Barclays Wealth has spied what it believes to be a strategic opportunity to present Asia’s rapidly rising population of high-net-worth individuals with tailored insurance solutions.
The wealth arm of Barclays Bank says it is firmly of the view that this wealthy segment is grossly underserved by offerings that are more commonly targeted at the mass retail market.
“There is an awful lot that insurance products can do for wealthy clients and it is the wealth managers’ job to make that connection,” says Richard Phelps, managing director of advisory and financial solutions for Barclays Wealth based in London.
“Wealth managers need to be more at the front of that dialogue with their clients than perhaps they have been so far. This is something that Barclays Wealth is looking at very seriously and we see it as an opportunity to grow.”
Present estimates suggest that less than 5% of all wealth management portfolios in emerging markets include an insurance component, but this is expected to increase to 15% within five years, notes UK-based consultancy Scorpio Partnership. This would indicate a market of assets that could incorporate insurance-wrapped cover of almost $1.2 trillion.
The present distribution model of Barclays Wealth in the region is to hold an initial discussion with clients and then refer them to a broker, although Phelps believes this is something that could change.
“If you look at how most wealth managers interface with clients and insurers, it is very much at arm’s length through an intermediary process,” he notes. “Whether that will continue and remain is very much up for debate.
“If you look at Europe and the UK, we go direct to the client. There is also an increasing number of providers here in Asia who have a direct sales force. Now a lot of them are looking at how to apply this model to the high-net-worth segment.”
Phelps sees opportunities for Barclays Wealth to work increasingly with insurance providers to enhance existing products. “We won’t be building products ourselves. I see us as a distributor but having the expertise in-house to work with providers to build products suitable for high-net-worth clients.”
He acknowledges the growth of bancassurance, particularly in the retail sector, but says the specific needs of the high-net-worth segment are not being catered to.
“I don’t see much critical illness insurance being sold [to HNWIs in Asia] or very high-end medical insurance,” he adds. “Critical illness is not perceived as being a high-net-worth product, but actually they just need it in a different way, in a different context to the retail consumer.
“In Asia, high-net-worths have a lot of wealth but it is very much leveraged from one place to the next using equity and loans, account leveraging. But a high-net-worth client does not want to see all these loans and equity holdings unravel because of a short-term lack of liquidity.”
Life-insurance-linked solutions have an average relationship cycle of 10 years, which most bankers note is as much as three times the typical length of a portfolio relationship with a bank, reports Scorpio.
“Life policy investments present the banks with a longer and more durable earning cycle, which in current market conditions must be thought of as attractive,” says Sebastian Dovey, Scorpio’s managing partner. “For the right circumstances, the insight strongly suggests that insurance-linked solutions will become a mainstream product within a decade in the emerging markets.”
Dovey urges private banks to consider developing a strong internal insurance adviser capability, while broader education of staff could also increase awareness and sales.
In its study, Scorpio carried out interviews with decision-makers at more than 50 life companies and wealth managers focused on 14 emerging markets and a total HNW/UNHW base of $11.9 trillion.