Why New Zealanders are bucking the Asian trend and caring more about insuring their belongings than themselves

Why New Zealanders are bucking the Asian trend and caring more about insuring their belongings than themselves

Figures on how New Zealanders spend their insurance dollars show we value our belongings more than we do ourselves.

Research undertaken by EY reveals New Zealanders spent 5.5 times more on non-life insurance premiums in 2011, than we did on life insurance premiums.

While we spent $11.27 billion on non-life premiums, we only spent $2.05 billion on life premiums.

This equates to 5.2% of GDP spent on non-life and 0.9% of GDP spent on life insurance premiums.

The findings are staggering when compared to developed parts of Asia Pacific.

Australians spent 3.0% of GDP on both life and non-life insurance premiums.

In reverse to New Zealand, those in Japan, Hong Kong and Taiwan spent 1.4-4.6% of GDP on non-life insurance, and a whopping 7.0-13.9% on life insurance.

Pinnacle Life chief executive Michelle van Gaalen puts this down to a number of factors outlined in a Massey University report, ‘Exploring Underinsurance in New Zealand’, by Michael Naylor, Claire Matthews and Stuart Birks.

‘She’ll be right’ 

Van Gaalen says those in newly developed Asian countries place greater value on their relatively more newly acquired wealth.

In contrast, she believes New Zealanders have a “she’ll be right” attitude, assuming our social welfare safety net is more robust than it is.

“AC Nielsen analysis shows a surprisingly high tendency to regard ACC as adequate for disability cover and a lack of awareness that illness, which is statistically more likely, is not covered”, Massey researchers report.

Van Gaalen says working out how much your life is worth is also much more complex than working out the value of your car.

The Massey report says we don’t regard personal insurance as a priority, and many of us haven’t given it much thought.

“This implies that New Zealanders generally do not, or do not like to, contemplate adverse events and their financial impact.”

Furthermore it says, “It can be hard to recognise vulnerability to rare events.

“The industry as a whole is responding to this by trying to simplify the process and approach customers in low cost avenues like websites.”

Those who need life insurance have it, but don't have enough

The Massy report says, “There is no indication that there is a national crisis with low levels of life cover.

“Levels of non-insurance are high within groups which have lower needs for life cover, such as singles, and are at internationally comparable levels for groups with higher needs, such as families.”

Only 32% of single people and 40% of young couples have life insurance, while 71% of families with teenagers and primary-school aged children have life insurance.

Yet the researchers say it’s the families, which are most severely underinsured.

The report refers to a survey AMP did among 500 parents with children in 2005.

It found that while 90% of those with life cover regarded it as adequate, only 31% had a level of cover which exceeded their mortgage and debts, leaving the rest to replace the deceased’s income or rely on welfare.

The Massey report says, “This result indicates that a large section of life cover in New Zealand is tied to bank mortgage requirements, even if it is arranged via a broker, and having obtained this, couples do not go on to consider their other consumption needs”.

High cost an illusion?

Van Gaalen maintains New Zealanders also have misconceptions around the cost of life insurance.

She says a 45-year-old non-smoking male can get life cover for less than $2 a day.

The Massey report says, “Research tends to show a weak relationship between those saying life cover is too expensive and their disposable income, indicating price sensitivity is more an issue of perspective rather than disposable income.

“Life insurance is held by at least 40% of all income levels, and on average most income groups are underinsured. The higher income groups generally have less adequate life insurance.”

With 75% of people who earn more than $150,000 a year having life insurance, researchers report this is the income bracket with the highest rate of insurance.

Yet this income bracket is also the one with the highest portion (60%) of people that are severely underinsured, or have 40% less cover than they should.

The report notes wealthier people may be more willing to self-insure.

Van Gaalen says, “There’s a difference between having insurance and having the right type of insurance."

The report gives the example: “Couples tend to insure both spouses for the same or similar amounts, despite sharply differing actual insurance needs, leading to under insurance of the primary earner and over-insurance of the secondary earner”.

Massey researchers add, “Surveys show, however, that rather than buying a range of insurance products so all risks are covered and then adjusting the amount of cover to reduce the premium cost, customers tend to buy one or two types and ignore the other products, not understanding that this leaves them completely exposed to the uncovered risks.

“It could be noted that modern family structures are becoming more flexible, with fewer nuclear families, so the traditional insurance market is disappearing.

“Insurance company products and marketing seem to not be capturing this new family complexity."

Trustworthiness

The Massey report points to a survey Rabobank did among 1000 New Zealanders in 2009.

The research found life insurers aren’t doing a good job retaining the faith of their customers, and have a low standing with non-customers.

The survey found that 69% of life insurance customers would recommend their insurer to a friend, versus 81% of general insurance clients.

Forty-five percent of those surveyed agreed life insurers provided good products and services, 54% that they had financial strength, and 52% felt confident that their claims would be honoured. This compares to 71%, 68%, and 68% for general insurers. 

Gap in the market for fresh approach towards life insurance 

EY partner Graeme Horne says life insurers need to better align their approach with customers’ needs.

He admits life insurance is a hard sell, referencing the old saying, ‘life insurance is sold – not bought’. 

“Then you have a market that is not necessarily well educated on life insurance, coupled with a number of insurers that have tended to be traditional in their approach to sales – not necessarily engaging with the market as well as they could. 

“The majority of life insurance in New Zealand is sold via an intermediated channel – there is little insurer / customer contact outside premiums and claims.  Products need to be attractive to customers at affordable prices."

Horne says insurers need to adopt new technology to make better use of the information they have about their customers.

