By the end of 2015, the top 20 private banks in Asia by assets under management accounted for US$1.47 trillion in high net worth wealth, according to Asian Private Banker data. The region is widely pinpointed as the global wealth management ‘hotspot’ – and for good reason. By 2020, research suggests that Asia – which is already home to the world’s largest high net worth (HNW) population – could be home to more than US$14.5 trillion in HNW wealth. China alone will account for over 50% of this total, according to Julius Baer.

At the same time, the region is undergoing a massive transfer of wealth from the first to second generation, coinciding with what is commonly referred to as the ‘largest wealth transfer in history’. Asia’s ultra high net worth segment is expected to pass on upwards of US$1 trillion to a younger generation.

Further contributing to an uptick in wealth management and insurance product sales through private banks in the region is the persistent uncertainty and volatility of markets. Indeed, Asia’s traditionally transaction-heavy private banking clients are sitting out the volatility to the detriment of bank revenues (globally, transaction-based income fell 24% year-on-year in 2016Q2 , according to a recent UBS report), while the uptake into discretionary mandates in the region remains slow.

 
Combined, these conditions spell opportunity for those operating in the wealth planning space. Against a backdrop of economic uncertainty, muted client activity, compressed private banking margins and an aging wealth pool, momentum is increasing in the insurance solutions space; and there is a growing sense that insurance is now a credible pillar of a HNW portfolio. Indeed, a number of private banks tell Asian Private Banker that they are targeting a relationship manager penetration rate for converted insurance referrals in the realm of 50%.

Challenges remain, however.

Asian Private Banker, in partnership with Transamerica Life (Bermuda) Ltd., has conducted the industry’s first ever HNW life Insurance survey – and the results are revealing.  A total of 455 private banking and wealth management practitioners representing 29 private banks, institutions with private banking facilities and wealth management firms in Hong Kong and Singapore completed the survey, and the results are revealing.

Here, Asian Private Banker teases out the key trends to emerge from the inaugural Exploring the HNW Life Insurance Landscape Report 2016.

1. Train me, please!

The current regulatory framework dictates that relationship managers cannot directly recommend or sell a product, but must instead refer clients to a broker (typically external) who then proposes a specific solution. Moreover, few expect the current provider-broker-banker model to change in any material way going forward.

RMs dominate client face-time and, notwithstanding regulatory limitations that shape RM-client interactions, clients are ultimately exposed to: (i) the RM’s awareness/knowledge of insurance solutions and (ii) the RM’s mandate to refer to a broker.

Those private banks that refer insurance product in Asia maintain an average of just under four broker relationships per institution. However, respondents indicate that it takes an average of 1-3 years for an RM to ‘trust’ a broker with her client(s), and because clients prefer to communicate their RM when it comes to insurance-related needs, it seems clear that private bankers typically emphasise one ‘tried and true’ broker relationship over all others.

Overall, Asia’s RMs are moderately satisfied (6.7 out of 10) with how brokers service their clients. But while a select few select insurance brokerage firms were singled out for their high and personal level of service and strength in follow-up, RMs are dissatisfied with brokers on a number of fronts.

Beyond all else, wealth planners and RMs want their brokers to provide further training and education. This finding supports an earlier poll run by Asian Private Banker, where RMs indicated that they require more detailed product knowledge in order to refer more clients for a life insurance policy.

For private banks, training and education (or the lack thereof) could have a significant impact on the business.

Indeed, 30% of respondents said that an RM’s education on insurance solutions is a key driver of life insurance business at a private banks – second only to a client’s own needs (36%) – while a further 28% indicated that a deficit in a client or RM’s understanding of insurance is likely to have a detrimental effect on business.

2. The evolving face of HNW insurance clients

Those HNWIs who are more likely seek out an insurance-related solution via a private bank tend to fall into the moderate-moderately conservative risk tolerance category, and while a client’s risk profile is, of course, specific to the individual and is driven by an amalgam of factors, there is (at least, theoretically) a positive correlation between risk aversion and age. This would suggest that those clients with significant life responsibilities (e.g. family, business) prone to purchase HNW life insurance.

Little surprise then that RMs cite succession and inheritance planning as key trigger topics to encourage clients to consider taking on a life insurance. Similarly, respondents report that childbirth, succession and medical issues are the most potent trigger events.

Even so, private bankers report that the age breakdown of clients purchasing life insurance policies is trending downwards.

Currently, 80% of private banking clients that are referred for a HNW life insurance policy (primarily universal life) are aged from 30-60 years old and the majority (43%) are 30-50 years of age. And it’s this ‘younger’ segment that is expected to drive policy sales going forward. 

Whereas most respondents (46%) expect HNW insurance (universal life) sales will remain stable among clients aged 50 and above, 31-50 year olds are “more likely” (40%) to purchase a policy today.

So what are the essential differences between traditional HNWIs and the so-called new generation in the wealth planning context?

Respondents point out that the traditional or older HNW segment remains focused on retirement and legacy planning and primarily relies on insurance as a protection mechanism.

The younger generation of HNWIs, while increasingly receptive to life insurance solutions, view insurance as a wealth creation tool and focus on liquidity and return. Results suggest that this new generation is also more likely to conduct its own due diligence on specific products and is particularly sensitive to pricing.

 
Stay tuned for Part 2, to be published on 14 October 2016.

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Next Tuesday afternoon, Asian Private Banker will host a series of panel conversations for senior RMs on how to successfully utilise and engage with an increasingly diverse universe of insurance products. Register here to network with your peers.