Mortality protection gap reaches US$83tn -- Swiss Re

The mortality protection gap in the Asia-Pacific region reached $83tn in 2019 and is expected to rise by an average of 4% per annum till 2030, according to Swiss Re's latest study. The gap is almost eight times their average annual household income.

The "Closing Asia’s Mortality Protection Gap" report from the Swiss Re Institute adds that around 75% of the families in the 10 markets surveyed are unlikely to cope financially in the event of death of their main breadwinner.

About a quarter (24%) of households face a very high protection gap, defined as having over 90% of their protection needs unmet, which could lead to financial ruin for the family if a breadwinner passes away. The study models Asia's mortality protection gap at the household level based on the results of an extensive consumer survey of over 14,000 respondents across 10 markets: Australia, Mainland China, Hong Kong, India, Indonesia, Japan, Malaysia, Singapore, South Korea and Thailand, in combination with macro data.

The mortality protection gap is defined as the difference between the protection needs of a household and the financial resources available to sustain a family's future living standards in the event of the unexpected death of the main breadwinner(s). As a total, the gap is largest in mainland China at $41tn, while 83% of families in India have their protection needs unmet, making it the most vulnerable as a percentage. Among advanced markets (Australia, Hong Kong, Japan, Singapore and South Korea), households in Japan face the most severe protection gap at 61% of their protection needs while households in Hong Kong are least exposed at 41%.

Across the 10 surveyed markets, the aggregate mortality protection gap is projected to reach $119tn by 2030. In particular, households in emerging Asia economies (India, Indonesia, mainland China, Malaysia and Thailand) are highly vulnerable. The outbreak of COVID-19 in early 2020 highlights the fragility of livelihoods and gives insurers a unique period to respond to consumer anxiety when they are more open to discuss their protection needs.

From now until 2030, closing the gap in the 10 surveyed markets would result in up to $292bn in additional annual premiums.

Key causes of the widening gap

Looking into the consumer mindset, a significant part of the problem lies in the relative lack of concern over mortality risk and attitudes towards life insurance. Close to 30% of respondents underestimate the importance of financial preparedness to deal with the loss of income due to the death of the breadwinner(s), according to the survey.

More often, households express greater concern over long-term health (62%), accident risk (48%), short-term health (35%) and retirement planning (31%) than the death of breadwinner(s) (27%). Most respondents (94%) said they are not fully confident to manage their financial vulnerability in the event of a mortality shock.

However, only over one-third (39%) of respondents considered buying life insurance to reduce such risk. "Earning more" is the most favoured solution to close the gap across all age groups, followed by purchasing health insurance and investing more. High perceived costs (51%), lack of product understanding (31%) and poor perception towards life insurance (19%) are the major deterrents stopping consumers from getting life insurance.

"Underestimation of protection need, lack of consumer risk awareness and low uptake of life insurance continue to underpin the mortality protection gap in Asia," said Mr Kelvin Ho, VP, Health & Medical Solutions Asia, Swiss Re. "A good starting point is to help consumers calculate and visualise their own protection needs, and stock take on the financial assets they have access to."

Closing the gap

Two in three respondents (64%) are open to discuss death and family estate planning topics. Swiss Re Institute believes that in the wake of the COVID-19 pandemic, consumers are now more open to be contacted by insurers to learn about available protection options. Insurers now have the timely occasions to engage, customise and differentiate the values that life insurance plans offer.

"Insurers need to be creative in overcoming ingrained consumer mindsets, to design optimal distribution and customer experience in meeting consumer concerns for protection in Asia-Pacific," said Mr Ho. Research shows that one in three (35%) respondents would prefer to have their life insurance policies bundled with health protection options like medical reimbursement and critical illness cover, suggesting insurers can refine their product development approach with more holistic offerings than pure life policies. In addition, the survey shows a high potential for increased use of digital channels in life insurance distribution.

Over 70% of consumers indicated openness to researching products, applying for insurance, and transacting online, in contrast to just 12% of current sales being carried out through web or app services. As social demographics evolve, the survey also reveals the unmet market demand for addressing the specific vulnerabilities impacting underserved consumer needs, especially those arising from sole female breadwinners who provide the only financial support for their families, and high-income young professionals (aged 25-34), who account for 26% of Asia's mortality protection gap.

An over-reliance on personal savings and underestimation of their protection needs make these consumers less prepared for financial shock upon the untimely death of their breadwinners.

Source: Asia Insurance Review

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