Too many Kiwis under-insured

Monday 6 Sep 10 9:24pm
Despite latest statistics showing that total in-force life insurance premiums continue to rise, the Investment Savings and Insurance Association (ISI) says many New Zealanders are still inadequately insured.

ISI Chairman Sean Carroll says while the latest life insurance statistics (for the year ended 30 September 2010) show total annual in-force life insurance premiums rose 7.1% ($115.3m) to $1.75 billion, too many New Zealanders continue to risk their financial security by failing to protect their greatest asset – themselves.

New business growth was positive overall despite lapse rates and surrenders remaining at high levels.  However the main contributors to in-force premium growth came from age and inflation-based increases on existing policies, as well as changes to the tax treatment of life insurance policies which saw premiums increase by up to 20% in some cases.

“When you dig into the numbers a bit more, you’ll find that net new policy growth was only a small part of the overall increase, which is why we are concerned that many New Zealanders continue to ignore the need for adequate financial protection,” says Mr Carroll.

Recent trends continued with annual premiums for conventional policies down 6.5%, while term life (10.6%) and trauma (13.5%) insurance annual premiums recorded solid growth.

Conventional policies, once the backbone of the life insurance industry, now represent only 7.0% of total annual in-force life insurance premiums.  Term life insurance (47.7%) is the dominant insurance contract on the market today, followed by replacement income insurance (13.8%) and then trauma insurance (12.1%).

Trauma insurance remains the fastest growing product on the market with total in-force premiums up 55.7% over the last three years, while term life (+32.7%) and replacement income (+28.4%) insurance premiums have also recorded solid growth over the last three years.

While he is pleased the market continues to grow, Mr Carroll says it still leaves many New Zealanders exposed to the financial risks from unexpected injury, illness or death.  “While there has been an overall 25% increase in total in-force business over the last three years, initial investigations are that many Kiwis aren’t protecting themselves sufficiently.”

Mr Carroll says that the Financial Services Council in Australia has conducted comprehensive research into the extent of their under-insurance problem and found that parents with dependents are critically underinsured by AUD$1.37 trillion.

“The Australian life insurance industry pays out nearly AUD$10m a day in claims.  In New Zealand our industry pays out just over NZD$2m a day in claims.  With a population around one fifth the size of Australia’s population, it is therefore reasonable to assume that we have a similar issue with under-insurance in New Zealand.”

Mr Carroll says ISI plans to undertake a comprehensive study into the insurance patterns of New Zealanders in 2011.  He says the intention is to help the industry understand the extent of the under-insurance problem and develop products, programs and incentives that will encourage New Zealanders to better protect themselves, their families and businesses.

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The Financial Services Council (FSC) represents investment and life insurance companies in New Zealand.

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