Make the small print bigger

This week the general insurance industry received a pat on the back from the FSA over the way it handles claims.

The regulator had surveyed 34 firms - a cross section of the market, it said - and came to the conclusion that the industry is generally handling claims fairly and promptly.

Time to break open the champagne then? After all, the way a claim is dealt with is the "moment of truth" for insurers and brokers: it's the chance to demonstrate to the cynical consumer that the policy is worth somewhat more than the paper it is written on.

But before the corks start popping, the FSA's review suggests some areas of concern for the industry. In particular, one relates to the reasons for rejecting claims. More than half the firms surveyed reported that the most common reason was the claim being outside the scope of cover. On the face of it, a perfectly valid reason not to pay a claim. Yet, consider the messages that this is sending out to consumers.

On the whole, people do not in general knowingly claim for things that their policy will not respond to.

There may be some who add items to, for instance, a household contents claim that are not covered by the policy, in the hope that they will 'slip by' the claims handler. Equally, there are some who 'massage' the truth about how a possession was damaged in order that a claim can be made.

But the majority would not deliberately lodge a claim knowing that it will be turned down by the insurer because the policy does not cover that particular item or circumstance.

So why is this reason for rejection so common? One reason, suggested by the FSA, is that insurers are not adequately explaining the nature of cover provided by the policy.

The exclusions may not have been properly highlighted, or the features of the product not presented in a clear and intelligible manner.

The FSA's rules require insurers to provide policy summaries that explain the main features and significant exclusions.

But the market has been less than successful in doing this. At the end of last year, the FSA was forced to write a 'Dear CEO' letter to insurers expressing its "concern" over shortcomings in relation to disclosure. The "vast majority" of policy summaries, it said, omitted one or more significant or unusual exclusion or limitation.

The regulator also noted "significant quality shortcomings" including excessive length making it "difficult for customers to make effective use of them".

Given the cumbersome, incomplete and - in some cases - confusing summaries of what is covered by a policy, it is not surprising that consumers are making claims that are ultimately outside the scope of the cover they have bought.

But this hardly presents the insurance industry in a good light.

For insurers turning down claims when consumers have a legitimate expectation that they will be paid does nothing to bolster the already flagging reputation of the industry. It only serves to perpetuate the image of greedy insurers all too willing to take premiums, but using 'small print' to get out of paying claims.

It is an image that the industry can ill afford to perpetuate.