Insurers must increase transparency and simplicity in their products to win public trust, according to a new report by Zurich and the Smith School of Enterprise and the Environment at the University of Oxford.

The report – called Embracing the Income Protection Gaps Challenge: Options and Solutions – urges life insurers to promote best practice by offering life code-compliant products.

They are also advised to improve coverage of mental health and raise awareness of mental health issues.

Governments should improve product clarity by supporting the design and marketing of products that are transparent and easy for consumers to understand. The report also encourages governments to increase financial literacy by focusing policy attention away from theory-based financial education programs.

They should support programs that combine instruction with application and practice of concepts, plus individual counselling, the report says.

Governments should also consider giving incentives to employers to invest in medical monitoring, and health and fitness programs. Authorities, too, should raise awareness of mental health issues and act to improve the community’s mental health.

The report examines how governments, employers, insurers, financial advisers and individuals can work together to reduce underinsurance.

Australia was among 12 countries assessed. Local research shows people who have experienced income loss due to serious physical issues are more likely to have insurance.

Australian men are more likely to have cover than women, a high percentage of whom are not the main wage earner in their household.

Zurich Australia Life and Investments CEO Tim Bailey says the study throws up a number of issues for the life insurance industry.

“Inadequate or inappropriate life insurance cover could expose Australian families to the serious risk of depleted household budgets,” he said. “The burden of guaranteeing long-term financial security is simply too great for many individuals to bear.”

Mr Bailey says improved financial literacy is “a critical driver of financial security”.

“The recent government announcements about the strengthening and extending of the Australian Securities and Investments Commission’s MoneySmart program are very encouraging, although there is clearly more to be done by all stakeholders,” he said.