The cost of living in New Zealand keeps climbing higher and higher. From groceries to insurance premiums, many Kiwis are feeling the pinch. But what if there was a way to make insurance more accessible, using a system we already have in place? Enter KiwiSaver. Inspired by how Australians use their Superannuation accounts to fund insurance, could a similar approach work here? In this thought leadership piece, we explore the possibilities of integrating insurance into KiwiSaver and what lessons we can learn from Australia's experience.
How it works in Australia: insurance through super
In Australia, risk insurance (life, total and permanent disability, and income protection insurance) is often bundled with superannuation accounts. Here’s how it works:
Premiums automatically deducted: Insurance premiums are taken directly from superannuation account balances. This removes the need for out-of-pocket payments, making coverage more accessible.
Default coverage: Many Australians receive default insurance cover when they join a superannuation account. This eliminates complex forms or medical checks.
Lower premiums: Group insurance policies within superannuation benefit from economies of scale, reducing costs compared to standalone policies.
The results? Around 70% of Australians have life insurance through their superannuation, providing widespread coverage at affordable rates. With total superannuation assets exceeding AUD $3.5 trillion, the system’s scale amplifies its buying power, making insurance both accessible and cost-effective.
With these benefits in mind, let’s examine how KiwiSaver could replicate this model and address New Zealand’s underinsurance issue.
KiwiSaver: a new frontier for insurance?
New Zealand faces a significant underinsurance problem. A Financial Services Council (FSC) report highlights that many Kiwis remain vulnerable:
41% of Kiwis have life insurance—leaving the majority uninsured.
Only 23% have trauma or critical illness cover, and even fewer (19%) have income protection insurance.
A worrying half of New Zealanders are not financially prepared if the primary income earner loses their income.
In an environment of rising living costs and financial insecurity, the barriers to adequate insurance include affordability, a lack of understanding of risk, and the complexity of insurance products. This raises a critical question: Could KiwiSaver play a role in addressing New Zealand's underinsurance crisis? Here’s how it could:
Increased accessibility: For many Kiwis, insurance feels like an afterthought—something to think about “later.” Bundling it with KiwiSaver could make it easier for more Kiwis to access and prioritise.
Potential cost savings: Group policies through KiwiSaver could offer more affordable premiums compared to purchasing individual policies.
Simplified processes: Automatic enrolment or opt-in options could make getting insurance less cumbersome for everyone.
Protection for First-Home buyers: KiwiSaver plays a key role in helping many Kiwis buy their first home. Integrating insurance into KiwiSaver could provide essential protection for this significant financial investment.
It’s important to note that premiums would be deducted directly from KiwiSaver accounts, which makes payment easy. However, this would also reduce the funds available for retirement. Balancing insurance costs with long-term savings goals would be a key consideration.
Isn’t this just copying the Aussies?
Short answer: yes. However, that’s not necessarily a bad thing. Australia’s superannuation system is one of the largest in the world, and its integration of insurance has significantly increased coverage and affordability for Australians. By studying Australia’s successes and challenges, New Zealand could adapt these lessons to fit KiwiSaver’s unique context.
That said, KiwiSaver’s smaller scale and younger system mean it would require careful adaptation. Any effort to integrate insurance must consider New Zealand’s specific regulatory framework, member needs, and long-term retirement goals.
Australia’s experience suggests that integrating insurance with retirement savings could increase coverage and affordability. However, it also shows how important it is to balance premiums with long-term savings goals and to ensure that individuals fully understand their options. If New Zealand were to explore this, it would be essential to do so in a way that’s right for KiwiSaver.
Key considerations
If KiwiSaver were to incorporate insurance, a few considerations would need to be addressed:
Retirement balance vs. premium costs: How much would insurance premiums reduce the long-term savings? For low-income earners, even small deductions could have a significant impact on future savings.
Regulatory framework: It would be vital to ensure that the system is transparent, fair, and accountable. Strong oversight would help safeguard KiwiSaver members' interests.
Customisation and awareness: Kiwis would need to understand their options and actively choose coverage that suits their needs, rather than just accepting a default policy.
Administration and costs: The addition of insurance would increase complexity. Providers would need to manage this without increasing fees or complicating the process for users.
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Addressing possible criticisms of insurance in KiwiSaver
While the concept of integrating insurance into KiwiSaver is intriguing, it comes with some concerns:
Over-complication: Adding insurance could make KiwiSaver more complex for members to understand. Clear communication and simple tools would be essential.
Distraction from retirement savings: KiwiSaver's primary purpose is to help Kiwis save for retirement. Any integration must ensure that insurance premiums don’t interfere with long-term savings goals.
Potential member disengagement: Default insurance policies might leave some members either underinsured or overinsured. Empowering individuals to choose their coverage is essential.
Addressing these concerns would require collaboration between insurers, KiwiSaver providers, and regulators to ensure that integrating insurance adds value without overwhelming the system.
Is KiwiSaver ready for insurance?
Adapting Australia’s model for New Zealand would require careful thought and cooperation. While this isn’t a fully developed solution, it’s a bold idea worth exploring. The potential to provide more Kiwis with affordable and reliable insurance makes this a conversation we believe is essential to have.
At Quashed, we believe that making insurance simpler and more accessible is essential for New Zealand’s future. Whether through innovations like integrating insurance into KiwiSaver or other solutions, our mission remains the same: empowering Kiwis to protect their families and their futures. While it's a bold idea, it’s one worthy of discussion as we continue to explore ways to address New Zealand’s underinsurance issue.
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