New Zealand’s mortality protection gap was sitting at about $640 billion in 2020, and the protection gap in health, disability and the trauma space is also significant – and, according to insurers, a serious look at how to close it is now long overdue.
A ‘protection gap’, or underinsurance, is when an individual, family or business does not have enough cover to protect against adverse financial events. This can mean either having no insurance, or insurance that doesn’t provide adequate cover, has an excess that is too high, or has certain important exclusions.
A Swiss Re study conducted earlier this year showed that almost two thirds of New Zealand households have some form of protection gap in the life space, and this gap has been predicted to widen further over the next decade due to a rise in young families, and increasing debt levels. According to Tony Arthur, chief commercial officer at Partners Life, the protection gap is also an issue of financial literacy, and this needs to be addressed first to start lowering rates of underinsurance.
“I’ve had the privilege of working in financial services for the last 15 years, and in the roles that I’ve been lucky enough to have, I’ve seen the consequences of the protection gap firsthand,” Arthur said.
“I’ve been lucky to work for companies and in roles where I’ve been able to influence, and have a bit of an impact on not just the protection gap, but also on the wider issue of financial literacy.”
“We’ve got a number of data points now which all point to the same thing,” he explained.
“We’ve all approximately stated that the underinsurance gap is about 50% of what’s currently there at a population level, and I think it’s important that we continue to communicate that. We need to size up the problem, and make sure that not just the industry, but also the government understands the flow-on impacts on people.”
Arthur said that in order to start addressing this gap, information needs to be made directly relatable to those it is trying to reach.
He noted that statistics and studies on underinsurance have been around for some time, and the insurance sector has had an ongoing awareness that many New Zealanders have inadequate cover - however, there hasn’t been a resulting education or awareness drive.
He said that insurers now need to introduce a ‘circuit breaker’ to try and combat underinsurance levels, and this means spelling out the consequences on an individual level - that is, discussing the ability to pay for living expenses, to have access to specific types of treatment, or being able to pay rent or a mortgage.
“We really need to be able to package that information down to an individual level, which is something I think we absolutely struggle to do,” Arthur said.
“And then it’s not just about getting the consequences of that gap down to the individual - it’s about how we can get that message into the right form, so that it gets to the people that need to hear it? That is, those who either aren’t protected, or are grossly under-protected.”
“We need to do that in a way that they can understand, and that also motivates them to change,” he explained.
“I think that’s one of the key issues we’re facing at the moment. These statistics aren’t new, and the issue isn’t new. We’ve been kicking this ball around as an industry for a while now, and somehow we need a circuit breaker that will allow us to make that information relevant to each individual.”
The data was further put into perspective by the Financial Services Council (FSC), which released research titled ‘Gambling on Life’ in 2020. There, it discovered that Kiwis were significantly underinsured for life, income and mortgage protection, and critical illness - with only 9% of Kiwis being sufficiently insured for the latter.
“The national statistics around this are alarming,” Arthur said.
“We can see the consequences of it when people’s lives are interrupted. We need to be able to personalise this information down if we want to be able to make progress, and to help solve the issue in front of us.”
