When families need to raise cash to pay bills and sudden expenses, it can coincide with when markets are under pressure. To avoid selling assets at a sharp discount, life insurance can add financial "ballast" for clients, a figure in the business says.

Clients who had to sell assets to raise cash for only fire-sale prices, have been sharply reminded why life insurance is so important as a back-up source of liquidity, a senior figure in the insurance business says. 

Equity markets may be not far below their January starting point and some jurisdictions such as Hong Kong are out of lockdown. But in any event, the experience may serve to wake people up as to why insurance is an important wealth management tool, Brandon Caneer, head of proposition development and advanced marketing, Transamerica Life Bermuda, told this publication. (Transamerica Life (Bermuda) is part of the Aegon Group.)

“Some families may not have the liquidity they need at the moment when they need it most….as such insurance provides stability and a known quality of money. It is like the ballast at the bottom of a ship. It creates a foundation,” he said. “The challenges now, especially with COVID-19, highlight the need for insurance more than ever.”

Life insurance can provide important liquidity to clients, such as asset beneficiaries who might otherwise have to sell assets at a discount because they face tax and other costs. It is frequently during times of crisis when families might have to raise finance, which is often the worst time to try and monetise an asset, particularly if they are illiquid, Caneer said.

Caneer’s comments are another reminder of how insurance, ranging from classic insurance of goods and services to specialist offerings such as private placement life insurance, is a significant part of the wealth management toolkit. In PPLI, for example, specialist players such as Lombard International Assurance and Swiss Life are important wealth industry players. With life insurance, a client is paying a price for peace of mind about a potential liquidity/asset mismatch problem later down the line. 

Bermuda-incorporated Transamerica Life Bermuda – or TLB – has a long pedigree. It has specialised in areas such as life insurance for high net worth clients in Asia for more than 80 years. TLB has branch offices in Hong Kong and Singapore (although Hong Kong has been a sales office since 1993, both Hong Kong and Singapore were established as full service branches in 2006). Transamerica established its first sales office in Shanghai in 1933. This business also looks after clients in Florida, Switzerland, Dubai, Latin America and the UAE via its Bermuda office.  

“Some may think that wealthy individuals would not need life insurance for the very fact that they are wealthy and can well afford expenses from houses to cars and more. However, high net worth individuals can face myriad challenges, especially in times of untimely passing, that are amplified by the current economic conditions,” Caneer said. 

“Just a few short months ago, how many people would have predicted the current events from extreme forces of nature? It is perhaps a timely reminder that bad things do happen, and we need to be prepared for them,” he continued. 

"HNW individuals have complex needs, from estate taxes to preserving the family’s lifestyle, and especially if a business is involved. HNW wealth is frequently centred in a family business – and businesses of all types are under unprecedented pressures in the global downturn. HNW individuals typically have a high cost of living and even a large estate may be depleted in surprisingly little time without the family’s main income earner. All these highlight the need for cash flow and liquidity which may not be available if not well-planned,” he said.  

In December last year, the organisation released a report, Succession Planning 2019: Converting Challenges into Actions. The study examines the role life insurance products can play in succession planning.

Asia’s family status
Transamerica cites data showing that 85 per cent-plus of Asian business are family-owned and there are a lot of succession planning issues coming over the hill. It predicts that demand for life insurance and insurance-linked structures will be strong. In fact, it is estimated that $15.4 trillion will pass down through the generations by 2030 – most of it in Asia.

TLB conducted an HNW research study last year to probe views of Asian wealthy individuals and families. The study revealed that one of the main challenges/risks that contributed to the lack of succession planning preparation among HNWIs is the lack of communication.

Despite the fact that most Asian business owners earned their riches through a family business, two out of three end-clients surveyed have never discussed succession planning with their family. Almost two-thirds of Asian HNW and ultra-HNW individuals’ business owners have yet to name a successor.

Hong Kong worries
This publication asked if clients are asking about the situation in Hong Kong because of controversy about the new national security law? 

“In general, any issue that may create uncertainty and add volatility to the Hong Kong market on top of the current challenges it is facing today, is always going to be of concern are and will be closely monitored by the HNW market segment,” Caneer said. 

COVID-19 has also been a bit of a headache. “It is causing some challenges….this kind of business has been a face-to-face thing….let’s face it, there are big amounts of money involved,” he said.