The Mortality Gap Conundrum

A recent report by SwissRe telling insurance companies that the Asia Pacific population has seen a huge increase in the mortality protection gap must sound deftly sweet to reinsurers, especially after having to deal with natural catastrophe losses that have truly “cut the fat” from their profit margins. In the report, entitled Mortality Protection Gap: Asia Pacific 2011, the aggregate mortality gap over 12 nations in Asia saw a growth of 10% per decade. 

Putting some on Southeast Asia and Australia, here are the figures to highlight.

Mortality Protection Gap in 2010 (USD bn):
Australia - 989
Indonesia - 711
Thailand - 533
Malaysia - 380
Vietnam - 365
Singapore - 305

(data from Swiss Re)

The report clearly indicated the two challenges in getting the Asian population into buying insurance. Firstly, there’s the cost; followed closely by the lack of available funds of the working Asian individual. In fact, Paul Turner, Head of Client Management Division Global states that the life insurance sector should reach out and clarify the cost of pure life insurance by comparing the cost to that of a daily cup of coffee.

So let’s do that then.

A cup of coffee in New York averages $3.75, while a cup of coffee Beijing, China averages $6.28. This is, of course, the same nation where the average salary is a mere $4000 plus a year. I think coffee is not the way to go since the Asian continent also hosts Russia, where a cup of coffee averages $10.16 in Moscow. While Asia’s average salaries are lower than those working in the States, what is less obvious are the cost of living ratios which, as you can see, is still higher than the Asian average salaries can bear.

Don’t get me wrong. Asians should consider life insurance as part of a necessity. But in truth, most working Asians just simply can’t afford it. Not just yet. However, there are a few things going our way. It used to be joked that a Westerner stood up at a conference stating that his company could bring about innovation, high tech research and production that would be the envy of the world. Once this was said in length, an Asian merely stood up and said: “Whatever he said his company could do, we’ll do it for 40% less.”

And therein lies the issue. In each of these nations, the remark from Swiss Re is the same. Either the life insurance has outgrown the economy, or the fact that the mortality income gap has been rising steadily in the past. An increase in the cost of living, along with increasing inflation makes life insurance feasible but at the same time, an additional cost that most Southeast Asians cannot handle just yet.

And if that doesn’t prove the case, an article came out of Malaysia’s National News Agency, Bernama just a few days ago. Quoting Malaysian Prime Minister, Najib Tun Razak: "I have been telling the private and public sectors to pay people salaries that commensurate with their skills and talents in accordance with international standards.”

If wages themselves do not increase in line with inflation, then it is going to be a hard time for Asian insurers to convince or increase the growth of the life insurance industry’s sales just yet.