The power of life insurance in enabling tomorrow’s wealth transfer

By Samantha Chow

Human beings are living longer and healthier lives. By 2050, the over-50 population will reach 3.2 billion, or 33% of the world’s total population, according to the United Nations. For individuals, increased longevity is good news. But strained government finances and a growing retirement protection gap mean the responsibility for a financially secure retirement is increasingly shifting to individuals. As we live and keep working longer, the impact of an aging population on the life insurance market landscape will be significant.

Recent research found that 60% of individuals aged 65 or older do not have a financial advisor – even as history’s most significant intergenerational wealth transfer is about to begin. Insurers have reasons for concern: Policyholders age 65 and older control more than 40% of insurers’ assets under management and most of those assets will be transferred to beneficiaries by 2040.

Nearly three-quarters (71%) of that wealth is slated to go to beneficiaries aged 50 and older. This underscores the importance for the industry to prioritize deepening relationships with aging policyholders and their beneficiaries. To protect their existing AUM and unlock future growth, Insurers must strengthen engagement and foster trust with older policyholders and their beneficiaries.

To achieve those goals, insurers should develop comprehensive services that support aging well – which we define as the ability to maintain financial security, physical health and quality of life - with the support and protection of life insurance and other retirement solutions.

Shifting demographics bring challenges and opportunities for carriers

Demographic shifts and macroeconomic trends, including tighter government budgets and volatile inflation rates, present both opportunities and challenges for the industry. Demand for life insurance and related offerings – including annuities, long-term care services and financial advice – is rising. With more consumers seeking support for aging well, dramatic growth is likely by 2030. Meanwhile, life insurance premiums, including annuities, are on track to increase by 49%, reaching $4.2 trillion, from 2020.

The current landscape provides life insurers with an unprecedented opportunity to heighten their relevance, boost policyholder trust and accelerate growth through meaningful engagement with people aged 50 and older. This customer segment is ready for comprehensive and flexible solutions to fund their retirement and help them age well. Some insurers have already started taking steps to capture the opportunity.

For example, AXA invests strategically in dedicated elder care facilities in Japan and Italy in response to increased life expectancy and the clear need for quality facilities. AXA's alternative investments division, which manages more than $201 billion in assets, spearheads the effort focused on affluent cities with large senior populations.

Despite clear consumer demand, barriers to adopting life insurance remain. These barriers include product complexity and limited awareness, which dampen growth and limit insurers’ relevance. Such challenges, along with declining governmental support and increasing health care costs, are causing the retirement protection gap to grow. In fact, the World Economic Forum projects that it will quadruple by 2050, reaching $400 trillion in markets with the largest established pension systems.

Life insurance: Adapting to evolving policyholder needs

So, what can insurers do to help reduce the retirement protection gap and protect their AUM? I believe success starts with engaging earlier and more effectively with future beneficiaries.

For example, Guardian Life has partnered with the Israeli startup Empathy to offer personalized support to beneficiaries, helping families navigate challenges after losing a loved one. Beneficiaries receive professional assistance for claims, finances, healing and well-being.

Insurers can also deliver enhanced value by equipping intermediaries with digital tools and strengthening channel integration for better and more personalized interactions with policyholders and their beneficiaries.

They can seize opportunities with the aging population by strengthening ecosystem partnerships to develop and orchestrate a universe of value-added services specifically targeted to the silver economy. Carriers that enhance touchpoints across the customer lifecycle will be well positioned to set the stage for future growth. The goal is to evolve from today’s product-centric approach – where offerings are determined mainly by what’s technically feasible – to a more customer-centric model, based on broader value propositions and more personalized experiences.

To successfully evolve, insurers must transform the customer lifecycle. This involves identifying aging-well gaps and opportunities, driving policyholder and beneficiary engagement, and then converting these beneficiaries into new customers by translating claims into revenue-generation opportunities. Modernizing technology and enhancing data management capabilities to streamline operations, enrich customer experiences and enable more informed decision-making are among the priorities. However, based on Capgemini's survey, only a limited number of insurers have the relevant advanced technology and data analytics capabilities.

Life insurers have struggled to retain relevancy for some time. The industry now has a unique opportunity to reverse this trend by simplifying offerings and personalizing every step of the pre- and post- retirement journey. That’s how the industry can create long-lasting trust while helping customers across generations live well for longer. As a result, insurers will also safeguard the 40% of AUM that is at risk.

Samantha Chow is global leader for the life, annuity and benefits sector at Capgemini. Contact her at [email protected].