Small print, big deal

ITIJ 199, August 2017

Robin Gauldie details plans by some governments to give ombudsman departments and consumer protection bodies greater powers to penalise companies that fail to make their terms and conditions clear and draw the client’s attention to key clauses

Extensive consumer protection laws already govern travel insurance and other insurance lines in the UK, European Union (EU) and other areas such as New Zealand and Australia, but travel insurers could soon be caught up in proposed changes aimed primarily at companies in other sectors, such as mobile phone suppliers and domestic energy providers.  

Before the passing of UK Chancellor of the Exchequer Philip Hammond’s Budget in March 2017, the British media – largely sympathetic to the government of which he is a key member, and keen to find something for consumers to feel good about – acclaimed his supposed plans for a crackdown on confusing, unclear terms and conditions in a broad array of contractual agreements, including insurance policies. “Ministers will look at ways to force firms to use plain English and make key T&Cs more obvious,” predicted the Daily Mail, a right-wing newspaper. “The powers will be backed up by penalties including fines.”
Professionals were more sceptical. Betting company William Hill offered odds of 100-1 against such a crackdown, and punters tempted by such long odds were disappointed. In the event, all Hammond announced was that proposals of tighter regulation on terms and conditions could ‘soon’ be included in a ‘green paper’ (consultation document) from the UK’s Department of Business, Energy and Industrial Strategy (DBIS), and it was reported that business minister Greg Clark would bring forward a policy paper at a later date that would identify a range of practices the government wants to stamp out.
In fact, the DBIS had completed an initial consultation process almost a year previously, so the Chancellor’s media briefing had much to do with the need to offer British consumers something positive in his Budget. Publishing a call for evidence (the first stage in preparing a green paper) in March 2016, Nick Boles, minister of state for skills, conceded that UK consumer protection rules had been enhanced by the Consumer Rights Act (CRA), which came into force in 2015. However, although the CRA insists that T&Cs must be fair and transparent, Boles asserted that many agreements remain ‘very long, in small print and full of impenetrable jargon and legalese’.
Hardly earth-shaking stuff – and even that was largely obscured, first by the much higher-profile media coverage of Hammond’s announcement of increased taxes for Britain’s self-employed and his subsequent U-turn on that issue, and then, of course, by prime minister Theresa May’s surprise announcement of a British general election to be held in June.  
So, not so much the promised bombshell, more a damp squib.
Sighs of relief all round from the insurance industry? Not really …
Focus remains on clarity
Hammond’s proposals raised, once again, the issue of clearer terms and conditions, an issue that continues to vex insurers and consumer organisations worldwide – not least those in the travel insurance sector. And speculation that the UK’s Competition and Markets Authority might be beefed up and given greater powers to penalise offending companies rang muted alarm bells in the insurance sector.
While not aimed primarily at the travel insurance sector, any legislation that tightens up on terms and conditions is likely to affect the wording of policy documents, and industry voices say the insurance sector in the UK is already good at policing itself and is effectively monitored by independent bodies.
“We will be tracking this closely to see if anything does materialise,” said Malcolm Tarling, chief media relations officer at the Association of British Insurers (ABI). He points out that the insurance industry is already tightly monitored by the UK Financial Conduct Authority, and the Financial Ombudsman Service (FOS) looks closely at the clarity of policy terms and conditions and how they have been applied by the insurer when it reviews a customer complaint. “Travel insurers constantly look to see how they can make policies as clear and as straightforward as possible for customers," he told ITIJ. “It is important that customers have the confidence that policies deliver on promises.”  
UK travel insurers deal with nearly 500,000 claims a year, and the ABI's latest analysis shows almost nine out of 10 claims were successful. “Insurers take account of FOS rulings, and bear in mind how they may interpret policy wordings, when developing policy terms and conditions,” Tarling added.
many agreements remain ‘very long, in small print and full of impenetrable jargon and legalese’
But some argue that policies could be made still clearer, and that tighter, tougher regulation would drive insurers to make them so. “Terms and conditions would likely react to any change in the ability of the ombudsman or other regulatory bodies to scrutinise claims after the event,” said Joseph Dawson, a solicitor in the travel litigation department of British law firm Leigh Day. “When purchasing things like travel insurance, people’s focus is not on reading the numerous pages of fine print and exclusion clauses impacting on cover. An increased level of scrutiny after the event would likely have a knock-on effect on insurers and on terms and conditions.”
