Consumers are all too willing to sacrifice life insurance but at what cost?
A family’s most valuable financial asset is typically not its home - even with average property prices topping one million dollars in some capital cities. Despite the importance Australians place on owning and maintaining a home, something else tops the list when it comes to value, and that's a family’s ability to earn a regular income.
A salary means being able to put food on the table, pay household bills, cover your rent or mortgage, and pay to get to school or work. Put simply, it covers every basic requirement. Yet Australians are more willing it seems than many other markets to forego life insurance to save money in the short term.
Swiss Re conducted a study last month, across Australia, Singapore, China's megacities of Beijing and Shanghai and Hong Kong asking 2,500 people their views towards insurance in the time of COVID-19.
Surprisingly the results showed Australians are far-and-away the most likely country to give up their life insurance when under financial pressures. Over 1 in 4 (28 per cent) said that if they were financially disadvantaged due to COVID-19, they would be willing to sacrifice their life insurance premiums.
It is important to put that figure in perspective. Across APAC, eating out was by far the most common expense to be sacrificed, followed by gym memberships, financial advisor costs and cable TV & internet. Nevertheless, Australia’s figure of 28 per cent willing to sacrifice life cover is a full 10 points ahead of the next closest country, Singapore while Hong Kong and mainland China sat at nine and seven per cent respectively.
Perhaps one reason for this is that Australia’s infection rate, and therefore death toll, is considerably lower than in most other parts of the region and globally. For this, we are extremely lucky and we have our State, Territory and Federal leaders and world-class healthcare system to thank. This may be diluting the value of life insurance in the minds of consumers when being asked about COVID-19 specifically.
However, while we may have avoided the worst health effects of the virus for now, the factors causing the risks of a family losing income due to death or disability have not disappeared. Alongside the relatively small number of COVID-19 related deaths, other illnesses such as heart disease; cancer; diabetes have not abated. Unfortunately mental health impacts may also be set to rise due to COVID-19 impacts and this could increase the need for cover.
According to Swiss Re, millions of people are potentially uninsured or underinsured against the death of a loved one. The mortality protection gap is estimated at USD 114 trillion globally - a figure set to rise further if current economic and insurance market trends continue.
For these reasons, it is concerning that over one-quarter of Australians consider life insurance to be an expense they might choose to sacrifice. If the pandemic has taught us anything, it is that the attitude of ‘this will never happen to me’ can come crashing down all too quickly.
Swiss Re’s survey also identified a number of issues that set Australia apart from our Asian neighbours. One such example is the appeal of different services provided under health insurance. Perhaps unsurprisingly, Australians consider access to private healthcare services including virtual GP sessions as the most appealing value-add, followed by immediate financial support outside of a claim payment.
Reflective of our different realities at present, Singapore, Hong Kong and mainland China rank priority access to healthcare products such as face masks and medication as their first or second priority when it comes to added benefits provided by an insurer. Were COVID-19 or a similar pandemic to occur again, Asian markets would also look for more speed and flexibility when processing payments, whereas Australians would look for immediate financial relief as value-add.
Australian insurers will no doubt find these results useful, given many Australians are currently examining the details of their policies more closely. Of those that have, more than a quarter discovered they had benefits which could be useful during unexpected crises such as counselling for mental health and bushfire recovery.
As a result of COVID-19, forty-four per cent of Australians were more likely to look more closely at their coverage details and a quarter will be more vigilant as to whether their insurance has coverage for different situations.
This last statistic provides a cause to be more hopeful about Australians and their relationship with insurance, whether life, health or any other type of cover. Swiss Re welcomes this heightened engagement, as it may reveal to consumers the financial security – or lack thereof – they are being provided with, should further disaster strike.