Wealth market to drive demand for life and health insurance products in Asia
A Swiss Re study finds most direct insurers and brokers expect 10% to 20% growth in premiums over the next two to five years among the wealthy
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ROBUST wealth creation in Asia is set to drive demand for life and health insurance products for high-net-worth (HNW) clients, a survey by Swiss Re Institute has found.
Most direct insurers and brokers interviewed in Swiss Re’s study target a growth in insurance premiums of 10 to 20 per cent over the next two to five years from products catering to wealthy individuals and family offices. This is higher than their pre-pandemic growth rate.
Swiss Re reinsures direct insurers’ exposures in terms of mortality and health risks, among others. In terms of premium split, Asia accounts for 24 per cent; the Americas, for 45 per cent and Emea (Europe, Middle East and Africa), 31 per cent.
In terms of net premium earned in 2023, mortality’s share was 56 per cent, followed by longevity at 12 per cent, and critical illness at 13 per cent.
Globally, Swiss Re Life & Health covers 278 million family members and reinsures 212 million policies, and paid out US$14.8 billion in claims in the past year.
Paul Murray, chief executive of Swiss Re Life & Health Reinsurance, said spending on life insurance typically rises as disposable income grows. “We also see this in a period when interest rates are anticipated to remain higher for longer. So we’re no longer looking at a lower-for-longer environment, but a higher-for-longer (rate) environment, with higher systematic inflation...
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“The combination of that and an ageing society actually provides a kind of double-positive whammy for the insurance market. You also have a bulging population of people in the 40-to-60 age range, who are thinking very actively about preparing for the retirement, and it makes it very attractive for them to (buy insurance).”
The higher rate environment, however, is also a challenge, because higher rates for premium financing have dampened the take-up of large universal life policies.
In a low-rate environment, premium financing offers leverage – that is, clients can purchase a jumbo policy with a smaller capital outlay than the large lump-sum premium typically required. And, clients may benefit from a positive “carry” from a traditional universal life policy’s crediting rate against a lower loan rate.
The study said: “Today’s high-interest-rate environment significantly raises the cost of premium financing, previously a mainstay of HNW insurance business. Under high interest rates, insurers and brokers also acknowledge that they have experienced higher lapses and surrenders, due to both customers’ liquidity constraints and shifting product preferences.”
Respondents are hopeful that a turn in the rate cycle would make premium financing more attractive. “However, in our view, the recently initiated interest rate cutting cycle will be gradual and shallow, with interest rate likely remaining structurally higher than markets had become accustomed to post-global financial crisis....
As corroboration of our thinking, the interviewees said that while some clients still see value in having liquidity and arbitrage opportunities with a premium financing strategy, the cost (of borrowing) to do so has risen significantly,” according to the study.
HNW individuals typically turn to insurance for a variety of reasons; these include family wealth protection, legacy planning, investment diversification and leverage.
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