Life insurance on the line

Vol: 45 Issue: 1 | March 2022

The perennial problem with life insurance — the stubborn unwillingness of consumers to acknowledge its value and buy it — is alive and well in the Asia-Pacific region. Life insurance markets are characterised by the mortality protection gap (MPG) — the measure of the shortfall in financial resources that households need to maintain their standard of living in the event of the death of a primary earner. 

According to 2020 research by Swiss Re, the estimated mortality protection gap in Asia stood at US$83 trillion and was climbing by 4 per cent a year. Further, 75 per cent of Asian households faced an MPG of about eight times annual household income. As COVID-19 pressured economies, the insurer expected wealth erosion and increased pressure on social systems to widen the gap even further.  

Common factors in under-insurance

‘The MPG is heavily driven by consumer perceptions and behaviours of mortality risk and affordability,’ says Leigh Watson, head of life and health, Australia and New Zealand, at Swiss Re. 

‘The social security system and life insurance product features are also other factors that drive demand for insurance, and thus the MPG.’

In China, for example, most households say they intend to earn more to bolster protection, while in Hong Kong, South Korea, Singapore, Indonesia, Malaysia and Thailand households place heavy reliance on value from non-primary property assets to cover protection needs. In any market, human nature also plays a significant role in life under-insurance, says Jenni Baxter, a partner in Deloitte’s Sydney office in the Actuarial Consulting practice. 

‘A reluctance to consider one’s own mortality and the possibility of disability or death, let alone the financial consequences of such an event, is a major cause of the MPG,’ she says. ‘It is so much easier to focus on current needs and lifestyle preferences than to consider ones in the distant future.’

Not so super coverage

In Australia, the relatively cheaper life insurance cover that comes with superannuation fund membership is a big reason why voluntary life insurance ownership is the lowest (22 per cent) among the markets that Swiss Re surveys.

For many people, the cover contained in their super is the only insurance protection they have against the financial consequences of death and a permanent or temporary incapacity to work.
 
While life insurance within super is ‘an important measure to help mitigate under-insurance’, says Andrew Casperson, head of product management at Zurich Financial Services Australia, it doesn’t come close to closing the mortality protection gap. 

‘A super fund member may be unaware that the default sum insured based on their age could be dramatically lower than their needs,’ says Casperson. 

‘Our own research demonstrates that across nine large group superannuation plans, the highest average sum insured offered for default death cover is just over A$290,000 — almost half the value of the average loan taken out by new home buyers.’

Life insurance opportunities

Life insurers may have a once-in-a-generation opportunity to leverage families’ experiences during the pandemic to drive growth.

‘The COVID-19 pandemic has definitely heightened awareness for protection,’ says Watson. Digital will be a major front in this strategy, given that South and South-East Asia have seen the number of digital consumers grow exponentially over the past few years — a trend that was accelerated by the COVID-19 pandemic, according to Swiss Re Institute. 

‘Insurers today are presented with a unique opportunity to close the online protection gap through developing simple, modular products, streamlining the digital onboarding process, and educating the consumers to enhance greater trust and familiarity with digital insurance offerings,’ Watson says.  

In Hong Kong, the Insurance Authority launched a comprehensive set of online tools and a mortality gap calculator in December 2021, to help consumers work out their cover needs now and in the future. 

Consumer education needed

Andrew Casperson, head of product management at Zurich Financial Services Australia, says ‘consumer education is key’ to the industry’s success in closing the MPG, as is ‘myth-busting around the cost of cover and the likelihood of claims being paid’. 

A number of life insurers in the Asia Pacific have recognised that the MPG is a problem that requires a long-term solution: starting with educating children and teens about financial management. 

AIA Philippines runs Philam SAVES financial literacy sessions with school children and their parents, and worked with the government and other stakeholders to launch a personal finance education personal finance education course for college graduates in 2021. Elsewhere, life insurer FWD is working with NGA JA Asia Pacific to educate teens and their parents in financial literacy. The JA SparktheDream program will be launched in Singapore and Hong Kong in 2022, with seven other regions to follow.

‘Insurers can simplify their life products and look to educate customers on how various aspects of insurance work to protect them,’ says Watson. ‘We have a role to play in assisting households to understand their financial exposure.’

Leading on behavioural economics for instant gratification

Some life insurers are leveraging behavioural economics to improve their sales, reduce lapse and control fraud. Tactics include sharing data about the likelihood of dying in the next five years, or providing immediate rewards such as rebates or access to discounted health and fitness services.

For example, US insurer Foresters Financial already links its primary life insurance offering with healthier life choices and member benefits such as gift cards, complimentary wills and other legal documents, and donations to charity. Foresters will be launching a mobile app later this year, which will strengthen the program with real-time health tracking, and personalised goals and recommendations. 

Other life insurers embracing the so-called ‘insurefitness’ trend include John Hancock, Sproutt and Health IQ. Customers can earn up to 25 per cent discount on their premiums for wellness activities.

Dynamic and digital insurance options

With digital channels increasingly the consumer’s first stop, Swiss Re says choice architecture has proven to help individuals make better financial decisions. It suggests customers are influenced by the way life insurance options are presented, including the number of choices, layout and the way attributes are described. 

‘It is increasingly important for insurers to provide bundled offerings, including dynamic coverage, mortgage-linked policies and female-friendly solutions as viable concepts to close the MPG,’ Watson says. 

For instance, South African bancassurer First National Bank won the 2021 Celent Model Insurer Award for Innovation Execution, for its dynamic term assurance policy that automatically adjusts customer cover according to the remaining debt in the home loan.

Or how about pay-as-you-go life insurance? DeadHappy (underwritten by Covéa Life Limited in the UK) offers customers the option of choosing and changing their payouts in line with a range of ‘deathwishes’ that include the practical (paying off the mortgage) to the more unusual (scattering your ashes on the edge of space).

Says Watson: ‘We, as life insurers, have a unique opportunity to ensure that our insurance offerings and benefits are sustainably designed and priced, providing value for our consumers and adequately reflecting underlying risks from unexpected events.’  

Mortality Protection Gaps across the Asia Pacific

Australia

US$2.8 trillion; equivalent to 54% of national protection need
Life insurance covers about 18.8% of national mortality protection need

New Zealand 

US$435 billion, equivalent to 55% of its national protection need
Life insurance covers about 25% of mortality protection need

China 

US$41 trillion; equivalent to 70% of national protection need
Life insurance covers about 4.1% of national mortality protection need

Hong Kong

US$400 billion; equivalent to 41% of national protection need
Life insurance covers about 12.5% of mortality protection need

India

US$16.5 trillion; equivalent to 83% of national protection need
Life insurance covers about 1.2% of mortality protection need

Japan

US$8.4 trillion; equivalent to 61% of national protection need
Life insurance covers about 20.6% of mortality protection need

Singapore

US$600 billion; equivalent to 55% of national protection need
Life insurance covers about 14.8% of mortality protection need

Indonesia, Malaysia and Thailand

Aggregate US$3.6 trillion; equivalent to 74% of aggregate mortality protection need
Life insurance covers about 5.4% of aggregate mortality protection need

Sources: Closing Asia’s Mortality Protection Gap (2020, Swiss Re); Closing New Zealandʼs Mortality Protection Gap (2021, Swiss Re).

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