Players in New Zealand's sluggish life insurance industry are eyeing the issue of underinsurance, after research in Australia uncovered an estimated A$1.3 trillion ($1.36 trillion) shortfall in cover there that has helped underpin growth in the sector.
Life insurers say New Zealanders' higher pay and skyrocketing debt levels thanks tothe housing market boom have outpaced their purchase of life cover so that the market is effectively shrinking.
Tower chief executive Jim Minto said just taking into account inflation and premium increases as policy holders aged, the industry should have grown by 5 to 7 per cent.
"In my estimation the insurance market in New Zealand, to provide cover that people need, ought to have been growing by well over 10 per cent per annum for some years but it just hasn't been."
Industry research showed the pure life cover market, which excludes income and disability cover, contracted by 0.5 per cent over the last year.
The lack of demand for life cover hadn't been good for Tower, whose New Zealand life business "stumbled" in the last year due in part to service issues and restructuring.
Meanwhile, life insurance market leader Sovereign's pure life book grew by 9 per cent last year despite the softer market. Nevertheless, managing director Barbara Chapman agreed that life insurance cover hadn't kept pace with increasing indebtedness.
New Zealand research into the issue could potentially mirror the work done in Australia and in the US before that, where underinsurance was dubbed the "trillion-dollar baby" by the industry, she said.
"We see the need to have similar robust statistics here. We need to understand our market."
The Australian life sector grew by 11 per cent last year and Tower's Minto believed the market there was set to grow even faster because of the issue of underinsurance.
Investment Savings and Insurance Association chief executive Vance Arkinstall said it was "likely" New Zealand had a similar issue.
"But we haven't got the figures yet to support that," Arkinstall said.
COVER STORY
* Insurers say New Zealanders' increase in debt and higher pay has not been matched by more life cover.
* The life insurance cover industry shrank by 0.5 per cent in the year to September.
* Recognition of "underinsurance" is driving growth in the industry in Australia.
