Financial education and consumer protection

The Insurance Industry and Financial Education


The insurance industry is facing a number of new challenges. With worldwide deregulation, new and non-traditional providers are entering the insurance market.  The increased competition brings with it pressures to become more specialized and to focus on those activities in which there is a competitive advantage. At the same time, this deregulation is being offset by increasing controls over the delivery and sale of products to consumers. These new regulations are supported by new consumer protection legislation, which is often focused on how an insurer interacts with its agents and its customers. And new opportunities are opening to insurance providers as governments begin to scale back the state-provided benefits in response to the strain that aging populations and increased life expectancy put on state pension systems. These new opportunities might result in the future in a switch from traditional life insurance products, which still dominate many markets, to wealth management products that offer consumers a wider investment choice.

In addition to deciding among providers of insurance products, consumers must also choose among a wide variety of different insurance products. There is term life insurance, which offers coverage for a limited amount of time, as well as universal life insurance, which is tax-sheltered and contains flexible investment options. There is also disability insurance, critical illness insurance, and long-term care insurance, as well as health insurance, home or apartment insurance and automobile insurance. If the individual has a small business, he also needs to think about property insurance, liability insurance, and workers’ compensation insurance. Given the various insurance products offered, the consumer needs to be able to determine if he needs insurance, what type of insurance he needs, and how much insurance he needs.

Financial education can play an important role in helping consumers make appropriate choices with respect to insurance. A discussion of insurance terms and descriptions of the features of different types of insurance can enable the consumer to determine which insurance products are appropriate for his or her individual situation. Information on “tips and traps” can help the consumer to evaluate the various insurance products offered and to select the best provider of these insurance products. Such knowledge is especially important in light of the entry of new providers into the market and the development of new and increasingly complex insurance products, as discussed above.

Preliminary results from a questionnaire on financial education sent to OECD member countries indicates that making consumers aware of insurance issues and providing them with a better basic understanding of insurance issues are important goals of financial education in a number of countries. As one delegate put it, an important issue for financial education is that consumers “be able to understand and evaluate insurance products and have an opinion of which insurance policies are more or less important for their personal use.” The protection of the rights of insurance policyholders is also an important issue for a number of countries.

Member countries will provide the Secretariat with more specific information about how financial education can help consumers in their dealings with the insurance industry. For example, where do they see financial education as being most helpful—providing basic understanding of insurance principles or providing information on specific types of insurance? Is there a need to provide financial education to small business owners? Does more information need to be provided on insurance for environmental risks, risks related to terrorism, etc. What are the most effective ways of making consumers aware of insurance issues and informing them about specific types of insurance?

These issues are being addressed within the framework of the Financial Education Project .


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