Education - is that the key?
Once again the issue of underinsurance has been raised after the recent string of natural disasters. Should there be some government and industry commitment to improving community understanding of insurance products?
Financial literacy programs have tended to focus on banking transactions and credit cards, not basic insurance information. There is no doubt that ownership and understanding of insurance policies is considerably higher among those people with higher financial literacy. Although even among those who have policies the understanding of how they work is quite low.
A high percentage of people are not aware that a claim can be rejected on the grounds of not meeting their duty of disclosure, while many do not consider reviewing their level of cover upon renewal to allow for growth in their business or rising property values. There needs to be awareness not only of the insurers' obligations to consumers but the obligation of the consumer to the insurer. We also need to increase the capability of people to understand risk, how much you are willing to bear yourself and how much you are prepared to offload to others.
Whilst providing online education is good it is still up to the community to seek it out and use it. Should we be targeting our school children with the inclusion of financial education into the curriculum? Of course for that to be successful, first we must provide some teacher training. Educating future generations will however take several years for the results to become obvious.
Another question to ask is - should we make financial literacy education a requirement in exchange for assistance? For example, should those who received government assistance after the recent floods be required to undertake some financial literacy training in return for the payment?
Whatever the solution surely it is time to stop talking and take action on this issue to increase the understanding that the community has of insurance products.
