Private banks are missing a trick by failing
to provide wealthy clients insurance-linked products despite demand
for the market worth nearly $1.2trn.
Wealth consultancy Scorpio Partnership
estimates less than 5% of all wealth management portfolios in
emerging markets include an insurance component but demand is
rising.
Go deeper with GlobalData
Scorpio predicts insurance-wrapped cover to
increase 15% in the next five years. Insurance wrappers ‘wrap’ an
investment portfolio into an insurance contract with a written-in
guarantee to pay the value of underlying assets upon
encashment.
Tax-deferral benefits for
HNWIs
The tax-deferring quality of insurance
wrappers is becoming more appealing to investors in the higher
income tax bracket as central governments hike up taxes.
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By GlobalData“The attitude appears to be that insurance is
too complex to sell and so focus is shifted elsewhere on the
product palette,” Scorpio managing partner Sebastian Dovey
said.
“In the search for new and sustainable revenue
streams, the more forward-thinking banks will now adjust course to
incorporate these solutions as there is demand and complexity is
surmountable,” he said.
Speaking to PBI last month, Johannes
Pfister, head of legal and compliance at European insurance group
Baloise Liechtenstein, said his firm has seen a substantial rise in
the popularity of the products.
Sales of the products issued in Liechtenstein,
which Baloise operates under the EU Freedom of Services regime for
Italian, German and Austrian residents only, rose from CHF4.6bn
($4.6bn) to CHF6.6bn.
HNW with $10m key market
Scorpio identified high net worth individuals
with up to $10m in assets as a crucial market where there is real
demand and stronger fee potential, as opposed to the wealthiest
clients.
Tax-efficient unit-linked life policies have
been the subject of criticism in the past, with some seeing the
products as a vehicle for avoiding taxes.
John Stone, founder and chairman of
Luxembourg-based Lombard International Assurance, said offshore
insurance wrappers may not comply with the regulations and tax
rules in an investor’s home jurisdiction.
To ensure private bank clients do not lose out
through unscrupulous or non-tax-compliant offshore products, he
advises using onshore insurance policies which could still offer
the tax deferral option to those reluctant to be stung by higher
income charges of 40% or 50%.
