Why are New Zealanders so underinsured? (Image: Getty)
Why are New Zealanders so underinsured? (Image: Getty)

PartnersMay 16, 2022

The problem with New Zealand’s protection gap

Why are New Zealanders so underinsured? (Image: Getty)
Why are New Zealanders so underinsured? (Image: Getty)

A recent report suggests New Zealanders are under-insured by hundreds of billions of dollars. Sharron Botica from AIA New Zealand explains why it’s so important to make up the shortfall.

If you were suddenly unable to work, how long could you keep up your lifestyle? Do you have a mortgage to pay? Kids to take care of? What about if you passed away – would your family be financially taken care of?

These questions are understandably hard to think about. They’re confronting, and for many people, especially those with families and children to care for, seriously considering the outcomes of these scenarios can impose a huge mental load. 

But the alternative – not considering them at all – is costing New Zealanders millions of dollars every year. In insurance, we talk about the protection gap – the shortfall that households would experience if the main earner was unable to continue work. A protection gap can occur when a person doesn’t have insurance, or when someone doesn’t have enough insurance cover.

In 2020, New Zealand’s protection gap was reported at around $670b. The report found two thirds of New Zealand households had a protection gap. And it’s expected to grow over the following decade. 

Insurance helps to support you when you’re out of work (Image: Tina Tiller)

Both aspects of that gap – how it’s happened and how we can close it – are complex.  

While car insurance, home insurance and contents insurance are considered essential for so many, there’s a disconnect that happens when it comes to insurance covering our less-tangible assets. But why don’t we value our own lives, and our essential incomes, as we do our cars?

That’s a question insurers around the world have been asking as the global protection gap also grows. 


AIA wants to help New Zealanders begin their insurance journey by offering simple and affordable insurance cover. By launching three new basic, digital-only plans, they believe they can help more New Zealanders get better protected.


Customer insight work carried out by AIA has told us that people often feel protected against death, illness and other physical circumstances because they feel they can lean on whānau and community to help out. But this isn’t always realistic, and it can be a dangerous mistake that could leave that support network severely and unexpectedly cost-laden.

According to a Financial Services Council NZ report from 2020, 71% of New Zealanders are under-insured when it comes to life insurance. A similar study from 2011 found that 54% were under-insured in this same category – that drastic rise is cause for concern. 

The 2020 report described a “mismatch between the reality of the risk of death, accidents and illness in New Zealand compared with the ‘money smart’ solution to assess, manage, pool and offset the risks, and protect against them”. Basically, this means we drastically underestimate how much financial pressure is created when a household loses half of its income.

Many New Zealanders also wrongly perceive what adequate levels of cover are, according to the report. So even for those who are insured, when the worst happens and they have to claim on their policy, they’ll receive far less than they realistically need.

In 2018, the retirement commissioner Diane Maxwell said the New Zealand “she’ll be right” attitude could be playing a part. That attitude has major consequences and leaves your loved ones to carry a heavy burden. “When something bad happens you want to be looking after your people and your wellbeing, not stressing about how much money you’re going to need to repair the damage,” she said.  

While relying on savings is a common plan in case of a significant event causing a loss of income – the proverbial “rainy day fund” – you need to have savings to use. Data from Stats NZ showed New Zealanders typically don’t have great savings, with just 0.4% of income being saved over the quarter ending March last year.

There’s also the assumption that ACC will protect people against medical costs or time off work. But while they do help in many situations – in the case of accidental injury, they’ll cover up to 80% of lost income – there is a longer list of things they do not cover. Most crucial is the loss of income from being out of work due to illness, something not covered at all by ACC.

We know that insurance can be a costly undertaking. Once you add up the car, home, contents, life, and health cover it can feel like a large cost. And for many people, long-term spending isn’t considered as important as their immediate needs. Until it’s too late.  

So how do we start to close that protection gap? We make insurance more affordable, easier to access, and provide information so people feel empowered to make insurance decisions for themselves. Closing the gap is about getting people to understand the importance of insurance, and about addressing the disconnect between how much cover people think they need and how much they actually do. 

Shifting the focus of insurance from a luxury for those with extra disposable income, to a necessary expense to protect our own incomes is key. 

Not closing the gap could mean thousands more New Zealanders face financial hardship at a time when they need support the most. We need to make sure that when those situations arise, those affected can take the time they need to recover with the financial security to do so comfortably.

To find out more and to protect your most valuable asset – you – visit the AIA website now.

Mad Chapman, Editor
Aotearoa continues to adapt to a new reality and The Spinoff is right there, sorting fact from fiction to bring you the latest updates and biggest stories. Help us continue this coverage, and so much more, by supporting The Spinoff Members.Madeleine Chapman, EditorJoin Members

Get The Spinoff
in your inbox