15 March 2023
Our clients often talk about the need for asset diversification as part of their wealth planning. What are some of the trends that you are seeing in the insurance sector?
Senior Vice President, Hong Kong Office
I have recently observed two major trends:
- Insurance solutions have started to offer more lifetime features to cater for our clients’ retirement and medical needs during their golden years. The market volatility has caused our clients greater concern over their longevity needs and insurers have therefore been pushed to offer innovative features such as accumulation options, easy access to cash, medical coverage, critical illness cover, and even emergency evacuation assistance.
- Diversification in protection portfolio: Clients are fully aware there is no one size fits all solution to all their needs. Accordingly, they have started to develop a diversified insurance portfolio containing multiple product types across several insurers and jurisdictions as opposed to merely having one insurance policy.
For example, clients would consider obtaining both a whole of life policy and an indexed universal life to balance the high certainty cover with their needs for asset accumulation. Furthermore, while clients have often diversified across insurers, they are also starting to diversify across jurisdictions to spread out the asset concentration risk in different countries and to hedge against geopolitical risks.
In a rising interest rate environment, some clients have become more reluctant in purchasing life insurance without financing. How would you tackle this common issue?
Karishma Sunil Rupani
First Vice President, Dubai Office
We will always remember 2022 as one of the most consequential years in Federal Reserve history. The interest rates have increased by a cumulative 4.25% and these hikes are likely to continue this year. The high borrowing costs have in turn discouraged our clients from premium financing their life insurance solutions.
However, at the same time, the increasing global uncertainty continues to intensify our clients’ liquidity needs. As such, the significant demand for life insurance solutions have not abated at all. Instead of premium financing, more and more of our clients have opted for the multi-pay route and we have seen a dramatic shift away from single pay in 2022.
The benefits of multi-paying an insurance solution include:
- Low upfront cost
- Clients can afford a higher cover as the premium payment is spread out over a period of time
- No further premium payments are required if the life insured passes away before the completion of the premium payment term
- The flexibility of premium financing the remaining premium term once borrowing costs start to drop
There is a significant pivot from Whole of Life insurance towards Indexed Universal Life insurance for Southeast Asia residents. What are your views?
Head of International,Singapore Office
I often get asked by clients – “When is the perfect time to take out a policy? Have I missed out because of my advancing age or my deteriorating health?”… the reality is, the question clients should be asking themselves is “What are the implications to my family, business and overall wealth if I don’t have a holistic plan in place?”
An encouraging factor is that now in 2023, we have the most extensive range of HNW solutions available in the market to meet our clientele’s ever changing needs. Over the last year, we have seen clients gravitating towards the ultra conservative whole of life options and the dynamic index linked solutions based on their risk tolerance and planning requirements. Some clients even opt to diversify across these two product types to achieve a more balanced plan.
On top of this, a majority of Asian based HNW insurers are running campaigns and discounts that make the premiums and underwriting class more attractive and extremely cost efficient. If we combine this with a renewed interest in the installment plan premium payment mode and highlight the flexibility of this option in an ever changing interest rate environment, there really is no better time to put a plan into place than now.
I feel that these trends will continue into the future and the solutions available will evolve over time to best serve our clientele.
Senior Vice President & Head, Strategic Projects, Singapore office
Indonesia was one of the foremost adopters of the Common Reporting Standard (CRS) in 2018 in line with the global Automatic Exchange of Information (AEOI) movement. This was seen as a ground-breaking development as many HNW individuals had historically stored wealth in offshore financial centres. While preparing for CRS’ implementation, Indonesia also launched an ambitious tax amnesty program in 2016 to incentivise tax compliance and improve its fiscal position. Both developments indirectly soured the mood and attitude of HNW individuals towards offshore banking and insurance as there was great uncertainty about how those assets are to be reported and taxed.
Demand for offshore insurance from Indonesian residents therefore fell greatly between 2018 to 2022. However, with the latest voluntary disclosure programme (sometimes nicknamed at Tax Amnesty Part 2) in 2022, and with the certainty of having completed one tax cycle under the Omnibus Law, HNW clients are starting to once again, look offshore for their wealth planning and insurance needs.
We expect volumes to also pick up partially due to the reopening of borders and a pent up demand for life insurance as Covid 19, had seared in their minds, the need to protect loved ones and especially key persons and breadwinners in the family. We are also expecting greater number of second or third generation business owners seeking insurance as they had established themselves during the pandemic that they were capable of running the family business, while the aged parents sought shelter from the pandemic.
This “forced” transfer of executive management of the family businesses to the next generation will also see a natural transfer of the family’s financial wealth to the next generation. We thus expect many younger lives to be insured in the coming years. And we believe Indonesia will begin to regain the crown in SEA as the top demographic seeking wealth planning solutions.
Note: IPG Howden does not provide legal or tax advice. Clients are advised to obtain independent advice tailored to their specific circumstances.
Senior Vice President,Singapore office
"There's always an opportunity with crisis. Just as it forces an individual to look inside himself, it forces a company to re-examine its policies and practices." - Judy Smith, renown author and crisis management advisor
Just as crises have a way to reveal the character of a person, it also has a way to show up the weaknesses and strengths of an industry and the companies within. The Covid-19 pandemic caused a sea change in the banking and insurance industry, not just in cosmetic changes to processes and products offerings but in some cases the very existence of the companies.
In relation to the Thai insurance industry, it was astonishing to see how the pandemic brought about the closure of some major non-life insurers and threatened the existence of a dozen more just 18 months into the pandemic. By June 2022, at least 4 major insurers had closed down in Thailand after suffering losses from selling low cost insurance policies (note: it is important to distinguish these are non-life insurance companies). Other companies including public ones went into financial rehabilitation under the supervision of The Office of Insurance Commission after their liabilities were found to outstrip their assets.
In my career as a risk consultant, I have often been asked why clients would want to be insured by offshore insurers instead of local ones from their home country. I think that is just an extension of asking why clients would bank offshore. The reasons will overlap if not entirely identical.
We place our hard earned money where it is safest and where it offers the most value in return.
Trust matters and we found out that the world as we know it after the Global Financial Crisis (GFC) of 2008 just isn’t a very safe place. If we had depended on companies to self-regulate before, we know not to after the GFC. Consumers realised the importance of governmental intervention and the robustness and stringent application of the rule of law to govern bank, insurance companies and all financial institutions.
Whenever we forget the lessons of the GFC and let our guards down, it bites us in very painful ways like the current crypto winter is doing. So, applying what we learned from Covid and how such crises impact the insurance industry, we look not only to the financial robustness of the insurance companies but as importantly, we give weighty considerations to where these policies are issued and governed from.
To that end, IPG Howden continues to work with the biggest and most trustworthy companies globally, paying attention to the governing laws, place of issuance, tax considerations of our clients and their beneficiaries. Looking inward to what is most convenient just wouldn’t do, as IPG Howden continues to invest in knowledge and competencies to serve our banking partners and clients to the best we can.