A survey conducted by Transamerica Life (Bermuda) Ltd and Asian Private Banker has examined the role of insurance in succession planning and wealth transfer among the wealthy in Asia, which the latter said is undergoing the “largest wealth transfer in history.”
The Asia-Pacific region continues to lead the world in growth of high net worth individuals (HNWI), due to social and demographic factors. Data from Asian Private Banker showed that there are 6.2 million HNWIs in the region, with investable assets that totalled US$21.6 trillion in 2017. China, being one of the fastest-growing HNW markets in Asia-Pacific after India, recorded that its HNW population grew by 9.1% in 2017.
The study, which interviewed over 100 HNWIs, mostly in Hong Kong and Singapore, found that the decision to launch the process of succession planning and wealth transfer usually follows a “trigger” event. Over four in 10 (43%) of the respondents cited “retirement” while 25% pointed to “significant investment portfolio changes” as the significant “trigger” events that started the process.
With regard to how much is needed for succession planning, 77% of the respondents indicated that 20-80% of their total wealth was needed in order to maintain their current lifestyles. The majority of respondents believe that the ideal age to start succession planning is when they are in their 50s.
Almost 60% of the respondents do not have a wealth transfer plan in place. However, 75% of ultra-high net worth individuals already have a succession plan or are currently in the process of planning their wealth transfer.
Political and geographic elements, market volatility, and cross-border restrictions top the list for external risks that wealthy individuals face, while concern at the inability of beneficiaries to properly manage their inherited assets is considered the biggest internal risk.
According to the survey, wills and trust funds used to dominate succession planning methods, but complexities arising from increasing global regulations and taxes have led many to search for alternatives. Universal life insurance, as well as joint investment portfolios, whole of life insurance, and annuity products have emerged as some of the alternatives.
“The life insurance markets in Hong Kong and Singapore have benefitted from, at least in the first half of 2018, market concerns over rising interest rates, falling yuan and increasing market uncertainty, as mainland Chinese HNWIs opt for life insurance products denominated in Hong Kong, Singapore, or US dollars to hedge against currency risks,” the report said. “Moreover, in times of political and economic instability, HNWIs tend to seek shelter in financial products that will help protect their economic security and mitigate external risks. Life insurance policies naturally become a valuable solution.”