Consumer advocates support the introduction of key facts sheets on insurance policies with wording that encourages consumers to consider a total replacement policy.

The Consumer Action Law Centre says key facts sheets (KFS) should list the three types of policies, with wording that encourages consumers to insure for total replacement of their home and/or contents.

The centre believes sum-insured policies can leave consumers underinsured, as most people find it too difficult to calculate how much insurance they need.

The KFS can work in tandem with product disclosure statements (PDS) to help consumers compare insurance products, understand their policies better and avoid being underinsured, the centre says in its response to the Treasury consultation on the KFS proposal.

Some in the industry believe a one-page KFS outlining a policy’s key elements will be too simplistic and that consumers will rely on it instead of reading the PDS.

But Consumer Action says that while consumers should ideally read and understand their PDS before buying a policy, “we accept the reality that most consumers (even well-educated consumers) simply do not read their PDS because they are overlong, dense and complex”.

“Because of this problem, we would suggest that most consumers do not really understand what their insurance policy covers and what it does not.”

The submission says the KFS should point consumers to the relevant part of their PDS.

Consumer Action says the Government should prescribe the events to be listed on the sheets so they are consistent between insurers, and events should be chosen based on their potential impact or likelihood of consumer confusion. 

Wholesale exclusions should be noted, even if they are not prescribed, and sub-limits and excesses should also be disclosed.

The consumer group says it does not support a general consumer warning or “general health warning” that would state the importance of making informed decisions, but says specific warnings should encourage people to insure adequately.

It also says insurers should be required to provide a KFS immediately where possible. It says the sheets should be available for people “shopping around” on insurers’ websites.