Over the course of the last three years, Zurich Insurance Group (Zurich), in collaboration with the Smith School of Enterprise and the Environment at the University of Oxford, have steered a scope of research to reveal just how widespread the issue called Income Protection Gaps (IPG) is, in various parts of the world.
IPG is defined as the reduction in household income as a consequence of the death or incapacitation of an adult wage earner on whom that household relies, taking all public and
private sources of replacement income into account. Zurich recently published the third and final IPG series report titled “Embracing the income protection gaps challenge: options and solutions” which outlines practical recommendations to address critical issues and gives insights to how governments, employers, insurers, intermediaries and individuals can work together to bridge income protection gaps.
19,500 respondents were involved in the studies conducted in 2015 and 2016 from 12 different countries in different regions of the world including Malaysia.
As life expectancy increases, working longer or extending career beyond retirement age may provide financial rewards. However, it also poses greater risk that individuals may be disabled at some point of their career. Chronic sickness, injuries or other conditions that render an individual unfit to work, can impact household budget, savings and retirement accounts.
The second phase of the study showed that Malaysia was one of the countries which had high level of awareness on income protection with 59% respondents admitted to have better understanding on the options available to protect themselves and their families from income loss. This was 30% more than the international average.
In addition, more than 70% of respondents with income protection insurance recognize that they have experienced a loss of income due to disability or illness as well as known someone who has experienced it.
However, based on local industry statistics, the coverage amount (sum assured per life) is very low at only around RM50,000 which means that they are under-insured. On an average, working Malaysians would require insurance coverage of at least 10 to 15 times their annual salary.
Solutions include finding a balance between responsibilities assumed by governments, employers, insurers – and other financial institutions like intermediaries – and individuals in protecting household income. Key recommendations include:
For insurers: Develop basic insurance products to be introduced via employers under auto enrolment (in legally approved local jurisdictions), with additional features available for individuals wishing to purchase them. For employers: Enrol the workforce in contribution-based income protection insurance schemes (with an opt-out clause) as part of their employment contracts. Provide employees with ongoing financial education and training, including the use of digital tools.
For governments: Regulate and certify (or trademark) approved IPG insurance products and use fiscal incentives to encourage compliance. Extend obligations to information technology (IT)-based platforms and agency workers.
For individuals: Personal experience of income loss is a bigger factor influencing demand than financial literacy. This may upend a number of assumptions about the effectiveness of financial education and literacy campaigns. Cost perceptions pose a barrier – but most people believe income protection insurance costs are higher than is likely to be the case. The rise of the ‘sharing’ economy is putting more individuals at risk, and older workers are more likely to lack protection.
For insurance distributors and intermediaries: Agents, brokers, banks, employee benefits consultants have important functions, not just linking supply and demand but importantly advising and educating customers (whether employers or individuals) and feeding market and customer requirements back to insurers.golden ringлобановский александр
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