of the cover and should be reflected in the wording. Standardised wordings cannot always cater for this,” says Taylor.

 

The drive towards standardised wording and plain English is commendable, but not without consequence. Industry stakeholders should consider the negative impact that standardised policy documents will have on product innovation. And if insurers take a harder line with policy wording the next open-ended question becomes: do we not risk coming full circle with the return of a Multimark-type solution?