John SCHOONBEE: This is the third European Insurance Report we've done, the first was in 2010, the second in 2012 and we did this one in 2015. The first two were focused on mortality, death cover. This one was focused on disability and health in order to get more insight into how well protected people are in terms of health shocks - becoming disabled, or having a severe illness. At present the most protection is given by the state in Europe. There is currently substantial state support for people that have become disabled: in future this will decrease, it is simply not sustainable. That means that private protection industry has to grow to protect these people. We do this kind of research because we believe very strongly that understanding the consumer is key for being able to offer the best products and services through the most appropriate channel. We believe it sets us apart from other reinsurers, and clearly helps our clients to know what to sell to whom. The key findings are that the disability protection gap is substantial in most European countries we surveyed, and that many of the reasons the industry has previously given for lack of ownership of protection products perhaps needs to be challenged.
XPRIMM: Speaking about the findings of the report, what were the main goals?
J.S.: There were two: to try and determine what disability insurance exists in various countries and how much of a disability protection gap there is and the second one was to find out more about consumer's behavior and focus on why people don't have enough cover. Previously, the industry assumed that people don't buy insurance because they don't understand it or because it's too expensive, or because they don't want to be underwritten. As time goes by, we are realizing this is not entirely true.
XPRIMM: What was the answer?
J.S.: Price is not such a big barrier, understanding risk is not a big barrier either. People do not buy insurance because they don't understand the risks: we found almost everybody understands the risks in the same way, people that have and people that don't have insurance. They understand risks equally, quite accurate actually. The big question is why some buy protection products and others do not and the reasons are multi factorial. The biggest issue seems to be inaction; people simply don't get to it!
XPRIMM: You have conducted your research in 13 countries with very heterogeneous characteristics: different system of public healthcare and, of course, different maturities of the insurance markets. Which are the common points and which are the most striking differences in your findings, in a country by country approach?
J.S.: It is quite interesting that people in most countries see risk in the same way. You would have thought that people in countries with more state support or people with more protection would have a different view of risk but our findings show otherwise. So I think this was one of the key things, the other one, a key difference, was the penetration of ownership of insurance. In some countries the ownership of insurance is a lot higher than in other countries.
XPRIMM: What do you mean by ownership of the insurance?
J.S.: How many people have disability coverage as a percentage of the people we spoke to.
XPRIMM: The overall result of your research highlights the burden of worry which most people carry: only 1 in 10 people can confidently answer that irrespective of an unexpected shock to their health or life, their family would remain well positioned financially. However, only less than 50% of the purchasing intention materialized. Which are the reasons of the people's inaction?
J.S.: I think it's related to the fact that insurance has to be sold, not bought. That is something that has been said many times over the years about insurance. The fact that you're spending your money on something today, money that you could be spending on other things, leads people to focus on affordability. But it's more about the fact that you are spending the effort on taking out something now that could only potentially benefit you in the future, and in terms of the future we discount the value of money. Other behaviors that have the same future benefit versus current effort dilemma is being health. When eating healthy, and exercising, there is a current effort for future gain. No one is going to lose weight or reduce their mortality risk overnight. Hence most people struggle with this. So it's the same problem. It requires an effort being taken now with results which you may only see in the future.
XPRIMM: Considering the huge dimension of the estimated Disability Income Gap, especially in some countries, would some kind of mandatory insurance be the solution to fill the gap?
J.S.: Yes and no, in some markets, it worked well. Switzerland, for example, has got mandatory health insurance, you have to have it. It's very expensive, but it works. Poland in the past has had mandatory health insurance. A premise is that if you can get people to buy insurance thorough a mandatory process you then have a channel to engage in, and it makes easier for them to take out more insurance, but in Poland that hasn't happened.
XPRIMM: How should the insurance industry react against this gap? What are the solutions?
J.S.: I think the solutions are to rethink, to go back to the drawing board when it comes to believing why people don't have insurance or enough insurance, so as I mentioned earlier, re examine what the barriers are and focusing on the barrier of inaction and the fact that you need to go to a lot of trouble now for something in the future. To address that is not easy, but I think using aspects such as behavioral economics, trying to understand how people think, and what makes them make decisions, how to approach them, when to approach them is what is important. It's impossible to close the gap entirely but certainly it will improve the gap. Understanding consumers is critical.
XPRIMM: Having experience in this field, life insurance, health insurance, what is the difference between Eastern and Western people regarding their need to buy health or life insurance? Do you think it's harder for an insurer to sell products here in Russia, in CIS, compared to other European countries?
J.S.: Culture makes a very big difference in term of how to approach selling to people. When one looks at behavioral economics, culture and people's experiences are a huge factor which determines how someone might respond to the same message. Whether it is going to be easier or harder in Russia, I am not sure.
XPRIMM: We were speaking about the insurers' efforts to designing the products and explaining to people the need for these products. Also, we have discussed about the state's involvement in this, but what about the employers? Do they have a role in this process?
J.S.: I think that they have one of the biggest roles. If you look at techniques to get people to save more by committing to future increases, companies could play a big part in terms of introducing cover and applying future increases. An employer can play a big part to increase protection in terms of the ease of making it happen. We spoke about inaction, you are going to work anyway, to put a piece of paper on your desk and sign something where you automatically commit to future savings or protection purchases can overcome some of this inaction. I think employers have a huge opportunity.
XPRIMM: I think that one of your studies showed that when asked what they expect from their employers in respect of benefits, employees who had to choose between different options - an increase in salary, opportunities for working in other areas or health insurance offered and paid by the employer -, as an additional benefit of the salary have chosen in a significant proportion - over 60% -, the third option.
J.S.: In Russia, increases in salary are not something given frequently and so the companies are compensating by giving more protection cover.
XPRIMM: How do you intend to develop this research in the future?
J.S.: I think one of the things we want to look at is the inaction gap and looking how behavioral economics can be used to decrease that. It is a key part of our Life and Health Research &Development strategy. Swiss Re is a big player and can help drive policy or broader strategies to increase the cover. We are a large global respected company with extensive expertise and decreasing the disability protection gap is a key part of the societal good we can do.
The European Insurance Report 2015, released by SWISS Re in June 2015, is based on a survey of 13,000 people across 13 countries in Europe and the Middle East. The Report looks into attitudes towards what life and health insurance products people have in place, where the gaps are in their protection and focuses on possible solutions to help with the financial consequences of unexpected health shocks, especially for sudden disability or serious illness. According to the Report's findings, collectively, the total level of underinsurance in the countries surveyed is currently around EUR 750 billion. Assuming that people would need a 60% replacement income if unable to work because of illness or injury, the report finds that at current levels replacement income would barely cover 40% for most people.