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Succession Planning: Life Insurance Market Landscape (Executive Summary Part 1)

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Research suggests that, by 2020, Asia – which today has the world’s largest HNW population – could be home to more than US$14.5 trillion in HNW wealth. Asian Private Banker’s ‘Succession Planning 2018: Perceptions and Opportunities for HNWIs’ report, sponsored by Transamerica Life Bermuda, explores the industry’s perception of succession planning, clients’ needs for effective wealth transfer and wealth preservation, and the role of HNW insurance solutions in succession planning.

Download your complimentary copy of the Succession Planning 2018: Perceptions and Opportunities for HNWIs executive summary today to read exclusive findings.

Asia Pacific continues to lead the way in HNW population and wealth growth due to a number of social and demographic factors. According to UBS, around 85% of Asia’s billionaires are first generation, and the demographic transition in East Asia and the low expectation of social and family support have contributed to a second demographic dividend, which is substantial capital accumulation. As a result, the region is home to 6.2 million HNWIs, whose investable assets amounted to US$21.6 trillion in 2017.

Entering the third year of its research partnership with Transamerica Life Bermuda, Asian Private Banker examined Asia’s life insurance market and explored the nexus between succession planning, wealth transfer, and life insurance products in Hong Kong and Singapore, subsequently publishing the respective report ‘Succession Planning 2018: Perceptions and Opportunities for HNWIs’. Based on our findings, there has been a significant increase in the penetration of life insurance products in the private banking sector. The percentage of RMs who reported that more than 10% of their clients have life insurance policies increased to 79% in 2018, up from 13% in 2016. This finding validates the widespread optimism surrounding the life insurance market in Asia that was recorded in Asian Private Banker’s 2017 life insurance report.

What percentage of your clients currently have a life insurance policy?

Across all institutions, nearly 70% of RMs reported that at least 20% of their clients have some type of life insurance, and at IAMs and MFOs, more than 60% of RMs reported that more than 3 out of 10 of their clients are life insurance policyholders. This observation can be partially explained by the fact that for a number of IAMs and MFOs, part of their business involves the management of portfolios under an insurance wrapper, in cooperation with insurance brokers and insurance providers. The observation is in line with the increasing interest among brokers and insurance providers in penetrating the IAM/MFO market, a trend we have observed while conducting research on IAMs and MFOs and the life insurance market.

Institutional breakdown of RMs’ clients currently with a life insurance policy

Insurance-wrapped products have become increasingly popular in the US market and are gaining traction in Asia, mainly with clients with big books, as is often the case with IAMs and MFOs. Insurance wrappers can provide an additional layer of protection against regulatory risks, and based on our interviews, the average fee ranges between 0.5% and 1.5% of AUM size with the exception of very large AUM where fees can be capped. In most cases, this is a profitable business model for IAMs and MFOs as they receive retrocession fees.

For end-clients who do not hold life insurance policies, 37% cited that it is due to the fact that their RM has not discussed life insurance solutions with them, while 29% said they felt no need for one. If we combine these findings with past research published by Asian Private Banker, we conclude that the discussion between RMs and end-clients about life insurance products is far from optimal and, despite higher penetration rates, there is considerable room for improvement for the life insurance distribution model within the private banking space.

Reasons for not having life insurance policies among sampled end-clients

The ongoing increase in interest rates does not appear to have negatively impacted the life insurance industry, at least for now. 65% of RMs expect rising interest rates to significantly impact their clients’ wealth management decisions, particularly in terms of premium financing.

Despite concerns over the potential negative impact of China-US trade frictions, the resultant falling yuan can benefit the life insurance markets of Hong Kong and Singapore as they become more attractive to Mainland Chinese who can buy life insurance products denominated in Hong Kong, Singapore, or US dollars to hedge against currency risk. In times of political and economic instability, clients tend to seek shelter in financial products that will help protect their economic security and mitigate external risks — to this end, life insurance policies can serve as a valuable solution. In particular, according to Asian Private Banker’s 2016 life insurance report, 35% of RMs responded that the buying behaviour of their private banking clients increased with market uncertainty when purchasing life insurance policies. In the same context, Chan Kin-por, a member of the Legislative Council of Hong Kong and representative of the insurance functional constituency, said the recent yuan drop has forced more Mainland Chinese to buy their insurance products in Hong Kong.

Stay tuned for Parts 2 and 3 of the Succession Planning 2018 executive summary in the coming weeks.

Download your complimentary copy of the Succession Planning 2018: Perceptions and Opportunities for HNWIs executive summary today to read exclusive findings.

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