A significant portion of high-net-worth individuals lack life insurance, even among the wealthiest. Is the industry set to miss the upcoming wealth transfer? Two studies suggest the worst.
Young families and middle-class representatives are not the only ones suffering from a lack of insurance and advice. According to a study published by IG Wealth Management in September 2023, the wealthiest are also affected.
Conducted in collaboration with Pollara Strategic Insights among 500 Canadian high-net-worth individuals, the report revealed that only 54% of them have a life insurance policy. The report defines high-net-worth individuals as those with at least CA $1 million available for investment.
Limited understanding of insurance
According to IG's report, only 33% of participants say they have a good understanding of the tax implications of passing on their estate to their beneficiaries.
Furthermore, only 17% of insured participants claim to be very knowledgeable when it comes to the tax advantages and benefits of life insurance on their estate.
Fewer people covered
These statistics suggest a strong potential for business development in life insurance. Unfortunately, a gap is widening between insured and uninsured people in Canada.
A special report on permanent life insurance in the December 2023 issue of the Insurance Journal revealed that nearly 80,000 fewer life insurance policies were sold in 2022 compared to 2010! The figures are from LIMRA.
Doubling of the 50+ population
Also in the same special report, a major international report published by Capgemini in 2023 revealed that people aged 50 and over will make up 33% of the global population in 2050, double what it was in 1990.
This population will then count 3.2 billion individuals, out of a global population of 9.7 billion, add the authors of the report titled World Life Insurance Report 2023. "The proportion of the global 50+ population is projected to double from 1990 to 2050 primarily because of increasing longevity and falling birth rate," they write.
Among the insurers known in Canada that participated in Capgemini's report are Allianz, Foresters Financial, and Wawanesa Life. The research behind this report covers 23 markets: Germany, Australia, Belgium, Brazil, Canada, China, UAE, Spain, USA, France, Hong Kong, India, Italy, Japan, Malaysia, Mexico, Norway, Netherlands, Portugal, UK, Singapore, Sweden, and Switzerland. Between May and June 2023, Capgemini surveyed 6,775 insured individuals aged 50 and over, as well as 200 insurance executives.
The 50+ population will face state disengagement and rising healthcare costs, according to the report. "As a result, the retirement protection gap is projected to quadruple by 2050 to US 400 trillion in markets with the largest and most established pension systems," it reads. This amount represents over CA $535 trillion at the exchange rate of December 18, 2023.
Starting with the wealthiest?
The report highlights that people aged 50 and over need comprehensive and flexible solutions to age well but face complex insurance products or are unaware of their existence, observes Capgemini.
According to their study, insurers who strengthen their relationships with aging policyholders and their beneficiaries will best seize the asset transfer opportunity.
The authors believe the first opportunity will present itself with the market segments of the affluent and mass affluent population, as this population holds 39% of global wealth and represents about 20% of the aging population. "These clients control significant assets, are interested in phased retirement, and show little confidence in retirement. They also need flexible support from life insurers," they write.
According to Capgemini's definition, the affluent population segment refers to those with US $250,000 to US $1 million to invest, equivalent to between CA $335,000 and CA $1.3 million. The mass affluent population is defined as those with US $100,000 to US $250,000, equivalent to between CA $134,000 and CA $335,000.
Among those aged 50 and over, Capgemini notes that over 75% want innovative life insurance products, but only 27% of insurers have advanced product development capabilities.
Huge potential at risk
Most individuals at age 65 or older don't have a financial advisor and are unprepared in dare inheritance planning - Capgemini
Bad news for the industry, Capgemini's report reveals that 60% of individuals aged 65 or older have not sought professional financial advice to prepare for retirement or transfer their wealth. "Most individuals at age 65 or older don't have a financial advisor and are unprepared in dare inheritance planning even as history's most significant intergenerational wealth transfer is about to begin," report the authors.
According to the report, this segment of the global population controls a significant portion of insurance assets. "Insurers have reasons for concern: today, policyholders 65 years old and above control 40% of insurers assets under management, and by 2040, they will transfer most of these assets to beneficiaries," adds Capgemini in its study. Capgemini estimates this 40% of assets at US $7.8 trillion, nearly CA $10.5 trillion. Three-quarters (71%) of this wealth will pass into the hands of beneficiaries aged 50 and over.
This article is a Magazine Supplement for the December issue of the Insurance Journal.