Consumer confusion over financial terms means millions of people may be taking out policies without completely understanding what they cover or offer, Aviva has warned.
According to the firm, about 43% of UK adults could identify the capital of Peru but only half that amount could identify the correct definition of a defined contribution pension (22%), income drawdown (22%) or an enhanced annuity (16%).
There was also a disconnect between those who said they understood pension terms and the proportion who could identify the correct definitions. More than half (53%) of respondents said they knew what an annuity was, but more than a quarter of those (27%) chose the wrong definition.
More worryingly, two in five (41%) said they had ignored information given to them by financial providers because they didn’t understand the terms used in them. Of those, 17% said they had “missed an important change to their policy”, while 13% said they had actually lost money because they had ignored communications.
The research was conducted in October 2016, involving 2,027 general consumers aged 18+.
Equally confusing
Aviva also conducted research among 1,000 consumers with home insurance in June 2016. Home insurance also confused customers, the research showed, with almost one in three (30%) believing it covers “anything that happens in their home” when the reality is exclusions are common and additional cover may well be required, Aviva said.
Head of savings and retirement Alistair McQueen said: “The very essence of insurance is about reducing uncertainly and giving customers peace of mind, which is why it’s vitally important that as an industry, we help people to get to grips with the language and principles of products that many reply on.”
To help combat confusion caused by financial jargon Aviva started using Amazon’s Alexa voice service. Alexa is the brain that powers Amazon Echo and Echo Dot, and enables customers to interact with devices in a more intuitive way using voice.
Aviva is currently testing an Insurance Jargon Buster Skill on Alexa, which means consumers will have access to a glossary of more than 300 insurance terms and their definitions.
Additionally, the insurer launched a consumer guide, ‘Busting the Myths of Home Insurance.’
McQueen added: “The Alexa Skill and the myth-busting guide are the latest in an ongoing series of improvements and transparency initiatives we are pursuing to help improve customers’ understanding of common financial terms and how everyday products work.”
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