Insurers have been warned they are still failing to properly prepare for the largest inter-generational wealth transfer in history.

The Capgemini Research Institute has published its World Life Insurance Report 2023, which highlighted the looming and unprecedented shift for life insurers as they face a significant outflow of assets under management (AUM).

It found currently, policyholders over the age of 65 own 40% of insurers’ AUM, which for the 40 largest global life insurers totals $7.8 trillion, with these assets poised to be transferred to beneficiaries by 2040.

The institute warned the United Nations predicts 33% of the world’s population will be over the age of 50 by 2050. Yet, most senior citizens lack a financial plan for aging well According to Capgemini’s new report, 60% of individuals aged 65 or older have not sought professional financial advice to prepare for retirement or to transfer their wealth.

“The demographic shift coupled with the greatest wealth transfer to take place in the coming years threaten the life insurance industry, as it competes to serve the needs of an aging population. To help policyholders age well, carriers must find a way to appeal to the evolving needs of consumers by creating a personalized and tailored experience through more innovative product design. Ecosystem partnerships, such as engaging with firms that specialize in serving seniors, can help insurers orchestrate value-added services and close their capabilities gap in key areas. Those that prioritize early engagement with clients and their beneficiaries will generate trust and safeguard their assets,” said Samantha Chow, global leader for Life, Annuity and Benefits Sector at Capgemini.

The study added many people approaching retirement are being forced to shoulder more of the financial responsibility for aging well as unique economic headwinds, declining governmental support, and increasing healthcare costs exacerbate the cost-of-living crisis. Despite these conditions creating a greater need for life insurance, consumers face growing barriers to product adoption. Policyholders report complexity across life insurance offerings and limited awareness (39%) as the biggest obstacles, followed by a lack of trust (29%).

“The biggest challenge life insurers currently face is staying relevant amid the greatest wealth transfer,” Cap Gemini added.

To protect the assets under management that are at risk, the report recommends prioritising affluent and mass affluent  consumers who hold 39% of global wealth and account for about 20% of the aging population. This segment has the greatest need for aging-well solutions, with more than 75% wanting innovative life products. However, only 27% of insurers have the advanced product development capabilities to provide them.

According to the report, more than 44% of 50+ year old affluent and mass affluent customers expect their insurers to provide such services, ranging from wellness initiatives to assisted living. Ecosystem partnerships will prove critical for insurers to close this gap by orchestrating a wide universe of value-added services.

“As insurers navigate the road ahead, they must find a path to protect assets and boost growth,” the report added. “The report highlights a journey that will take insurers from today’s product-centric approach to an operating model focused on customer-centricity, with comprehensive, higher-value solutions designed to help consumers age well. This transition requires a value chain evolution aimed at enhancing the customer onboarding process and driving policyholder and beneficiary engagement. Subsequently, beneficiaries can be transformed into new customers and claims effectively converted into opportunities for revenue generation.”

Cap Gemini said insurers can drive policyholder and beneficiary engagement to deepen customer relationships by simplifying and personalising the onboarding journey; elevate the claims experience by providing flexibility in claims restructuring; and capture a single view of the customer by modernising their technology layer.

“Those insurers that succeed through this journey will be able to fortify trust across generations, foster future growth and safeguard the significant assets at risk to be transferred in the near future,” the report concluded.