Relative to their global peers, Australians have less savings, are less financially literate, and are more likely to underestimate the risks of death, illness and injury. Not surprisingly, Australians are also less likely to hold any form of life insurance, with market penetration of death and disablement cover amongst the lowest of all developed economies.
These are the newly released findings of a comprehensive global study of life insurance, commissioned by Zurich and conducted by researchers from the Smith School of Enterprise and the Environment at Oxford University in the United Kingdom.
The poll of more than 11,000 individuals in 11 countries found a wide variation in the attitudes to and understanding of different protection mechanisms, including government benefits and life insurance.
Whilst overall a third of respondents own insurance to protect income against illness/disability or premature death, there was considerable variation at a country level, with only 17 percent of Germans insured against the financial consequences of disability, compared to Hong Kong and Malaysia where closer to two thirds of those surveyed hold such protection.
Approximately 1100 Australian adult wage earners were surveyed as part of the study, with the results challenging the belief that Australians are generally well protected.
Whilst 44 percent of surveyed Australians said they had experienced some degree of income loss due to sickness or accident, only 27 percent had protected their income and only one fifth said they had any meaningful knowledge of disability cover.
Of Australians without disability cover, just 37 percent said they would consider buying it, the lowest of any country surveyed. Contributing to this may be the finding that Australia was the most confident nation, with 47 percent of respondents believing they had a less than 10 percent chance of lost earnings due to disability.
In 6 of the 11 countries surveyed – including Australia – government benefits were nominated as the preferred source of protection against income loss. However, Australians’ expectations that the government would cover 40 percent of lost income are at odds with reality, especially for higher income earners and especially at a time when the government is tightening eligibility for the disability support pension in an attempt to reign in its $17 billion annual cost.
Commenting on the report, Mr Tim Bailey, CEO of Zurich’s Australian Life and Investments business, said the research showed protection gaps are a real and growing challenge, and that locally a combination of cultural and educational factors may be contributing to Australians being less equipped than their global peers to deal with the financial impact of death and disability.
“The confident and relaxed attitude for which Australians are renowned is wide of the mark when it comes to the likelihood – and consequences – of death or disablement”, said Bailey.
“Australians’ optimism about their state of health and the likelihood of death or disablement is not matched by the actual probability of injury or illness, which makes our relatively low levels of insurance protection even more problematic.
“At the same time, we tend to overestimate the amount of support available from the government, at a time when the tightening of eligibility sees the percentage of successful claims for the disability support pension is at an all-time low.
“This combination sees Australian households more exposed than many of their peers in developed economies, highlighting a major social and economic policy challenge.”
The study also revealed the extent to which financial literacy levels affected outcomes.
“The more financially literate countries were also those which had a more realistic understanding of the risks they faced, the mechanisms available to protect against those risks, and the cost”, said Bailey.
“Those same countries were those where ownership of death and disablement cover were the highest.”
The survey found that the two main drivers of an increased appetite for insurance protection were lower cost and greater understanding, a finding which may provide a clue as to how the government and private sectors could help respond to this growing global challenge.
“Improved efficiency and product simplification are two ways to help drive down the cost of protection”’ said Bailey.
“But this needs to be a concerted response from all stakeholders, including researchers, regulators and advisers.
“A framework which encourages more product complexity and lengthier advice processes actually undermines the ability of consumers to understand and appreciate the advice they receive and the product solutions supporting that advice.
“Ultimately such a framework works against consumer best interests.
“Zurich is uniquely placed to bring global insights to the table, and our hope is these insights can help inform the dialogue that needs to take place if we are to rise to this challenge”, he said.
A full copy of the report is available on request.
