The life insurance market in New Zealand is facing a crisis - not of resources, but of relevance. Over the past decade, underinsurance has become a growing issue. In 2011, 59% of New Zealanders were underinsured for life insurance, a figure that jumped to 71% by 2018, according to the Financial Services Council (FSC). A 2020 FSC survey further revealed that over 60% of adults lacked any life insurance coverage, and of those who were insured, nearly half admitted their protection was insufficient to meet their needs.
Despite rising financial risks and the increasing cost of living, fewer Kiwis - particularly younger generations - are engaging with life insurance at all. The question is, why? And more importantly, how do we fix it?
The Disconnect: Life Insurance in a Changing World
Traditionally, life insurance has been sold through advisors, with homeownership and family planning acting as natural triggers for coverage. But today’s reality looks very different, and the industry has struggled to keep up. Homeownership rates among younger generations have plummeted, and more people are delaying or opting out of starting families. Add to this the high cost of premiums and the complexity of existing products, and it’s no surprise younger Kiwis aren’t engaging.
Many consumers prioritise subscriptions like Netflix, Spotify, and gym memberships over maintaining life insurance policies due to the immediacy of perceived benefits. While entertainment and fitness subscriptions provide tangible, recurring value, life insurance offers long-term, often intangible benefits, which may feel less urgent to younger or financially constrained individuals. Research indicates that financial pressure, perceived lack of need, and the prioritisation of short-term expenditures contribute to higher rates of life insurance cancellations compared to other discretionary spending choices.
For life insurance providers, this behaviour highlights the importance of communicating the critical role of insurance in financial planning. Educating consumers on the long-term security it offers could help counteract the tendency to deprioritize life insurance in favour of more immediate gratifications.
Insurers are grappling with how to connect with a generation that values convenience, simplicity, and digital-first solutions. Yet, life insurance products remain largely unchanged - complex, advisor-reliant, and poorly suited to the habits and needs of younger consumers.
A Question of Common Sense
It’s time for some hard truths: New Zealanders are facing increasing financial risks without the safety net of adequate insurance. Mortgage arrears have increased by 10% compared with October last year, with 21,300 home loans now past due and a total of 461,000 borrowers behind on their payment which means that families are more exposed than ever. Yet, life insurance continues to be treated as an afterthought rather than a necessity.
Historically, the banks’ ownership of life insurance companies appeared to be a logical solution, enabling them to offer borrowers a suite of financial protections. However, challenges arose when some banks were perceived as focusing more on meeting sales targets than on aligning their insurance offerings with customer needs. This led to concerns about customers being encouraged to purchase insurance products that may not have fully suited their circumstances or preferences. Following the 2018 Bank Conduct and Culture Review by the Financial Markets Authority and Reserve Bank Te Pūtea Matua, the major banks divested their life insurance companies, effectively ending critical discussions about protecting borrowers from financial hardship.
From our perspective, we need a common-sense approach, and one that places the consumer’s best interests at the forefront while preventing financial institutions from leveraging unethical sales tactics. By introducing legislation or incentivising banks to have meaningful, value-driven conversations with borrowers about insurance, we can ensure better outcomes. For instance, embedding life or income protection insurance into mortgage agreements and sizable debts could provide an essential safety net for both borrowers and lenders, offering security and peace of mind in the face of unexpected events. It’s not just common sense - it’s a necessary evolution for a more resilient financial system.
Reimagining Insurance for a New Generation
Mandates and legislation are not “fix-all’s” either; insurers also need to be innovative in their product design and structure, with simple and easy to understand communication.
The New Zealand life insurance market hasn’t seen a groundbreaking product launch in years. Where are the policies that meet younger people where they are? Does the industry need to rethink the relevance of death benefits for young people to better reflect the needs of this demographic?
Recently, a UK insurer recognised the relationship between mortgage size and risk profile, and developed a policy structure that balances premiums over time.
When younger borrowers take out a mortgage, they typically need more insurance to cover the larger debt. However, their risk of death or serious illness is relatively low. Conversely, older borrowers who have paid off much of their mortgage face higher health risks, even though they require less coverage. This product type balances premiums throughout the policy term which results in a more affordable and predictable insurance product that aligns with real-world needs, encouraging broader uptake and providing vital coverage at every stage of life.
Additionally, simplification of life insurance products would streamline processes and reduce operational complexities, allowing insurers to lower administrative expenses associated with underwriting and claims management. Automation and digital platforms can further enhance efficiency by managing policy issuance, renewals, and claims, enabling insurers to translate these savings into more affordable premiums for consumers. Standardised, straightforward products also reduce regulatory compliance burdens, making life insurance both cost-effective and more accessible. Considering that 34% of consumers in New Zealand make purchases using their mobile phones, simplifying and digitising life insurance products is a logical step towards enabling broader access and meeting the needs of a digitally inclined generation.
The Power of Targeted Messaging
Innovative messaging in order to cut through to what has become an alienated audience is just as crucial. ACC’s “Have a Hmmm” campaign highlights the impact of targeted messaging in reaching younger audiences. Aimed at those involved in high-risk activities like outdoor sports, motorcycling, and DIY projects, it poses the thought-provoking question, “Who gets harmed if you get hurt?” This simple yet compelling approach encourages young people to reflect on how an injury could affect their lives and their families. By focusing on relatable and likely scenarios rather than death-centric insurance pitches, ACC instigates a proactive thought process and conversation.
nib takes a slightly more provocative approach with its campaign, “What would your last meal on earth be?” Offering a $300 Woolworths voucher for new life insurance policies, the campaign cleverly ties the concept of life insurance to a playful yet thought-provoking question. By referencing the popular “death-row meal” conversation, it taps into a widely discussed topic while addressing a key customer pain point - the cost-of-living crisis. The offer of a grocery voucher not only entices new customers but also subtly acknowledges their financial concerns, making them feel seen and understood. Using humour and cultural relevance, the campaign reframes traditionally sombre subject matter into something approachable and engaging. It opens the door to meaningful discussions about protection while demonstrating how insurers can rethink their messaging to better align with their audience's needs and values.
What’s at Stake?
New Zealand’s growing underinsurance problem isn’t just an issue for individuals; it’s a risk for the entire economy. Without adequate coverage, more families will face financial ruin in the wake of illness, injury, or death. At the same time, insurance companies risk a large segment of their business losing relevance entirely if they can’t adapt to the changing needs of the market.
The Government’s 2022 attempt to introduce an Income Insurance scheme highlighted the issue. While the scheme didn’t pass, it showed a recognition of the gap that needs to be addressed. If insurers don’t step up with innovative, fit-for-purpose solutions, they risk being replaced by government mandates or disrupted by agile competitors.
It’s time to stop overcomplicating the conversation and use common sense.
A Call for Action
It’s time to stop overcomplicating the conversation and use common sense. The need for life insurance hasn’t changed, but how it fits the needs of customers has. Legislation, innovation, and meaningful engagement with consumers are not mutually exclusive – they are essential to making life insurance relevant again. By introducing smarter, more relevant solutions, insurers can not only meet today’s needs but also future proof the industry.
For life insurers, the message is clear: evolve or fade. For policymakers, it’s time to take a more proactive role in ensuring that every Kiwi has access to the financial safety nets they need. It’s time to make life insurance relevant again - not just as a product, but as an essential part of everyday financial planning. When the unexpected happens, no one should be scrambling to figure out how to protect themselves and their loved ones. We owe it to our future to make sure that insurance is there when it’s needed most.
