More than two years of persistent global turmoil caused by the pandemic have permanently changed insurance operations. This creates major challenges and creates powerful new opportunities for insurance companies.
Both consumers and carriers seek protection against all forms of controllable adversity. Many customers have stopped distinguishing between different insurance products and industries. They want insurance companies to work with them in a holistic way to prevent, mitigate and recover from loss events. They are also looking to insurance companies to provide related products and services to protect and grow their entire financial self.
Meanwhile, operators are being challenged on the top and bottom line of their income statements, as persistently low interest rates and inflation are further pushing margins. New players in insurance distribution also drive carriers to segments with high capital and low returns in the value chain for financial services. This is driven by convergence in one direction, as large and small technical players continue to advance to financial services.
But convergence in a different direction offers new paths to growth for carriers. The industry collision caused by changing consumer preferences and new technology creates exciting new opportunities for carriers.
In this first of a series of blog posts, we will highlight the most compelling opportunity we see for non-life insurance companies and agents: to go into asset management. In this first post, we will discuss the council and wealth management market, focusing on why we find it attractive. Subsequent posts will highlight the right to play for P&C carriers and agents, what it takes to win, and an overview of the potential value at stake.
Let̵7;s start with three strong reasons why this market is attractive to carriers right now.
1. There is a large, underserved market of families and individuals in need of wealth management
Research from John Hancock, The Retirement Income Reference Book Series, shows that households with $ 1 million or less in investable assets amount to $ 93.4 million in the United States. They control about 25% of all investor assets in America, which amounts to almost $ 15 trillion in wealth. Most members of these households are early retirees.
Despite this, these households are often excluded from investment offers from traditional private banks and wirehouses, which often have minimum levels and higher fees that discourage this segment from using these services. The proof is in the data. Current estimates show that as little as 45% of all households use the services of a financial advisor, regardless of capacity, despite their distinct and significant financial needs.
In other words, 55% of American households do not use the services of a financial advisor. It is clearly a significant part of the asset management market that is waiting for the right offer.
That part is also set to expand.
2. The market is growing, exacerbated by important demographic changes
Demographic tailwinds will make this large, underserved market even bigger in the coming years. We can see this in three different data points.
First, the population over the age of 65 in the United States is aging. The total number of Americans over the age of 65 is expected to grow from 51 million by 2020 to 94.7 million by 2060, which means that there will be an increased focus on preparing for retirement now and in the future.
Second, millennials, now the largest living adult generation, are beginning to reach the major life events that were delayed earlier in their lives. These include buying homes, getting married and starting or expanding your family.
Finally, the aging of the Baby Boomer generation sets the stage for the largest wealth transfer between generations in history. Nearly $ 44 trillion in investable assets will be transferred from Boomers to younger generations over the next 20 years, according to the Accenture Orbium Wealth Management Survey.
These demographic changes are robust, which means that the changes they bring to the market will also be robust. In fact, some evidence suggests that the demand for wealth management advice is already growing.
3. This market is aware of their needs and increasingly willing to seek and pay for advice
Current macro trends point to marked increases and interest in economics and financial knowledge. For example, according to the Federal Deposit Insurance Corporation, the unbanked interest rate in the United States fell from 8.2% in 2011 to 5.4% in 2019 – a decrease of about a third. In addition, access to investment platforms and advice has also exploded during this period, thanks to digital banking tools and innovations as a robo-advisor.
Data from Accenture also point to the increased importance of financial planning and savings throughout the pandemic. Specifically, 52% of those surveyed in Accenture Wealth Management: The New State of Advice Survey indicated that savings and planning increased in importance in 2020.
That survey also showed that customers not only have a great interest in advisory services but also a high willingness to pay for that advice. Specifically, 98% of customers were interested in advice, with 89% willing to pay for it (compared with 71% for investment products and 52% for banking).
An opportunity that hides in clairvoyance
This evidence suggests that there is an underserved market for advisory and asset management that is large, growing, interested, perhaps and most importantly, willing to pay for services. On this basis, we will focus our next blog post on why P&C operators and agents specifically have a unique right to play in this market.
In the meantime, if you would like to discuss diversifying your offerings to include asset management, we’d love to hear from you. You can reach Scott and Bob.
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Disclaimer: This content is provided for general information purposes only and is not intended to be used in consultation with our professional advisors.