Coming of age of Tradable Life Insurance Market
As I talk about the potential of Tradable Life Insurance Market, I can’t help but quote Victor Hugo when he says, “No force on earth can stop an idea whose time has come.” Incidentally, Tradable Life Insurance Market was born a few years after the famous poet and novelist died. That is, in the beginning of 20th century1. However, the market is yet to come of age. While that is a bit unfortunate the silver lining is that the time has come for this ”idea”. Let us figure out why! The article focusses on Asian market but it would be only fair to extrapolate the conclusion to other parts of the globe
Large and growing life insurance business: One of the main reasons why Tradable Life Insurance Market (TLIM) exists is the presence of the primary insurance market. In simple words, you can sell your insurance contract only after you have bought it from the insurers. The primary market for Asia is over USD 10 trillion which is expected to grow at the rate of 3%-5% till 2021. The contracts surrendered over a year are worth over USD 700 billion!
Life Insurance Penetration: Life insurance penetration, put simply, is the ratio of life insurance business in the market and potential of life insurance market. The smaller number implies smaller size of the market but greater potential. For most Asian markets the penetration is less than 25%. To put things in perspective the same metric for Australia is 70%. The insurance penetration is bound to increase, which is a good news for TLIM.
Ageing Population: My previous article explains that fidentiaX is committed to helping policyholders regardless of their age, gender, race or health status. The TLIM, however, is more attractive to the older population because at 65 years one needs health care more than a life cover. Hence, it makes more sense for seniors to unlock the value of their life insurance contracts and utilize it for what they deem is the most appropriate use of it. Currently, about 15% of the Asian population is above age 65. In about 20 years’ time, seniors would form one-third of the total population
Emergence of gig economy: This burgeoning segment of workforce is characterized by short-term contracts and freelance work as opposed to permanent jobs. Clearly, gig workers need insurance cover more than those with permanent jobs. Firstly, they are not covered by their employers (because they don’t have employers at the first place!) and secondly while freelancers enjoy freedom from routine job they are known to suffer from stress because of uncertainty around the inflow of money. This is where TLIM and fidentiaX, in particular, can bring in a lot of value. The decision to buy life insurance becomes a lot easier when you know you can sell it off at the time of need and for a good value. In case of gig workers, they can unlock the value of life insurance contract when paying premium becomes onerous!
Financial Literacy: After spending over a decade in the insurance business I can comfortably claim that I understand it. At the same time, I appreciate that it is fairly complex for most mortals. The Tradable Life Insurance Market gets a bit more complicated. The good news, however, is that financial literacy has been on a rise. The financial literacy survey conducted by S&P suggests that financial literacy in Japan and Hong Kong is similar and stands at 43 units. This is 10 units higher than South Korea which scored 33. Singapore, as expected, is ahead of its peers and stands at 59 units. The UK and USA, where TLIM market is prevalent were indexed at 67 and 57 units.
The aforementioned factors combined with the fact that regulators are getting more and more supportive2 of TLIM only adds to the belief that time for Tradable Life Insurance Market has come. And it is unstoppable!
1. More details of it can be found in my previous article titled, Demystifying Tradable Life Insurance Market
2. In Singapore, MAS is supportive. China is running a two-year pilot since January 2018 and Indian regulator is mulling over the proposal made by its product committee.
About the writer: Mr Sumit Ramani is the Chief Actuary of fidentiaX. He is a qualified Life actuary and a computer science engineer with over a decade of experience in(re)insurance business with focus on modelling of life and health products, peer review and business analysis.