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Bridging the protection gap - insurers need to work harder

More than two-thirds of New Zealand households are underinsured, especially in terms of life insurance cover, but the burning question is how do insurers bridge the protection gap?

Monday, November 8th 2021, 6:34AM 1 Comment

by Matthew Martin

According to recent research carried out by Swiss Re, the protection gap in New Zealand is valued at $670 billion with 64% of Kiwi households under-protected and one in five households with a very high gap of more than 90%. 

Managing director of Chatswood Consulting Russell Hutchinson says that's a gap of around $200,000 per person.

He says the insurance industry is well aware of it but has struggled to reach underinsured customers.

However, a panel of insurance experts agree - a lack of financial literacy, a poor appreciation of risk, low consumer engagement, the cost of cover and an inherent mistrust of insurance advisers present some of the biggest challenges to bridging it.

Swiss Re's head of life and health for New Zealand, Kresh Wright says one of the answers is to tailor products to individual situations as well as the better education of Kiwi consumers.

"Often individuals know they need insurance but they often underestimate the insurance they need and underestimate how much an [adverse] event can have on themselves and their family."

Chief commercial officer at Partners Life, Tony Arthur says the New Zealand insurance industry has been kicking the protection gap ball around for some time and should look overseas for some solutions.

"It's important we continue to communicate the size of this gap but it's not until we can package that information down to an individual level and put it into the right form to enable people to understand this and for us to engage them."

He says everyone in the industry is failing to bring home a sense of realness about the problem but the government also has a role to play in terms of education.

Hutchinson says high quality, 5-star products don't suit the average customer as they often come with higher costs.

Panellists agreed that lower cost, simpler products could also help to bridge the gap.

"There needs to be commercial drivers to build products and technology that drives accessibility," Arthur says.

Associate Professor and director of academic quality at Massey University, Dr Claire Matthews says cover can sometimes not be fit for purpose and is insufficient to cover major adverse events.

She says there are also issues around the trust of insurance and financial advisers and the industry often focuses on investments and retirement savings - not life insurance.

The panel were part of a Financial Services Council Regenerations Reimagined online conference held on Friday, November 5.

Tags: financial literacy FSC Life insurance

« AMP Life exits life insurance for goodnib set to expand into life insurance »

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Comments from our readers

On 11 November 2021 at 12:10 pm Backstage said:
A few factors to consider here if you want advisers to be apart of the solution. Lower income folk struggle to pay premiums when financially stressed. Our revenue is exposed for 2 years. Often budget is a constraint on attaining the levels they should have. In addition we have the same legal liability and process requirements on say a $30 per month client as we do a $1,500 per month. Often same time to complete and work through the advice but with less risk of default. In terms of adviser trust, and assuming this is correct, it isnt surprising given some of the media that lead up to the regulation changes. I suggest banks and robots (AI) get stuck into these markets.

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