The NZ life insurance industry is set to undergo a review in a bid to fix a growing problem with underinsurance.

This follows the release of the NZ Investment Savings and Insurance Association’s (ISI) annual report which says New Zealanders are “continuing to ignore the need for adequate financial protection”.

ISI Chairman Sean Carroll says the issue is important despite total inforce life insurance premiums increasing by 7.1% from $NZ1.63 billion ($1.26 billion) to $NZ1.75 billion ($1.35 billion) over the past year.

“When you dig into the numbers a bit more, you’ll find that net new policy growth was only a small part of the overall increase,” he told insuranceNEWS.com.au.

Releasing its annual report to September 30, the ISI reveals the inforce premium growth was contributed to by age and inflation-based increases on existing policies.

Mr Carroll says a change to the tax treatment of life insurance policies also saw premiums rise by up to 20%.

Despite concerns over underinsurance in the NZ life market, it showed solid growth with term life sales up 0.6% and trauma up 13.5%. Conventional policies experienced a 6.5% downturn.

Mr Carroll compared the problem to an Australian review which estimated parents with dependants were critically underinsured to the tune of $1.37 million.

He says Australia pays out nearly $10 million a day in claims whereas NZ pays $NZ2 million ($1.54 million) a day.

“With a population around one-fifth the size of Australia, it’s therefore reasonable to assume we have a similar issue with underinsurance,” he said.

He says a review of insurance patterns will be undertaken next year to determine the extent of the problem.