Smaller Families, Bigger Budgets
Across emerging markets, rising incomes reshape family spending priorities and consumption patterns, spurring increased demand for insurance, wealth management services and higher education.
“Mais feijoada por favor.” “Ni jintian hao ma?” “Na zdrowie!”
At dinner tables throughout emerging markets, middle-class families tuck into comfort food, share details about their day and toast each other's successes. Languages and cuisines may differ, but many elements of everyday life are often quite similar.
Common threads unite families in emerging markets from Mexico City to Jakarta and dozens of places in between. As incomes rise, families tend to have fewer children, which spurs a near-universal reshuffle in spending priorities and consumption patterns. Growing financial resources are dedicated to a tighter nuclear household. New goals come into focus, many of which are shared across the diverse range of developing economies.
Safeguarding Loved Ones with Insurance
Staying healthy, saving for the future and providing for your survivors: These are foundational desires felt by families at all income levels. As purchasing power grows, households in emerging markets are increasingly able to act on the need for protection by buying insurance. Various forms of insurance appeal to such families, including life insurance, health-care plans and coverage for cars, liability and agriculture. Many households also utilize long-term savings and annuity products offered through insurance providers.
Demand for health insurance is particularly robust in China. Members of the fast-growing middle class are purchasing supplementary private medical insurance plans to help safeguard the health of their dependents. As a result, demand for private medical insurance in China grew at a compounded annual growth rate (CAGR) of nearly 40% between 2014 and 2019, according to Swiss Re.1 Families in China are taking advantage of middle- and high-end products, which extend coverage for medical services, drugs, dental treatments and visits to public and private hospitals. Many of the insurance products combine low premiums, high coverage amounts and a simplified underwriting process—an attractive blend that fits the needs of a wide range of families.
Brazilians are acting on the same need to protect their loved ones. OECD data shows that insurance penetration—calculated as the ratio of direct gross premiums to GDP—has increased in the past decade.2 In addition, individual life insurance plans sold in Latin America's largest economy posted 19% growth between 2016 and 2019, according to Ernst & Young.3
Opportunities abound for insurance companies operating in emerging markets. Forward-thinking firms are harnessing technology to make improvements to their top and bottom lines via digitized distribution, pricing and claims administration. Insurance companies are also acutely focused on customer experiences, striving to deliver innovative new products and exceed families' ever-higher expectations.
Focusing on Wealth Management
As families throughout emerging markets transition toward affluent status, wealth management becomes an important focus. Families share a desire to make smart decisions with their money, calling on professional resources to ensure their carefully built prosperity makes a positive, lasting impact. Older families begin to plan for life events, such as retirement, philanthropy and wealth transfer to the next generation. Younger families often seek out investment management and advice as they accumulate new wealth.
The wealth management industry in Asia is particularly strong, boasting an estimated US$34 trillion of onshore personal financial assets at year-end 2019. The industry has grown at a CAGR of approximately 10% from 2014 to 2019, according to McKinsey & Company—well ahead of the 5-6% growth rates in developed markets. And yet, wealth management advisory and financial planning still have ample room to grow in Asia: Managed assets represent only 15-20% of the region's overall personal financial assets.&4
Appetite for wealth management is also evident in Latin America, where a large proportion of private companies are family-owned. By some estimates, the figure is roughly 85%5 As such, many households feel a deep connection between wealth, business and family. Decades of vibrant growth have created a rising tide of prosperity and substantial wealth for family-owned enterprises—but such growth has also created a host of thorny issues for relatives who are in business together. For many, realizing a shared vision that fosters household harmony alongside financial success is a real challenge. Families often get expert support from traditional wealth management firms, private banks and family offices. Through an array of services, these providers help high net-worth families navigate the complicated cross-section of business demands, succession planning and other multi-generational dynamics.
Taking Advantage of Private Education Opportunities
Ask almost any parent and he or she will agree: High-quality education is a top priority—so it's no surprise that private education is a trillion-dollar industry globally, according to Ernst & Young.6 Families across emerging markets feel several of the same forces, which together are fueling increased enrollment in private education. First, the average household size is shrinking, and more families have dual incomes. As a result, fewer households are relying on extended family members for childcare and are instead seeking out early education opportunities. Second, rapid urbanization and rising affluence are concentrating demand for education in major metropolitan areas. Lastly, many public education systems are falling short, unable to meet the growing demand for high-quality education. In emerging markets, families influenced by one or more of these factors are increasingly able to look to private education for solutions.
In emerging Asia, China and India are home to large private education markets. Parents can take advantage of a variety of offerings, ranging from K-12 schools to private colleges and vocational training. International schools are growing in popularity throughout Southeast Asia, boosted by families' desire for global curriculum and English-language instruction. In the Middle East, education consultant L.E.K. estimates that private K-12 education is growing at a rate three times faster on average than GDP, with particularly rapid growth in the UAE.7 Global education providers, independent operators and local education companies are all part of the boom.
John Paul Lech
1 Swiss Re Institute, “Sigma,” November 2019
2 OECD.Stat, “Insurance indicators,” September 2020
3 EY, “2020 Brazil insurance outlook,” 2019
4 McKinsey & Company, “Asia wealth management post-Covid-19,” June 2020
5 Vistra.com, “Helping preserve and transfer wealth across multigenerational Latin American families and family businesses,” May 2020
6 EY-Parthenon, “Education in Southeast Asia,” 2016
7 L.E.K. Consulting, “The private K-12 education opportunity in the Middle East,” 2018