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. 

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