New Zealand needs to raise its life insurance take-up rate if the country is to address its growing mortality protection gap, Swiss Re says.

The reinsurer’s Swiss Re Institute says the country requires an additional $US1.5 billion ($2.04 billion) of annual life insurance premiums between now and 2030 to close the deficit of about $US435 billion ($594 billion).

Current demographic trends indicate the figure will blow out to $US500 billion ($683 billion) by 2030 if no action is taken.

“Life insurance is key to closing the New Zealand households’ mortality protection gap,” the institute said.

“We see an opportunity for insurers in New Zealand to improve awareness and understanding of life insurance by working with governments and industry bodies to educate families about their mortality protection gap.

“Insurers are also encouraged to continue to improve the customisation and flexibility of their products, letting customers adapt their insurance to their families’ changing needs over time.”

The institute released the findings in a report, its first on the country’s mortality protection gap. The gap is a measure of the shortfall in financial resources that households need to maintain their living standard in the event of the death of a primary earner.

According to the report, most New Zealand households are vulnerable to financial hardship if the main breadwinner suddenly passes away.

The most exposed are households with young earners, which have the highest protection need given the longer periods of dependency still outstanding.

“Low life insurance penetration and fewer accumulated savings are major factors driving the shortfall among high-gap households,” the report said.

The report, which also takes in findings from a survey of more than 750 consumers, says on average only 16% would buy life or mortality products and close to two-thirds believe the policies are too expensive.

Only 39% of consumers reported owning a life insurance policy, and buying life cover is not their default option for more security.

The report says consumers choose not to buy life insurance for reasons including perceived high price, poor perceptions of financial advisers and brokers, and the complexity of the product.

New Zealand’s life insurance penetration of 0.8% - defined as life insurance premiums as a percentage of GDP - is way below the global average of 3.8% and advanced Asia-Pacific average of 6.2%, the report said.

“More can be done to communicate the comprehensive benefit of life insurance to New Zealand consumers and the limitations of public coverage,” the report said.

“Advisers may be a key channel to strengthen [the] consumer knowledge in New Zealand.”

Click here to download the report.