The mortality protection gap in the Asia-Pacific region has reached US$83 trillion in 2019, and is expected to increase by an average of 4% annually until 2030, according to Swiss Re.
According to the Swiss Re Institute’s report, titled Closing Asia’s Mortality Protection Gap, around 75% of the families in the 10 markets surveyed are unlikely to cope financially in the event of the death of their main breadwinner.
The study involved over 14,000 respondents across 10 markets – Australia, Mainland China, Hong Kong, India, Indonesia, Japan, Malaysia, Singapore, South Korea, and Thailand, in combination with macro data.
The mortality protection gap is defined as the difference between the protection needs of a household and the financial resources available to sustain a family’s future living standards in the event of the unexpected death of the main breadwinner(s).
According to the study, about a quarter (24%) of households face a very high protection gap, defined as having over 90% of their protection needs unmet, which could lead to financial ruin for the family if a breadwinner passes away. The gap is largest in mainland China at US$41 trillion, while 83% of families in India have their protection needs unmet, making it the most vulnerable as a percentage. Among the more advanced markets, households in Japan face the most severe protection gap at 61% of their protection needs, while households in Hong Kong are least exposed at 41%.
By 2030, the mortality protection gap is projected to reach US$119 trillion. Households in emerging Asian economies are the most vulnerable, and the COVID-19 outbreak is likely to exacerbate this situation, according to the study.
In order to close the gap in the surveyed markets, Swiss Re said that it would need up to US$292 billion in additional annual premiums from now until 2030.
Low uptake of insurance
The study found that the widening of the gap can be attributed mostly to the relative lack of concern over mortality risk and attitudes towards life insurance.
Close to 30% of respondents underestimated the importance of financial preparedness to deal with the loss of income due to the death of the breadwinner(s), according to the survey. Households often pay more attention to long-term health (62%), accident risk (48%), short-term health (35%), and retirement planning (31%) than the death of breadwinner(s) (27%).
Attitude towards insurance was also poor, with only 39% of respondents considering buying life insurance to reduce the risk. The most favoured solution to close the gap was “earning more”, followed by purchasing health insurance and investing more.
High perceived costs (51%), lack of product understanding (31%) and poor perception towards life insurance (19%) were the major deterrents to getting life insurance. Respondents in mainland China and India were particularly vocal about confusing products.
“Underestimation of protection need, lack of consumer risk awareness and low uptake of life insurance continue to underpin the mortality protection gap in Asia,” said Kelvin Ho, Swiss Re’s vice-president of health & medical solutions, Asia. “A good starting point is to help consumers calculate and visualise their own protection needs, and stock take on the financial assets they have access to.”