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October 18, 2011updated 13 Apr 2017 8:47am

A huge mortality protection gap to fill

But from all accounts life insurers are failing to capture the full potential of developing and developed markets in the region as evidenced by a massive mortality protection gap.

By LII editorial

Many countries in the Asia-Pacific region are home to some of the world’s fastest-growing life insurance markets. But from all accounts life insurers are failing to capture the full potential of developing and developed markets in the region as evidenced by a massive mortality protection gap.

A huge opportunity confronts the life industry in the Asia-Pacific region; closing the massive and growing mortality protection gap. The huge gap is revealed in a study by Swiss Re, Mortality Protection Gap: Asia-Pacific 2011.

Swiss Re estimates that the mortality protection gap in 12 major Asia Pacific countries stood at an incredible $41.4trn at the end of 2010. And the gap is growing apace.

Swiss Re estimates the gap has grown from $15.8trn since 2000, a CAGR of 10%. The pace at which the gap is expanding is also quickening, with Swiss Re data indicating that it increased at a CAGR of 12% between 2007 and 2010.

 

‘Massive opportunity’

Bar chart and line graph showing the mortality protection gap per worker in a selection of Asia-Pacific countriesIn its study, Swiss Re considered only working people with dependents.

Explaining the basis for the estimate, head of business development in Asia David Alexander said the reinsurer believes the family breadwinner should typically have 10 times their annual salary in life insurance protection.

“The protection gap we have identified equates to a massive opportunity for the insurance industry now – the mortality protection gap is worth approximately $124bn in potential premiums to the industry,” says Alexander.

To put this potential into perspective, Swiss Re put total premium income generated in the 12 countries covered by its study in 2010 at $3.13trn.

Looked at another way, $124bn equals about a quarter of the total premium income generated in Asia’s largest insurance market, Japan, and is almost equal to the combined premium income of Australia and Taiwan of $72.6bn and $76.4bn, respectively, in 2010.

Alexander stressed that there is a sizeable mortality protection gap in all the markets covered by the study.

Bar chart showing the mortality protection gap in a selection of Asia-Pacific countries - 2000, 2004, 2007 and 2010

 

Illustrating the protection gap, in India, for example, Swiss Re found that in 2010 for every $100 needed for protection, there was only $7.40 of savings and insurance in place, leaving a massive protection gap of $92.60. This equated to a total protection gap of $28,763 per Indian worker with dependents.

On a per worker basis protection gaps in more developed economies are far more substantial than those in less developed economies such as India.

Swiss Re noted this is partly explained by higher income and costs of living in developed markets. The highest protection gaps per worker were found to be in Korea, Japan, Hong Kong, Singapore and Australia.

Swiss Re pointed out that the findings of its protection gap study are consistent with the findings a study it conducted in 2010. According to that survey, 40% of respondents believe their families would or might struggle financially in the case of an adverse event such as early death.

The survey identified the major barriers to purchasing life insurance as cost and lack of available funds.

Swiss Re head of client management, division globals Paul Turner says: “This perception gap in customers’ minds is an opportunity for the life insurance sector.

“We must reach out and provide greater clarity to consumers on the relative cost and value of pure life insurance, for example, by comparing the cost of insurance with that of a cup of coffee a day.”

However, Swiss Re also found that, despite the perception life insurance is expensive, more than half of the respondents to its survey were willing to pay at or even above the market price for a pure life insurance product.

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