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2008: High Net Worth in Personal Lines - Laying Foundations for the Next Wave of Wealth Creation

The past few decades were the greatest period of personal wealth creation in human history.  The effect of growth in high net worth households was mostly diffused through the personal lines property-casualty industry.  More important, the industry did not gain the advantage of innovation and market expansion.  For now, there is a question as to how insurers can position themselves to profit as the environment shifts from wealth creation to wealth preservation.  Given that the market will rebound, how can insurers (and insurance distributors) position themselves now to take advantage of this resurging opportunity?  This study analyzes the actual and potential demand for insurance among high net worth and ultra high net worth consumers, both in the United States and internationally.

Table of Contents

  1. Introduction
  2. Executive Summary
  3. The Current Marketplace for HNW Property-Casualty
    • Estimating Potential Demand for HNW Insurance
    • Summary
  4. Supply
    • Insurers
    • Distribution
    • Interactions Between Insurance Providers and Providers of Other Financial Services
    • Summary
  5. Global Aspects of the HNW Market
    • Growth in the World HNW/UHNW Segments
    • Will This Rate of Growth Continue?
    • Global Brokers
    • Summary
  6. Increasing Penetration of the HNW/UHNW Market
    • Changing Attitudes to Risk and Insurance
    • Issues and Opportunities for Insurers
    • Summary
  7. Building or Expanding a HNW/UHNW Business
    • Strategies for Expansion
    • Marketing Holistically to HNW/UHNW Clients
    • Target Entrepreneurs: Connection with Commercial Lines Markets
    • Extending Relationships with HNW/UHNW Family Offices, Private Bankers, and Wealth Managers
    • Scaling a HNW/UHNW Business for Global Reach
    • The Challenge of Distribution: The Broker Bottleneck
    • Underwriter Strategies
    • Broker Strategies
    • Summary

Appendix

Conning has published a series of Strategic Studies focused on the personal lines market .

2008

The Homeowners Insurance Market—The Eye of the Storm

2005

The Emerging Shakeout in Personal Lines

2004

Homeowners Insurance—The “Curse” Is Reversed Until 2008

2004

The Expense Revolution —Is The Property-Casualty Industry Overdue?

1996

Homeowners Insurance—The Problem Is the Product
Introduction

As economies globalized and trade boomed, the closing years of the 20 th century and the opening years of the 21 st century were the greatest period of personal wealth creation in human history. In most countries, the wealth creation was quite narrowly focused on the top 5%—and, even more intensely, the top 1%—of the population. According, to World Wealth Report by Merrill Lynch and Capgemini, in 1990 there were 232 dollar billionaires in the world; in 2008 there are 1,125, representing 66 countries and holding a total net worth of $4.4 trillion, up an astonishing $900 billion in just one year.

To date, this has left only a modest trace on property-casualty insurers' business, while other branches of financial services have chronicled a far greater impact. In recent years, homeowners premium in the U.S. continued to grow above 5% each year, while most lines of business were flattening. Yet that owed almost nothing to the growth of the North American high net worth (HNW in this study; UHNW is the ultra high net worth) population, which soared by 9.2% in 2006, and almost everything to pricing responses that followed hurricanes Katrina, Rita, and Wilma.

The effect of growth in HNW households was mostly diffused through the personal lines property-casualty industry, with little of the personalization of products for this segment that is characteristic of other aspects of financial services. More important, the industry did not gain the advantage of innovation and market expansion that might have enabled the HNW market to serve as a vanguard for product expansion to the affluent, and perhaps even to the general population.

The world has now witnessed a massive decline in global wealth, particularly since the beginning of the fourth quarter of 2008, although preliminary signs of lagging growth were forming throughout the year. This loss of wealth has been reflected in plunging world stock and bond markets, with most equity markets off by more than 50% from highs and most bond performance off by double-digit levels this year. It has been reflected also in falling property values, the virtual wipeout of the investment banking model, and developing global recession. All of this may suggest the end of this period of growth in wealth, although massive accumulated wealth in the form of real property remains and still needs protection, perhaps more than ever. Whether a rebound in the growth of wealth is imminent or will take years to recover as in the 1930s remains to be seen.

But rebound it will. For now, how can insurers position themselves to profit as the environment shifts from wealth creation to wealth preservation? Given the indication that the market will rebound, certainly globally, with at least as much vigor as it previously showed, how can insurers (and insurance distributors) position themselves now to take advantage of this resurging opportunity?

This Strategic Study endeavors to answer these questions. It analyzes the actual and potential demand for insurance among high net worth and ultra high net worth (UHNW) consumers, both in the United States and internationally. It describes the approaches that brokers and insurers have adopted to serve, and sell to, this market. It compares these to the approaches that other financial service providers have adopted. Crucially, it explores ways in which insurance could be repositioned as an investment to enhance its appeal in the eyes of wealthy customers.

Methodology

  • Primary research: Interviews with approximately 25 wealth managers, brokers, risk managers, and specialist underwriters specializing in the HNW and UHNW markets.
  • Data analysis of U.S. insurance companies, including investor reports, SEC reports, and statutory financial reports.
  • Secondary research: numerous reports and articles addressing the high net worth marketplace, various government and analyst studies, and supporting documentation.

Assistance in interviews and compiling research was provided by Aline Sullivan, a consultant with extensive experience in the private banking industry.

 

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