A recent study revealed that almost a third of Kiwis have no emergency funds, and would be unprepared to cope financially if they were faced with a crisis.
The survey, conducted by Finder, showed some concerning figures. Twenty per cent (20%) of New Zealanders would be able to cover their living expenses for only one week or less if they were faced with sudden job loss, and only 7% could rely on their savings for three months or more. Five per cent (5%) could get by for 6-12 months.
Despite this, previous research has shown that less than a quarter of New Zealanders have income protection insurance, compared to a 95% insurance level for cars and homes.
Finder’s head of publishing Kevin McHugh says these statistics are worrying, as the vast majority of New Zealanders could be “just one ill-timed event away from financial ruin.”
“It’s scary to think how many of us could lose everything or go into long-term debt if they lost their job,” McHugh commented.
“It’s a stressful way to live, knowing any unexpected event could pull the rug out from under you. Households need a bigger financial buffer in place. A fortnight’s worth of savings isn’t going to cut it if things turn pear-shaped.”
McHugh emphasised the importance of having income protection insurance in place, especially for families with significant financial commitments.
“Income protection insurance can be valuable for workers who are heavily reliant on their income, like those with young families or mortgages,” he explained.
“If you get sick or injured and are forced to stop working, income protection cover will provide a regular payment of up to 75% of your wage.”
Underinsurance is still a very common reality in New Zealand, and, according to FinCap chief executive Tim Barnett, this often comes down to people’s perceptions of the insurance industry itself. Barnett, who spoke to insurer members of ICNZ in November, says insurance companies and brokers are still viewed “pretty negatively” by many consumers, especially those who are struggling financially.
“The usual reality of our clients is underinsurance or no insurance,” Barnett said.
“In their world, insurance agents and companies are viewed pretty negatively, and there isn’t a sound understanding of what insurance is. Therefore, people don’t understand the decisions that insurers make. It’s easy for people to see the institution, rather than the people working in the institution and react strongly to that.”
“Another example of a common real-life issue is also over-insurance in Pasifika communities,” he added.
“Our mentors report that they often see multiple life and funeral insurances, and those people feel a mismatch in power when they’re dealing with insurance agents, often in traumatic situations. The data and experiences they’ve unearthed has left us with a sense of disquiet.”
Barnett says that a caring insurance company needs to know how to handle such situations appropriately, and should train staff in the right way to approach someone in a vulnerable situation. He says that hardship is not a situation of ‘us and them,’ and that good outcomes need to be carefully and deliberately planned.
“We may be lucky enough to go through our lives without experiencing financial hardship, but we will all be vulnerable at some point, and that will impact our decisions and behaviour,” Barnett explained.
“We may over-insure for life and funerals, and underinsure for car and contents. I’d suggest that the responsibility of the insurance company is to recognise that someone is under pressure, and understand how you speak and behave in response.
“The reality is that if you get it right for those people, you actually get it right for everyone.”
