Wealth Protection Trends in Southeast Asia
The needs of families in the high net worth (HNW) and ultra high net worth (UHNW) spaces have been evolving for years.
Lockdowns during the COVID-19 pandemic made families spend more time together, which in turn made them rediscover interpersonal relationships and created opportunities for self-reflection around purpose and values.
During the height of the pandemic, more HNW and UHNW individuals focused on succession and wealth planning for future generations, which resulted in them increasing insurance coverage for themselves and their families. Today, however, many HNW and UHNW individuals are prioritizing wealth preservation and intergenerational wealth transition, which is generating a strong demand for a variety of HNW planning solutions.
Another development of note is the exponential growth of family offices in Singapore over the last few years, thanks to its business-friendly and stable political environment. Singapore continues to take measures to promote itself as a business- and tax-friendly market and attract new clients, but at the same time tries to ensure that these clients have a strong commitment to the local market by specifying investments in the local market. According to the Monetary Authority of Singapore (MAS), there were 1,100 single-family offices in 2022 compared to less than 100 in 2017.
Most of these wealthy individuals are from China; others who have set up family offices in Singapore come from India, Indonesia, Malaysia, Thailand, Vietnam, Europe and the United States. Meanwhile, Hong Kong is expected to bounce back after dispensing with strict pandemic-related policies. These numbers are expected to grow with China’s reopening, as Hong Kong is expected to play a prominent role in accessing mainland wealth pools.
Banks’ current teams of relationship managers are not expected to be sufficient to meet clients’ demands for dedicated services, and this is likely to result in higher turnover and poaching of relationship managers as competition increases. Banks need to ramp up their digital initiatives to help customers access individual wealth, as this needs to be done through more than just relationship managers. Banks have already jumped into the game to meet the needs of next-generation investors, but they need to place relationship managers strategically over the long term as the current tech-savvy generation accumulates significant wealth.
COVID-19 Pandemic’s Impact
What impact has the pandemic had on the demand for life insurance with HNW and UHNW individuals in Asia? In a word, lots:
- It has highlighted and brought into sharper focus the importance of death-coverage benefits for loved ones.
- It is not just people being more aware of their own mortality, but also the increase in market volatility and future increases in taxes that are driving clients toward a more secure investment and protection option.
- More HNW individuals are aware of and interested in life insurance, especially since the pandemic brought forth intimations of mortality and the knowledge that disaster can strike any time, from nowhere.
- There is a greater inclination toward solutions as a preemptive step to preserve wealth and to shelter the family from external and unforeseen changes.
- The pandemic has certainly led many HNW individuals in Asia to realize the importance of succession planning and how to maintain the lifestyle of subsequent generations in the event of the client's demise since so many HNW and UHNW individuals in Asia are sole business owners.
- It has certainly narrowed the focus on what's important and what is less important and has made many HNW individuals realize how quickly things can change and, consequently, the pressing need for proper insurance and proper legacy planning. It has been very much a call to action.
- The pandemic actually highlighted and accelerated client interest in life insurance as a way to protect wealth. However, there are challenges, including the lack of face-to-face interactions and obstacles involved with medical screening requirements.
- The pandemic has helped HNW individuals realize the importance of organizing their wealth and succession planning more efficiently, thus offering private banks, independent asset managers and relationship managers the opportunity to address these subjects with UHNW and HNW individuals.
- There is increasing demand for protection life insurance solutions and more urgency for UHNW and HNW individuals and families to look into insurance solutions to preserve wealth and to protect the family from external threats.
It’s important to note that jurisdiction and product offerings also are important considerations for HNW individuals, as some markets are better than others for specific solutions, and each market has its own capital and regulatory requirements. These HNW individuals listen and speak to banks, insurance companies and brokers with the hopes of learning and understanding where to find the best solutions and what solution best fits their needs.
Amidst a challenging economic backdrop this year, wealth-protection planning needs will remain top of mind for HNW and UHNW clients. In the previous prolonged low-interest rate environment, more HNW clients took up single premium insurance products to leverage premium financing. But in the current high-interest rate environment, it may not be as intuitive as borrowing will be a challenge. Clients will review how they structure their insurance premiums as interest rates go up. HNW individuals are gravitating toward multiyear payment options. Market uncertainty will influence HNW individuals to place more value on insurance products with stable high-death benefit guarantees from the main insurance carriers.