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."
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?”.