title: Underinsurance in Australia: Motivations and Deterrents in Acquiring Personal Insurance Products
Creators: name: Driver, Tatiana
Publisher: name: Griffith University
Year: 2021
Subjects: subject: underinsurance
subject: on-insurance
subject: purchase personal insurance
subject: financial advisers)
subject: consumers
subject: people’s decision-making
subject: Insurance literacy

description: Underinsurance and non-insurance have been identified by researchers, policy makers, and the insurance industry as a significant problem in Australia. With a focus on personal insurance products, this thesis aims to explore whether underinsurance and non-insurance is a problem and what drives people’s decisions to purchase or not to purchase personal insurance. At this stage, little academic research has been conducted in the area of financial planning, and personal insurance, in particular. While the insurance industry has published numerous reports about the underinsurance problem in Australia, these publications are not academic and may be perceived as being biased. This research is important because if underinsurance is a significant problem in Australia, it can have negative effects on individuals, businesses and the society as a whole. If unfortunate events take place, and people do not have or have inadequate personal insurance coverage, they may be forced to apply for government payments to support them through difficult times. Although an adequate personal insurance coverage will not take away emotional pain caused by the death or illness, it can help to alleviate the financial burden of the insured individual who is unable to work due to injury or disability, or if the main breadwinner passes away. The research questions to be addressed by this thesis explore what are the factors and personal characteristics that influence individuals to purchase personal insurance products, as well as the factors that act as a deterrent. Other important factors explored include whether respondents are overconfident about their knowledge of insurance and overconfident about holding adequate personal insurance policies; their level of personal insurance literacy; any correlation between increased personal insurance literacy and their purchasing behaviour; the extent of respondents’ need for personal insurance; and respondents’ level of underinsurance or shortfall with personal insurance policies. To answer the research questions, a two-stage process of collecting data was conducted. The first stage involved conducting interviews with both informed participants (financial advisers) and consumers. The second stage of data collection involved carrying out a large-scale survey of the general public in Brisbane and the Gold Coast areas. The theoretical academic literature highlighted some aspects which could act as deterrents when making rational decisions, including: the idea of mental accounts, procrastination, various emotions, bounded rationality, inability to understand loss probabilities and low financial and insurance literacy. These factors identified in the theoretical academic literature might influence people’s decision-making when deciding to purchase personal insurance, so examining these factors could assist in answering the research questions. The insurance industry literature largely identifies the main reasons why people do and do not purchase personal insurance products. Some of the reasons identified for not purchasing personal insurance included: perceived high cost, not having children, not seeing value and importance of personal insurance, having low insurance literacy, not trusting insurance companies and financial advisers, and not seeing personal insurance as a priority. In the Stage One interviews with informed participants and consumers; it was found that the reasons for purchasing and not purchasing personal insurance policies were similar to the ones identified in the industry publications. Insurance literacy was seen to be very low among the interviewed consumers, which was further confirmed by the interviewed financial advisers. Low insurance literacy is of concern, as this may cause people to make wrong decisions. It was also identified from the interviews with financial advisers that the main reason for cancelling existing policies was due to unaffordability, with other reasons including: a switch to another policy due to having some problems with insurance companies; or because they were advised by their financial adviser that another product suits their needs more; and because they no longer required the cover due to decreased liabilities. Most financial advisers thought that to be adequately insured, it was important to address all liabilities of the client and make sure there is money left for the surviving spouse and children to live on. In Stage Two, the survey examined various demographic groups to see which ones were most: underinsured, in need of personal insurance, confident about their knowledge and the adequacy of the personal insurance held, as well as their level of personal insurance literacy. The relationship between personal insurance literacy and the level of personal insurance shortfall was also examined, and it was concluded that those who had higher level of personal insurance literacy were also better insured. On average, the demographic groups which held higher levels of personal insurance were identified to be: males, people belonging to some religion, those who worked in the financial services industry, respondents aged between 35-54, those who worked on a full-time basis and self-employed, those who held undergraduate and post-graduate degrees and those who belonged to the two top tax brackets. When individual respondents were examined in relation to their underinsurance levels, it was found that the majority of them were underinsured, which was consistent with the industry publications reporting on underinsurance levels in Australia. Given the findings from Stage One and Two, various recommendations were made, including how financial advisers are perceived within their own industry, particularly to move away from being sales people to professionals providing services in the best interest of their clients. To try to improve personal insurance literacy, people need to be encouraged to seek professional advice; as well as it would be beneficial to introduce a compulsory personal finance subject at school.