The cost of insurance is not considered to be one of the main contributors to Australia’s underinsurance gap, according to Credit Suisse.
In the firm’s latest Life Insurance Quarterly Monitor, Credit Suisse draws a parallel betrween the relative affordability of life insurance versus general insurance. It notes that:
… we would not envisage high cost of policies to be the main driver of this underinsurance gap
“Relative to general insurance policies, the percentage of asset value insured is far less for life/disability protection despite such policies being comparable in terms of affordability …i.e. we would not envisage high cost of policies to be the main driver of this underinsurance gap.”
In its report, Credit Suisse sources research to suggest the current estimated underinsurance gap sits at 45%, with the majority of life insurance cover purchased via superannuation funds.
Australia is placed 18th out of the 20 … for insurance penetration
Placed in perspective, Credit Suisse says Australia has one of the lowest life insurance penetration rates of twenty industrialised countries included in a study released in 2007 by Swiss Re Sigma. Australia is placed 18th out of the 20 industrialised nations for insurance penetration (using premium as a % of GDP), ahead only of Canada and New Zealand, two countries with a similar British settlement heritage and social/economic systems.
But Credit Suisse goes on to project continued strong growth for the life insurance sector in Australia because of the large underinsurance gap that does exist:
“A key driver of continued premium growth in Australia is that relative to other developed countries, Australia has one of the lowest life insurance penetration ratios.”
“Despite the mature nature of the industry, we do not see any slowdown in growth given the level of underinsurance in Australia.”
In its report, Credit Suisse also notes that industry consolidation is likely to continue beyond the current takeover activity in relation to AXA Asia Pacific. Its says that what it considers to be still a relatively fragmented market place will be able to cope with more consolidation between ‘leading industry participants.’
