Life Insurance Is Dying In NZ

New Zealand's life insurance market is stagnating and its primary market - parents with children who own homes with a mortgage - is shrinking, research has revealed.

A report by economic think-tank NZIER commissioned by life-insurer Sovereign has revealed revenue for the industry is only growing because existing policy-holders are ageing and premiums have risen with inflation.

"The number of policies seems to have been static since about the beginning of 2013.
"The average premium for both new and lapsed policies seems to be lower than the average premium for existing policies," according to economist Mike Henson who undertook the research.

Henson said this suggested new customers and those who had dropped their insurance were more price sensitive than a shrinking core group of existing policyholders.

The research also found the group of people typically targeted by insurance - families with a mortgage - was shrinking while the number of people renting was on the rise.

While more people were insuring their house, contents, health and car, take up of life insurance is low and New Zealand has the third lowest penetration rate in the OECD after Greece and Mexico at just 0.9 per cent.

Lack of consumer trust was also a major problem, he said.  "What can we do as an industry to restore that, for mutual benefit?"

Consumer NZ chief executive Sue Chetwin, one of the panellists, said she had resisted buying life insurance herself, fearing that it was sold by "snake oil" salesmen.

She said the industry needed to clean up some of its practices, such as high upfront commissions for new sales and international travel sales incentives for the most successful insurance brokers, if it wanted public trust. She said they were practices that it would be hard for many consumers to respect.

Some brokers earn up to 200 per cent commission on the sale of new policies.

"The industry has got to change dramatically," she said.

"It has got to do a lot better. The first step has to be tidying up your own house, not paying those sorts of commissions and working on behalf of consumers."

Sovereign chief marketing and strategy officer Chris Lamers agreed the industry needed to evolve.
"We know we have low levels of life insurance in New Zealand to be falling behind other OECD countries is sobering.

We have to change - our challenge is demonstrating to these different family groups and individuals that they need to have a plan in place for when things go wrong and life insurance can be a critical part of this."