Dawson believes that making T&Cs more readable could also help both insurers and insureds by potentially reducing protracted litigation over disputed claims: “Quite often, we find that the clause relating to an issue is not prominent. Clearer terms and conditions could focus the minds of consumers and insurers on both sides of the case on the potential issues and the strength of each case from the outset, and so reduce the length of time spent in litigation.”
EU legislation already states that contracts ‘must be drafted in plain, understandable language’, while the UK's 2015 Consumer Rights Act added a requirement that terms should be ‘prominent’ as well as ‘transparent’ to the average ‘well informed, observant and circumspect’ customer. Clarity, however, works both ways, and the average buyer of a travel insurance policy is not necessarily as well-informed and observant as legislators may assume.
Failure by consumers to read and understand the terms and conditions of their travel policy remains a headache for insurers and insureds, according to Linda Reyes, CEO of International Baggage Insurance (IBI), a France-based travel insurance company. According to IBI, 50,000 claims are rejected every year because clients fail to realise their cover maximum is inadequate. Reading and understanding travel insurance details is as important as planning the actual trip, said Reyes: “Clients must read the small print and make sure that what they expect in compensation if there are problems matches their expectations. Some insurance claims will come as a shock to many people when they receive only a small percentage back in compensation. Don’t be fooled into thinking you are covered and then complain if you have not read and understood the small print.”
The insurance industry must take advantage of the power of data and technology
As reported in ITIJ 195 (Get real on non-disclosure), New Zealand’s insurance ombudsman has also called for a review of NZ insurance law to clarify the need for insureds to declare their medical, legal and claims history when buying a travel policy. Insurance policies explicitly state that certain information is required, but many consumers do not understand what is meant by ‘material’ information, and therefore do not fully disclose information that they think is irrelevant, even when acting in good faith, said Karen Stevens, the Insurance and Financial Services Ombudsman.
While the UK and New Zealand hint at toughening consumer protection on this issue, the US looks to be headed in the opposite direction. The Consumer Financial Protection Bureau, created under previous US President Barack Obama, is likely to be scrapped by the Trump administration. While such a move would be controversial, it would not completely deprive US consumers of protection, as individual states have their own oversight bodies. It would, however, make consumer protection in the US less uniform.
New technology to the rescue?
“Small print within insurance remains a challenge for the industry across the board and is not just restricted to travel,” Paul Firkins, business development director at data and tech-driven British insurance specialist Hood Group, told ITIJ. “Unfortunately, there is still a perception amongst some customers that insurers sit behind this ‘small print’ to avoid paying claims. As an industry, I don’t think that we help ourselves with the size of some of our policy documents and the jargon that we use.”
The challenge, according to Firkins, is that the policy document is a contract and so traditionally has been written as such. But things are changing: “Many insurers and intermediaries are actively re-writing their documents to make them clearer and to reduce them in size. It’s an encouraging step in the right direction and we have an ongoing project to do likewise. We will be approaching this from a transformational perspective, as opposed to making some tweaks here and there.”
making T&Cs more readable could also help both insurers and insureds by potentially reducing protracted litigation over disputed claims
To help Hood Group achieve this, it is working on this challenge within its Innovation Lab to ensure a flow of creative ideas that challenges existing practices. “The intention here,” continued Firkins, “is to move away from the mindset of ‘this is how we have always done it’, but we have to remember that, during the buying process, it is crucial that there are no ambiguities and that the customer buys a travel policy knowing what it does and doesn’t cover them for. We want to make this process as simple as possible and to use technology where necessary to help explain things to customers in a way that they will understand.” So, what’s on the table right now? “As an example, we are exploring the use of video animation to explain conditions. Hood Group is also convinced the whole area of artificial intelligence and machine learning has huge potential to provide the infrastructure to do this and we are actively developing our capabilities in this area.”
The insurance industry must take advantage of the power of data and technology to help better understand individual risk profiles, deliver fairer pricing, and develop products that meet individual needs, Firkins told ITIJ: “There is still a lot more the industry can do to tackle small print, but I firmly believe that the industry recognises this and that we are now seeing some tangible improvements from many providers. I expect this trend to continue.”