The obvious adjacency: extending P&C insurance distribution into wealth management
More than two years of sustained global turmoil caused by the pandemic has permanently changed the insurance business. This is creating major challenges and creating powerful new opportunities for insurance carriers.
Both consumers and carriers are looking for protection from all forms of controllable adversity. Many customers have stopped differentiating between different insurance products and lines of business. They want insurers to work with them in a holistic way to prevent, mitigate, and recover from loss events. They are also looking to insurers to provide related products and services to protect and grow their whole financial selves.
Carriers, meanwhile, are being challenged on the top and bottom lines of their income statements, as persistent low-interest rates and inflation, further compress margins. New entrants into insurance distribution are also pushing carriers to high-capital, low-return segments of the financial services value chain. This is driven by convergence in one direction, as tech players big and small continue to advance into financial services.
But convergence in another direction offers new paths to growth for carriers. The collision of industries caused by shifting consumer preferences and new technologies creates exciting new possibilities for carriers.
In this first of a series of blog posts, we will highlight the most compelling opportunity we see for P&C carriers and agents: moving into wealth management. In this first post, we will discuss the advice and wealth management market, focussing on why we think it is attractive. Subsequent posts will highlight the right to play of P&C carriers and agents, what will be required to win, and an overview at the potential value at stake.
Let’s begin with three strong reasons that this market is attractive to carriers right now.
1. There is a large, underserved market of families and individuals that have wealth management needs
Research from John Hancock, The Retirement Income Reference Book Series, shows that households with $1 million or less in investable assets number 93.4 million in the US. They control about 25% of all investable assets in America, which amounts to almost $15 trillion in wealth. Most members of these households are pre-retirement.
Despite this, these households are often excluded from the investing offerings from traditional private banks and wirehouses, which often have minimums and higher fees that dissuade this segment from accessing these services. The proof is in the data. Current estimates show that as little as 45% of all households use a financial advisor’s services in any capacity, despite their distinct and significant financial needs.
In other words, 55% of American households do not use a financial advisor’s services. There is clearly a significant portion of the wealth management market that is waiting for the right offer.
That portion is also set to expand.
2. The market is growing, compounded by key demographic shifts
Demographic tailwinds are set to make this large, underserved market even bigger in the years ahead. We can see this in three different data points.
First, the over-65 population in the United State is aging. The total number of Americans over the age of 65 is expected to grow from 51 million in 2020 to 94.7 million in 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 starting to reach the major life events that were delayed earlier in their lives. These include buying homes, getting married, and starting or growing their families.
Finally, the aging of the Baby Boomer generation is setting the stage for the largest inter-generational wealth transfer in history. Nearly $44 trillion in investable assets will move from the Boomers to younger generations in the next 20 years, Accenture Orbium Wealth Management Survey shows.
These demographic changes are robust, which means the changes they bring to the marketplace will also be robust. In fact, some evidence suggests that demand for wealth management advice is already growing.
3. This market is aware of their need and increasingly willing to seek out and pay for advice
Current macro trends point to marked increases and interest in finances and financial literacy. For example, according to the Federal Deposit Insurance Corporation, the unbanked rate in the US fell from 8.2% in 2011 to 5.4% in 2019 – a drop of roughly a third. In addition, access to investing platforms and advice has also exploded over this span, thanks to digital banking tools and innovations like robo-advisors.
Data from Accenture also points to the increased importance of financial planning & saving throughout the pandemic. Specifically, 52% of respondents to the Accenture Wealth Management: The new state of advice Survey indicated that saving and planning increased in importance during 2020.
That survey also found that customers not only have a high interest in advice offerings 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 hiding in plain sight
This evidence suggests that there is an underserved market in advice and wealth management that is large, growing, interested, perhaps and most important, willing to pay for services. On this foundation, we will focus our next blog post on why P&C carriers and agents specifically have a unique right to play in this market.
In the meantime, if you’d like to discuss diversifying your offerings to include wealth management, we would love to hear from you. You can reach out to Scott and Bob.
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