I'm also seeing this issue on xenial. Looking at the source package, the
message is generated in wireless-security/eap-method-tls.c:

        /* Warn the user if the private key is unencrypted */
        if (!eap_method_is_encrypted_private_key (filename)) {
                [...]
                gtk_message_dialog_format_secondary_text (GTK_MESSAGE_DIALOG 
(dialog),
                                                          "%s",
                                                          _("The selected 
private key does not appear to be protected by a password.  This could allow 
your security credentials to be compromised.  Please select a 
password-protected private key.\n\n(You can password-protect your private key 
with openssl)"));
                [...]
        }

However, this is highly misleading, since
eap_method_ins_encrypted_private_key() returns false for various other
reasons, in particular when the file cannot be opened or has the wrong
extension.

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https://bugs.launchpad.net/bugs/1339607

Title:
  "Unencrypted private keys are insecure" message is vague and unhelpful

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