by Darrin Franks
It's been said that in certain professions, money can buy you any opinion you like. This is unhelpful if one seeks objectivity on a particular subject. Similarly, it seems there is no shortage of opinion about to why New Zealand has one of the worst life risks insurance take-up rates of all the OECD nations.
Even the the Financial Services Council (formerly the ISI) has recently added ‘under-insurance' to previous problematic vocabulary such as ‘churn'.
The extraordinary counter-statistic is that New Zealand's Canterbury earthquake ranks as one of the largest insured events in the world.
Rather than join the hand-wringing, we thought it would help to ask the population at large what they think of insurance, and share these opinions with people charged, in their chosen occupation, with engaging with consumers or would-be consumers.
We will do so in some detail at the upcoming Professional Advisers Association national roadshow.
It's clear that when you say ‘insurance', the default thought is typically of material risk.
Indeed, of the survey respondents, 87% held car insurance, 84% contents insurance and 70% house cover. When it came to life risks, only half had a life insurance policy and 34% health insurance. Trauma/critical illness, total and permanent disability and income protection were lucky to register at all, with 11, 12 and 11% representation respectively.
The conclusion: It appears to hold true that ‘he who dies with the most toys wins'. We're insured so well against material loss that our partners, family and kids can embark on the not so easy task of selling off assets to ensure financial survival, or some degree of it, in the event of our demise. Is that the measure of success?
What about the consumer product knowledge, the perception of value and how it drives behaviour?
In a nutshell, it appears that if knowledge of products is strong the perception of value improves, as does the purchasing and retention behaviour. The inverse correlation is simple: I don't know about the product so I perceive no value and I will not buy - or if I do, I'm less likely to retain it.
Specifically, 57% of the respondents had never heard of, or know very little about trauma/critical illness, while total and permanent disability was largely unknown at 43% and income protection at 27%.
This is in contrast to every single respondent having heard of home contents insurance, and 96% believed they knew either a lot or enough about it.
The number one reason people don't have life insurance is that it is perceived to be too expensive, and therefore not good value for money.
I guess you don't get to appreciate the value when you are dead, but in 27 years I have never had anyone's family tell me they got paid too much upon the death of a loved one.
Nonetheless, if constantly rising premiums are an issue of consumer sustainability there may be some lessons in the echoes of the late 1980s and early 1990s, when the favourite cry from some quarters was ‘buy term and invest the rest'. Whatever your view of insurance product returns of that period, you can't deny that there is merit in level and return of premiums for some consumers, no matter how good the discounted cash flow models.
On the subject of cost and value, hats off to the insurer who recently thought giving life insurance away for a year to new parents would somehow improve the perceived value of the industry. Time will tell, but as with all gifts, it's the thought that counts.
If life risks insurance is seen as a cost with little value, then we have some work to do to catch our cousins in material risk insurance.
Buying the former is an educated economic decision about transferring the financial burden that will occur at the point (or soon after) of an insurable event, in much the same way as material risk is evaluated. The trick may be to make life risks just as tangible.
I know I am preaching to the converted, and given that churn continues largely unabated, there is no doubt that those customers are also converted (often). The question is: Who is going to convert the rest? Time for a crusade into the uncharted waters of the population...God knows they need us.
Footnote: AIA New Zealand commissioned a professional research company to conduct an internet-based survey. Three thousand emails were sent to individuals 18 years and older who are at least jointly responsible for financial decisions. Data was gathered from 1,223 respondents. Key industries such as financial services related were excluded from the survey to limit any data skew.
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