Oh yeah,that's definitely suppose to be covered up. The P.O. probably rode it with blown shocks or didn't adjust the rear spring preload to his weight. He must have been a heavy guy or got some air with the bike, but don't think about it that way.
That hole could have been cut for a couple of reasons.
1. owner needed to replace something but was too lazy to take the bike apart
2. owner blew his shocks or didn't adjust the preload to his weight rode it like that, got tired of the rubbing noise, so he made a big cut on the plastic.
Go to Kawasaki Parts House or ebay if you want to find a cheaper replacement.
1. SLK 230K AMG SPORT
2. VW RABBIT 2.5
3. 08 Ninja 250R Track Prepared