Product disclosure statements and key fact sheets are not helping consumers choose the best insurance cover, according to a study commissioned by the Financial Rights Legal Centre.

Calling for a new approach, the centre says up to 42% of the 406 survey participants selected the worst home contents cover when given a choice between an “okay” and a “bad” product.

This was despite the participants being given time to review the disclosure information.

When the choice was expanded to include a “good” product, 34.9% still picked one of the inferior offerings.

The study was undertaken by Monash University law professors Justin Malbon and Harmen Oppewal.

Professor Malbon says the shipping industry has simplified cargo insurance to a choice between three standard term policies, and it may be time for a set of gold, silver and bronze standard coverages to be introduced in the consumer home insurance sector.

“That way the market can compete on price, and not confound consumers about what is covered and not covered when they make claims under their policy,” he said.

“The Government has standardised the terminology for flood cover. It should go further and standardise all terms such as for robbery, fire, earthquakes and so on.”

The Financial Rights Legal Centre says further efforts to improve disclosure in insurance contracts are misplaced if the policy goal is for people to buy cover that best suits their needs.

“Instead, policy-makers should look to minimum standards for policies, or star rating systems that people actually understand,” Co-ordinator Karen Cox said.

The research was funded through Victorian fire services levy over-collections, which were required to be distributed to projects benefiting insurance consumers.