Policy documents for New Zealand's major life insurers are virtually "unreadable" for the average person and need a major re-write, says an academic.
The insurance industry body says it is working on more plain English communication but the policies are complicated because they are a legal document designed to protect both parties entering into the agreement.
Aaron Gilbert, an associate professor and head of the finance department at Auckland University of Technology, analysed nine life insurance policies using the Gunning fog index - an international test used to determine the readability of an English document.
He found the documents came in at 19 on the index - a level which would require a person to have a post-graduate qualification to read and understand it.
"Anything 18 and above is considered unreadable."
Gilbert said documents intended for a wider audience needed to be less than 12 which required a reading level of a high school senior around 18 years of age.
The documents were found to contain long sentences and about one in every five words had at least three syllables.
"It makes it hard to read and really it shouldn't be that hard," Gilbert said.
Rather than being designed for consumers he said they were about covering liability.
The average length of the documents was 6000 words which would take a fast reader around 50 minutes to get through.
Gilbert said life insurance at its heart was a simple product but had got more complicated over time.
"Life insurance is no longer as simple as it used to be."
Some insurers now paid out early if a person had a terminal illness or debilitating accident which then needed to be defined.
But he said it had made it much harder for consumers to compare policies on price alone.
Gilbert said the documents needed to be simplified.
"It should be designed so the everyday person can look at it and understand it and know what they are signing up to. You shouldn't need a lawyer to understand your insurance policy."
Gilbert said plain English documents would empower consumers to make decisions rather than relying on an adviser.
Research by the regulators has revealed advisers are not always giving the best advice for the consumer.
Gilbert's call follows the release on Tuesday of a major report on the industry by the Financial Markets Authority and the Reserve Bank which painted the industry in a poor light.
The regulators found life insurers had been complacent about considering conduct risk, too slow to make changes following previous reviews and not sufficiently focused on developing a culture that balances the interests of shareholders with those of customers.
They also found extensive weaknesses in life insurers' systems and controls, with weak governance and management of conduct risks across the sector and a lack of focus on good customer outcomes.
Gilbert said if insurance policy documents were easier to understand, consumers would not need to rely so much on advisers.
Richard Klipin, chief executive of industry body the Financial Services Council, said policies were a legal document and were designed to articulate what was on offer and protect both parties.
The complexity and length of the document was because it was a legal document and he pointed to other legal documents like mortgage agreements which were equally as wordy.
But having said that Klipin said there was an onus on the industry to communicate more effectively with its marketplace.
The industry had introduced a code of conduct last year which was set to encourage members to communicate in plain English.
That could be in the form of online applications and tools or a mixture, he said, and the industry body was currently working through what best practice looked like.
"That is a work in progress."
But he said it would be up to individual insurers to decide whether to prioritise that or some of the other components of the code.
Non-disclosure an issue
In the year to June 30, 2018 the Insurance and Financial Services Ombudsman received 98 complaints about health, life and disability insurance.
Of those 25 were specifically about life insurance, 21 income protection and 13 trauma protection.
Karen Stevens, chief executive of the Insurance and Financial Services Ombudsman, said there had been no significant change in the number or proportion of complaints about the sector over recent years but the biggest issue remained non-disclosure.
Non-disclosure is where consumers do not tell the insurer information and a claim is declined because of it. Last year more than a quarter of complaints (28 per cent) for the life, health and disability sector related to the issue.
Stevens said for the last 20 years the Law Commission had been calling for change in terms of disclosure but this had been passed over by successive governments.
It was a really difficult area because it could mean people were not covered but did not know until they claimed.
She said insurers had a legal right to rely on the disclosure of the policyholder even if it was not fair.
Stevens hoped Commerce Minister Kris Faafoi would address the issue as part of his planned insurance law re-write.
Stevens said Tuesday's report on the life insurance sector should also be a wake-up call for consumers.
"Consumers need to be better informed about the products being sold."
She said they needed to ask more questions and make sure it was suitable for them.
Stevens said in her experience sometimes consumers had very little understanding of the products they had bought.
She reinforced the call for insurance documents to be in plain English.
"We are fully supportive of that."
But she said in her experience consumers tended not to read documents even if they were in plain English.
She urged people to ask for more information and to read the documents.
"They need to hold the adviser and insurer to account."