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Why is it so hard to know how many people have life insurance?

While it is not hard to come up with a number, it is very difficult to come up with a reliable number.

Wednesday, January 25th 2023, 12:39PM

by Russell Hutchinson

The question, though, matters a lot. Estimates vary wildly.

Consider yourself – starting out, your business coach or strategist says: "so what’s the market size?"

There are three parameters which determine available market size:

  • those that are not permitted to buy cover
  • those that already have cover
  • those that could buy cover but don’t have it yet.

You can get nothing out of the first market. Something – but it may be difficult and risky - out of the second market.

You really want to know how big the last part of the market is. That’s central to the opportunity.

There are variations on this question depending on your point of view too. Are you interested in what proportion of eligible people have cover? What proportion of households? Do you count group life insurance? How about funeral cover? Do we count the life insurance included in income protection and medical contracts? What about the small amounts in credit insurance?

Even assuming a maximalist definition of cover and focusing on individuals, which leaves less room for variability, the numbers are tough to get.

Insurers, understandably, do not share their client lists with each other.

Statistics New Zealand categories in their household labour force survey are not specific enough. Simply asking people is very unreliable.

Memory and confusion serve to depress response rates. Some people don’t realise that their ‘mortgage insurance’ includes life insurance.

Some don’t even know that they have group insurance. Some simply leave all these matters up to their partner. Social pressure serves to 'enhance’ response rates. Some people think that because they know they ‘should’ have cover they answer yes when they don’t have any.

We do not know the net effect of these pressures.

The ranges of estimates are large. Some surveys put the proportion with life cover as low as about 30%, some as high as about 70%.

Comparing the responses from various surveys with policy counts from the industry statistics collected by the FSC helps but there remain challenges: some people have several life policies.

The lowest numbers suggest that the average number of policies held by those insured (of all types of cover, not just life insurance) is over four – a number that is possible for some, but not probable for the average.

Higher estimates generate numbers in the 2-3 policies per person range.

Then there is the question of the denominator.

Population is not without its own controversies.

During the pandemic our Ministry of Health preferred its estimate. (For those interested a description of the difference is available at the link below.)

This is lower than the number Statistics New Zealand prefers, but has more reliable treatment of ethnicity. We think the latter is more accurate, but even that will have some ‘give’ in it.

Then estimates must be made based on who can obtain cover, and how many are in the market. Sixteen is a good lower age boundary – but what about the upper limit? How do we make an adjustment for those that cannot buy cover due to health? Or have enough money?

Our preferred approach is to use those in work as a proxy. This is probably more accurate for times when employment is high (like now) than when employment is low.

So, what’s the bottom line?

Roughly half of all people in work have some life insurance. Only about 18% have IP and trauma cover is a bit higher.

Most of the rest would like to have some cover but fear the time and cost. They tend to over-estimate the cost of life insurance (so when you quote them they tend to be surprised at how cheap it is) and underestimate the cost of everything else (getting shocked by how much the whole package is).

Of those that have cover, most of them don’t know exactly how much or what it covers and a few cannot remember who they are insured by. Everyone needs your help, probably half of them know it.

Just get their attention and show them you have a robust and relatively painless way to get it done and you are more than halfway there.

Tags: Russell Hutchinson

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