He concludes, “The market is ripe for disruption in this space – often said but will it happen?”. 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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I'm cancelling all my policies, 3 years and I never used them once, what a waste :) 

I know - I'm the same. I failed to die or get a major disabilty. I'm so disappointed that I've failed to claim on my insurance.

The findings are staggering when compared to developed parts of Asia Pacific.
Any comparison is utterly pointless without a comparision of the taxation, regulations and social enivironment of the different countries.  Life insurance is often a tax efficuent investment product due to tax in some coutries and often has other advantages that are not applicable to NZ.  Also comparing the social welfare provisions in, say, Hong Kong to NZ is it any surprise life insurance might be more popular.
The  simple answer is most NZ'ers don't regard life insurance as very good value.
 

Is this a rhetorical question ? Becasue you answered it in the piece
We are likely the most over-insured individuals in the OECD....... by a country mile .
Have you ever heard of ACC ?
Its insurance thats compulsory for everyone  ... and dammed expensive too .
So , as to why we dont buy expensive "life" products , well here are the answers
1) ACC takes care of you and your family if you are killed or disabled, and while it is not much , they can get by .
2) The Social welfare ministry will ensure your family does not starve  
3) When I worked overseas,  my Company ( A bank ) took out life cover for me , which was tax deductable ( the premiums in NZ  are not Tax deductable )
Thats why when I have had debt ( such as a mortgage) I take out cover for the sum owing on my life . When the debt is paid up , I cancel the policy because frankly its a really bad investment to buy life Insurance in NZ.
And given our tax structure its additional cost thats not warranted .
Kiwis are not stupid , many dont need  life cover , so why bother ?

ACC covers you and your family for accidents - a quick google search shows 4.5% of people's deaths in 2011 were from accidents.
And life insurance is tax deductible for your employer if takes it out on your behalf.

Okay , fair points raised , but with no debt and investments creating income , why do I need expensive life Insurance ? 

You don't and neither do I.  In fact the average NZ'er doesn't need any insurance, only people who have accidents need insurance.  So my grandfather dies at 85 having had insurance his whole life and never made a claim.  I got a bit paranoid a while ago and started insuring things like my house, car, life, income protection.  I'm over it, I wont be renewing it.  Live on the edge, take a few risks, like Mark Wahlberg in Gambler.
Warren Buffet likes owning insurance companies, 'nuff said if you arks me.

I'm with you all the way. I mean - 98% of kiwis don't die every year, and if you're stupid enough to die, you'll have no needs. I mean, a funeral can be as cheap as council rubbish bag put on the kerb.
And if you have a spouse and kids, I mean - who really cares about them, certainly not the average kiwi. They can starve for all you care - you're dead. And if the spouse and kids are starving and homeless it'll correctly encourage them to give you the rubbish bag funeral which you want. 

Save the rubbish bag, just bury me out the back, I'll make great fertiliser for the garden!  Which will go a long way toward them not starving.  Thats of course assuming I die first, who knows?  They could all die first, then who am I going to leave my stuff to? 

What about the effect of Kiwisaver on life insurance needs? 
A balance of,say, 50k in your kiwisaver would be available to your spouse upon your death.  
Then maybe an extra 150 a month into KS would be better than LI premiums. 

This sort of thinking misses the whole point of insurance.  Insurance is really paying a small (ish) premium for a guaraunteed nest egg if you die early.  You are really only renting the nest egg until you build up your own assetts and pay down debt etc.  

True

It isnt guaranteed however, it might pay out if the insurance company cant find a pretext not to.  then look at AMI if the Govn hadnt backed them they would have defaulted.

I agree with you, though it doesn't have to be KS, put all your insurance moneys into a low risk investment, and on average you will be far better off.  Even at 5.5% paying off your mortgage is better for the average person.

Why is there not a study on over-insurance in NZ

Same reason there isn't a study on "too many studies" vested interests.

Who would do the study? Interest.co.nz? with all its avertising revenue at risk?
dont be silly.

It never ceases to amaze me that when an article on insurance comes out people love to comment and brag that they have just cancelled their policy, never had a claim, wasted their money etc...
Yes insurance is a gamble, you pay a small amount and get a big payout if something happens. Ask all those people who have claimed if they think their insurance was worth it?
It's usually the asset rich who make these comments - and then say things like 'I don't need life insurance - if I die the mrs can just sell the rental properties'...Might save $50 a month but the potential income stream for the family off the rental is gone..is that good logic?

srsly dude.
(1) it's not "you pay a small amount".   The amount paid is significantly large.

(2) You say it's the "asset rich" that say those things...whoa up..the asset rich huh.  I wonder how they got asset rich?  Perhaps by not blowing a significant amount on no return inusrance.

Self-insurance is a risk. So is third party insurance...lets ask some homeowners in Christchurch how their insurance worked out for them?  (commercial insurers have the same risk you do, but have to pack tax and wages....)

"worth it"? ask lots of americans who thought they were insured who have had their policys voided on whether it was worth it, many went bankrupt.
Income insurance is a con and it isnt cheap.  They will avoid paying if they can and cut it off asap.
 
 
 

Seriously cowboy...
1) The concept of any insurance is you pay a small affordable premium to insure against a major loss that would destoy you financially - that's why it was invented in the first place.
2) Those asset rich that had no insurance while they were building thier wealth were lucky - took the gamble and it paid off, but it may not have - to suggest you end up broke by paying a bit of insurance along the way is a bit strange
No idea of the point of your last paragraph...sure there are a few issues with insurance payouts in Christchurch but I think I'd be a home owner with insurance rather than without it...
 
 

The premiums for many insurances are too significant to be worth while. Now house insurance OK, has been around for 600?  years.

in theory , yes.
in practice, no.