And this is not going unnoticed by the life insurance industry, which is competing in the high net worth sector by diversifying products from protection into investment, and adjusting traditional distribution strategies, according to a new report by Conning.

The insights serve as a reminder of the role life insurance plays in a wealth management plan and potentially how some industry players may be able to further capitalize on, or at least address, this.

Conning is an investment management company focused on the global insurance industry, with over $94 billion in assets under management as of December 31, 2014.

Citing Morningstar data, its report – entitled Life Industry Affluent & High Net Worth Strategies: Focus on Investments, not Protection – noted that insurers accounted for 18 of the 50 largest mutual fund families based on AuM at end-2014. Collectively, those 18 firms managed 33 per cent of the top 50’s total assets. Insurers have become “major players” in terms of assets under management, the report said.

Scott Hawkins, an analyst at Conning, said there is a global opportunity for the sale of insurance and investment products in light of growth in the volume and wealth of affluent and high net worth individuals.

“Our analysis confirms that life insurers are competing for this opportunity by diversifying their products from protection into investment, and adjusting their traditional distribution to more effectively capture affluent and high net worth investors,” Hawkins said. “This change in product mix to a greater reliance on annuities also lowers capital requirements, giving those firms an advantage in return on surplus.”

Distribution

With direct sales a “miniscule portion of overall production” , large insurers have developed a multi-channel distribution strategy, including through their own broker-dealers and registered investment advisors.

Based on assets at end-2013, 21 of the largest insurers had retail broker-dealers and 18 had RIAs, the report said. “This distribution diversification enabled them to work with clients and provide consumers a broad range of financial advice, products, and services.”

Meanwhile, they have responded to demands from high net worth clients for bespoke products and services by offering non-insurance asset management, and developing private placement life insurance and annuities.

“High net worth investors are able to purchase bespoke insurance products, which add a tax advantage to their investments,” the report said. “However, properly structuring these bespoke insurance products is crucial to maintain those tax advantages. This has allowed asset managers to develop a new product to attract investors and given rise to specialist insurers focused on this market.”

Segment-specific outlook

“Taking a wider look at the shift towards affluent and high net worth investors, we see these shifts as part of the continuing evolution by some insurers towards asset management,” the report said. It noted, however, that a long-term challenge might be that governments decide to treat insurance as an investment – rather than a protection product.

Meanwhile, these players may also need to adjust their strategies to maximize performance by market, said Steve Webersen, director of research at Conning.

“For those pursuing developing and emerging markets with higher rates of growth, broadening distribution capabilities to capture more customers will likely be a key focus,” Webersen said. “Conversely, in mature and slower growth markets such as North America and Europe, fighting for a greater share of the affluent or high net worth's wallet will be more important.”