Although asset management is a relatively new focus for carriers, they're on a steady course for targeting affluent customers with a wave of products and services.As the U.S. economy caught wind during the past decade, more consumers joined the ranks of the affluent population. Recognizing this socioeconomic shift, insurance carriers began steering their business strategies toward asset management services.
Carriers already possess customer data and have friendly agents who are only a handshake away. Experts agree that insurers are in a prime position to offer consumers a crash course in asset management.
Personal insurance currently is the big driver of industry growth, says J. Howard Stecker, deputy managing partner-national insurance services for Deloitte & Touche Consulting Group, New York. "It is where the assets are, where the volume is, where the ability to sell more product is."
Personal insurance can be simple and broad or complex and targeted. The former are naturals for online delivery. For instance, property and casualty carriers will sell automobile and homeowners policies directly, Stecker says.
Once electronic signatures become accepted as ensuring an application against fraud, insurance carriers will move these paper products "to the speed of the Internet" and out of the hands of agents.
Many new policies, however, require explanation that a Web site cannot manage. Those directed at affluent individuals include universal life, variable annuity, fixed annuity, and variable life. "These are increasingly important to carriers," he says. They are also only a portal through which insurers gain access to their customers' investment activity.
Asset accumulation is relatively new to the history of the insurance industry, with the exception of American Express life insurance, which always has targeted affluent individuals.
The pace in the race to acquire affluent customers has quickened, says Michael H. Kirschner, Web strategist for Destiny WebSolutions Inc., a financial services consulting firm in Conshohocken, Pa.
For example, The Hartford Cos., Hartford, Conn., bought Fortis Financial specifically to target affluent individuals. American International Group, New York, is opening wealth management offices.
Scudder Kemper, New York, has $370 billion in assets under management and offers two lines of business for individual investors: Its Private Investment Counsel is for comprehensive wealth management for affluent individuals, and its Personal Investing is for individuals who are not considered affluent.
Chubb Corp., Warren, N.J., focuses on affluent individuals through property and casualty insurance policies such as fine arts and historic homes policies that pay actual restoration or replacement costs, Kirschner says. It's a very profitable market for them with fewer claims than other personal lines of insurance, he adds.
Insurers are sailing into the unchartered waters of asset management as much to protect their turf as to increase market share, industry experts say. But they have a challenge inherent in their history.
"Insurance traditionally has come from (the perspective of) 'Let us save you money,'" Kirschner says. However, wealthy consumers are not concerned as much about saving money as they are about having adequate insurance to protect their assets.
More than 90% of affluent individuals are wealthier than they were three years ago, Kirschner says, but of the 90% who have estate plans now, 90% are out of date. Chubb estimates that eight out of 10 affluent consumers have inadequate property insurance. Carriers need to first update insurance coverage of wealthy customers, bringing it in line with the growth and appreciation of their assets, then sell them additional asset management products. For the newly wealthy, Kirschner says insurance companies are behind the curve in recognizing expanded insurance needs.
"Insurance companies typically didn't have financial services capabilities, and they are beginning to (offer some), and they are beginning with affluent individuals," he says. Breaking down the challenge of understanding and delivering products and services to all of their assets starts with an estate plan, which is the basis for providing insurance.
With insurance squared away, affluent consumers are more likely to use a host of advisors, including an estate attorney, a life insurance planner, and a stock broker to make investment decisions.
These decisions also depend on the individual, says Media, Pa.-based James W. Hutchin, an independent consultant for the insurance industry.
"There are more affluent individuals at a younger age," he says. "There is a change in buying patterns of the old and new affluent consumers.
"With the old, every sale is based on a personal relationship with a trusted advisor. In the new mass-affluent market, there is a greater sense of self- reliance. 'I am master of my destiny.' A 60-year-old will sit with a life insurance agent," and plan his or her investment strategy, he says. "A 35-year- old would rather gnaw off a limb."
Insurance carriers will face different management challenges with each customer. What they need to heed, however, is that as a group, affluent customers are saying, "Don't sell me a product. Give me a solution for the need that I have," Hutchin says.
Banks and investment companies are listening to that same consumer call and trying to compete as insurance carriers, also, but "insurance companies are holding their own," says Deloitte & Touche's Stecker.
Allianz, the Munich, Germany-based insurer, has $292.3 billion in non- insurance assets under management and manages more than 300 funds, including money markets, bonds, and equity funds.
And as assets under management grow, so do the job descriptions of insurance agents.
"This is a people business. It takes good people to make this happen, and there are a limited number to go to," Stecker says. "People become loyal to insurance carriers. There is a segment that is price sensitive but with asset accumulation especially, people want to build a relationship."
So insurers, rather than eliminating agents from the sales structure, are focusing on human resources and retaining agents to retain the consumers they serve. Agents are critical to the move into wealth management, and losing them now would be disastrous to insurers, Stecker says. Instead, carriers are cross- training their agents to be both licensed security brokers and insurance salespeople.
Destiny's Kirschner says this is a legitimate trend and one of the reasons why the company is focused on the asset management market very strongly. The numbers attest to the strength of insurance companies in financial services: Composite figures Destiny has drawn together indicate that 30% of 401k plans, 14% of mutual funds, and 10% of IRAs are managed by insurance companies.
Insurers are making room for middle-market consumers, too. Metropolitan Life, New York, and Allstate, Northbrook, Ill., have bank charters but are not talking publicly about what products and services they will offer.
State Farm markets mutual funds, and checking, savings and money market accounts. And through its banking operation, mortgages will be available nationwide by the end of the year.
"We want to continue to be the leader in the insurance industry, and we want to become a leader in the financial services arena," says Phil Supple, manager of media relations for Bloomington, Ill-based State Farm Insurance Co.
Deloitte & Touche's Stecker says the wide array of financial services available not through brick-and-mortar banks but through insurance companies aims to answer many consumer needs at once.
"If you trust your insurance company, trust the market image, and trust them with your retirement money, you are likely also to trust them to take care of other financial services," he says.
"Last year the conventional wisdom was that we would see a lot of bank/insurance company mergers. That didn't happen. There may not be a real need for some of those companies to be both," Stecker says. "I'm not certain how many Citigroups you're ever going to see.
"Companies are figuring out what they're good at and then only offering those financial services," he continues. AXA Financial Group, New York, (formerly Equitable Insurance Cos.) owned Donaldson Lufkin & Jenrette and sold it to Credit Suisse First Boston, Boston, stepping out of the stocks and bonds business. The company still owns Alliance Capital Management LP, New York, an investment advisor, however.
"More insurance companies are buying investment companies, but there are not as many mergers with banks as predicted. It's a conservative approach, but that's true of insurance," he says. In the last half century, however, insurance carriers have been more creative than they were in their first 150 years, he says.
Allstate is recategorizing itself, updating the image of insurance. "We characterize it as an asset protection business," says Mike Trevino, a spokesman. "Houses and cars for many people are their major assets. Other people have liquid assets they'd like to protect, income. An extension of asset protection is what we already do. That's largely what life insurance is for." New business initiatives into asset management are just an extension of that, he says.
Kelly Shermach is a freelance writer based in Skokie, Ill. This article was developed for Insurance Marketing & Distribution magazine, a supplement to Insurance Networking.
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