Scrutiny sows 'seeds of doubt'

Scrutiny of New Zealand's life insurance sector puts "seeds of doubt" into consumers' minds, the Financial Services Council says.

Thursday, January 23rd 2020, 2:27PM

Richard Klipin

Its new research shows high numbers of New Zealanders are underinsuring their lives, incomes and against illness.

“Gambling on Life found that while many New Zealanders are aware of the importance of types of life insurance, this isn’t reflected in adequate levels of cover for themselves,” FSC chief executive Richard Klipin said.

“While 54% of those surveyed agree that it is important to have the right amount of insurance to cover risks including illness, death and job loss; estimates of underinsurance are much higher."

Only 9% thought they had enough critical illness cover, 11% thought they had enough income protection and mortgage repayment insurance and 29% felt they had adequate life insurance.

“It is important to remember that not all kiwis need these types of insurance, for example retirees are less likely to need income protection if they no longer work and have paid down their mortgage," Klipin said.

“For others, the research highlights some of the reasons for underinsurance, which includes affordability, priority, trust, self-insurance and complexity.

“The story is similar internationally, with most countries showing significant insurance gaps and challenges such as the demand on government support outpacing supply; behavioural barriers to insurance; and consumers underestimating the likelihood of things going wrong.”

But he said, for those who had insurance, the products were performing.

Claims paid rose from $1.15 billion in 2017 to $1.5 billion in 2019, and there were 3.93 million insurance contracts in place, he said.

“As insurers continue to undergo a sea change in culture and conduct, the industry is facing into the challenges highlighted by this series of research to improve customer outcomes and to educate and inform.

“Insurance has a key role to play in modern life and the sector continues to help kiwis strike the right balance should the unthinkable happen,” Klipin said.

Those surveyed were four times more likely to agree that underinsurance is a major issue for New Zealand than disagree. Four out of ten (42%) agreed that underinsurance is a major issue for New Zealand while only 10% disagreed. A further 21% were not sure and over a quarter did not agree or disagree.

Klipin said people were put off by a range of factors. They did not like to think about death, accident or illness. Many expected that family, friends or the government would step in if something bad happened. There were affordability concerns – “it’s always a grudge purchase, people think is there a better way to spend money?”.

People were also concerned by the coverage of conduct and culture issues over the past 18 months he said.

“There are questions of ‘can I trust my life company, will I get paid out, is it fairly priced?’ These are fair and real questions. They want to take action but there are those seeds of doubt.”

He said the sector welcome the scrutiny and it was addressing the problems identified to provide better value for consumers.

Tags: Critical illness insurance FSC health insurance Income Protection insurance Insurance Advisers