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Demand for offshore insurance-linked investment products among high-net-worth individuals in the world’s emerging markets is “both large and under-served by private banking businesses”, according to Scorpio Partnership.

The London-based wealth management consultancy predicted that demand among HNW/UHNW individuals in such markets for life policy-linked instruments within portfolio products will grow by 15% over the next five years, suggesting a total market worth “almost $1.2trn”.

Scorpio’s findings were contained in its latest strategic insight, which it said was based on in-depth interviews with executives at more than 50 life companies and wealth management firms during the second quarter of this year. It focused on 14 specific emerging markets, including India, the United Arab Emirates, China, South Africa, Mexico, Brazil and Chile.

At the moment, the consultancy noted, less than 5% of all wealth management portfolios in emerging markets include an insurance component, even though demand from end investors in these areas is rising and life companies are showing increasing interest in accommodating them.

Part of the problem is that “developing an insurance solutions strategy at most private banks is considered to be ‘tomorrow’s problem’”, Scorpio said.

“Wealth managers are still only adjusting slowly.”

Managing partner Sebastian Dovey called the emerging market for insurance products “an untapped frontier of wealth management”, and added: “To date, in the offshore emerging market context most private banks have scratched the surface of demand for insurance solutions. The attitude appears to be that insurance is too complex to sell, and so focus is shifted elsewhere on the product palette.

“It is our view that 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 the complexity is surmountable.”

$1m to $10m in investable assets

The real demand and strongest fee potential is in the market represented by individuals whose investable asset base ranges between $1m and $10m, Scorpio said, even though international wealth managers currently tend to focus their efforts on selling to the more affluent, ultra-high net worth space instead.

Other findings of the Scorpio research:

• Of the 14 markets studied, "those in the Asia Pacific region appear to show the strongest characteristics for substantive growth in consumption of insurance instruments"
• The caveat in the Asia Pacific story is that the private banks there "appeared to be relatively slow on the uptake"
• Insurance linked products are of particular interest to wealth managers because of the "stickiness of the relationship", as their average "relationship cycle" of 10 years is "as much as three times as long" as the average portfolio relationship with a bank

To view Scorpio's release on its latest strategic insight in full, click here. A longer version may also be obtained by contacting the consultancy.