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More than two years of ongoing global turmoil caused by the pandemic has changed the insurance business forever. This poses serious challenges and creates powerful new opportunities for insurance companies.
Both consumers and carriers seek protection from all forms of controlled adversity. Many customers have ceased to distinguish between different insurance products and lines of business. They want insurers to work with them holistically to prevent, mitigate and recover losses. They also turn to insurers for related products and services to protect and enhance their financial position.
Meanwhile, carriers are facing problems on the top and bottom lines of their income statements as persistently low interest rates and inflation push margins further. New insurance distribution entrants are also pushing carriers into the high-capitalized and low-margin segments of the financial services value chain. This is driven by convergence in one direction as technology players large and small continue to move towards financial services.
But convergence in the other direction offers carriers new growth paths. The collision of industries, driven by changing consumer preferences and new technologies, creates exciting new opportunities for carriers.
In this first in a series of blog posts, we highlight the most compelling opportunity we see for carriers and P&C agents: the transition to asset management. In this first post, we will discuss the advisory and money management market, focusing on why we find it attractive. Subsequent posts will focus on the carriers and P&C agents that will be required to win, as well as an overview of the potential value at stake.
Let’s start with three good reasons why this market is now attractive to carriers.
1. There is a large underserved market for families and individuals in need of wealth management.
John Hancock’s Retirement Income Guide Series shows that there are 93.4 million US households with invested assets of $1 million or less. They control about 25% of all investment assets in America, which is about $15 trillion. Most of the members of these households are of pre-retirement age.
Despite this, these households are often excluded from the investment offerings of traditional private banks and telegraph services, which often have minimal and higher fees that prevent this segment from accessing these services. The proof is in the data. Current estimates indicate that only 45% of all households use a financial advisor in any capacity, despite their clear and significant financial needs.
In other words, 55% of American households do not use the services of a financial advisor. Obviously, a significant part of the money management market is waiting for a suitable offer.
This part will also expand.
2. The market is growing due to key demographic shifts.
Demographic tailwinds should make this large, underserved market even bigger in the coming years. We can see this at three different data points.
First, the population over 65 in the US is aging. The total number of Americans over 65 is expected to rise from 51 million in 2020 to 94.7 million in 2060, meaning there will be more focus on preparing for retirement now and in the future.
Second, millennials, now the largest adult generation, are beginning to achieve important life events that were previously put off. These include buying houses, getting married, and starting or expanding a family.
Finally, the aging of the baby boomer generation is setting the stage for the largest intergenerational transfer of wealth in history. According to a study by Accenture Orbium Wealth Management, about $44 trillion of investment assets will be transferred from boomers to the younger generation over the next 20 years.
These demographic changes are sustainable, which means that the changes they bring to the market will also be sustainable. In fact, some evidence suggests that the demand for wealth management advice is already on the rise.
3. This market is aware of their needs and is increasingly willing to seek and pay for advice.
Current macroeconomic trends indicate a marked increase in interest in finance and financial literacy. For example, according to the Federal Deposit Insurance Corporation, the non-bank rate in the US fell from 8.2% in 2011 to 5.4% in 2019 — a drop of about a third. In addition, access to investment platforms and advice has also expanded significantly over this period, thanks to digital banking tools and innovations such as robo-advisers.
Accenture data also points to the increased importance of financial planning and savings during the pandemic. In particular, 52% of respondents to the Accenture Wealth Management Survey: New State of Guidance indicated that savings and planning have increased in importance in 2020.
This study also showed that clients are not only very interested in advice, but are also willing to pay for that advice. In particular, 98% of clients were interested in a consultation, 89% were willing to pay for it (compared to 71% for investment products and 52% for banking services).
Opportunity in sight
This data suggests that there is an underserved advisory and wealth management market that is large, growing, interested, and perhaps, and most importantly, willing to pay for services. With that in mind, we will focus our next blog post on why P&C carriers and agents are uniquely positioned to play in this market.
In the meantime, if you’d like to discuss diversifying your offerings to include asset management, we’d love to hear from you. You can contact Scott and Bob.
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Disclaimer: This content is provided for general informational purposes and is not intended to be used as a substitute for consultation with our professional advisors.
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