Ownership of cash value life insurance is on a downward trajectory among the affluent. And a key reason why is the declining need for life insurance to pay for estate taxes.
This is a key finding of a new Conning report, “High Industry Affluent and High Net Worth Strategies: Focus on Investments, not Protection.” The study explores market opportunities and challenges for insurers targeting affluent investors (individuals with $100,000 to $999,999 of financial assets) and the high net worth (those with $1,000,000-plus in assets).
The report reveals that ownership of cash value life insurance among the top 10 percent of U.S. households (as measured by net worth) fell to 34 percent in 2013 from 61 percent in 1989. The research attributes the decline to periodic increase in estate tax exemptions (to $5 million in 2013 from $625,000 in 1989), indicating that paying estate taxes motivated purchases of life insurance for many among the affluent.
“First, these markets contain a significant number of U.S. households. Second, those households control the majority of U.S. household financial wealth. Third, affluent and high net worth investors have a greater need for financial services, along with the ability to pay for them.”
Among the report’s key findings:
At year-end 2013, 44 percent of financial assets for mass affluent investors were held in retirement accounts. The next largest holders of financial assets, at 25 percent, were brokerage/investment accounts. Life insurance and annuities accounted for 11 percent of mass affluent financial assets.
At the close of 2014 insurers accounted for 18 of the 50 largest mutual fund families based on assets under management. Collectively, these 18 companies managed 33 percent of the top 50’s total assets.
Direct sales of life insurance and annuities account for a “miniscule portion” of production. The top 75 insurance companies, based on sales, generated 90 percent of the total sales reported in 2013. Of these 75 insurers, 11 use captive/career distribution channels, 52 use the broker/independent agent channel, 4 use other channels (e.g., direct), and 8 use a combination of the other three channels.
Among the 25 largest insurers, based on assets at the end of 2013, 21 had retail broker-dealers and 18 had RIAs. These channels enable the companies to offer consumers a “broad range of financial advice, products, and services.”
Competition for the business of affluent and high net worth investors has led some insurers to broaden their portfolios to incorporate more investment products. Among the world’s top 100 asset managers, insurers (life, property-casualty, or reinsurance) account for 33.
Affluent and high net worth-focused insurers averaged a 6.1 percent return on sales between 2003 and 2013. This compared to 5.7 percent for the “affluent and high net worth opportunistic” insurers (i.e., companies whose product portfolio are less likely to appeal to affluent and high net worth investors).