I happened across the recent study on distribution of wealth by the Economic Policy Institute, the State of Working America, last week, and finally had time to sit down and read it while I enjoyed a cup of coffee last weekend.  While there were very, very few surprises in what is essentially a postmortem on what they call in the report "The Great Recession" there were some interesting stats from the report:  

• 87.2% of the nation's wealth is controlled by the wealthiest 20% of the nation's families (Proving the 80 - 20 rule by a wide margin!).
• 25% of U.S. households had a zero or negative net worth in 2009.
• Even at the peak that preceded the recession, 50% of all U.S. households owned no stocks at all - including indirect ownership via mutual funds or retirement plans.
• Stock ownership has been the primary driver of net worth gains since the recovery began, and this has driven the gap between the wealthiest families and the poorest to an all-time high.

Although these facts are not surprising, I hope that by now you are anxiously awaiting some insightful commentary about what this means for us in the insurance industry.  If so, read on for my thoughts.  If not, at least read the study here, as I think it does drive home some very important points.

As far as our clients are concerned, it exposes the real problem with the real estate obsession over the ten year period prior to the recession - lack of diversification.  By placing all their chips on black via their purchase of a home, the marginal home buyer ultimately did themselves more harm than good.  Had they allocated those dollars to even the most simple of diversified portfolios they may have enjoyed some of the recovery that the wealthiest families in our country have experienced.  It is the same phenomenon of putting all of your retirement funds in the stock of the company you work for.  It's great when it works, but the downside of a failed company - no job and no retirement funds - is simply too great a risk.  The fact that the strongest recovery has been driven by stock ownership also makes an argument for the downside protected equity indexed products out there.  Some of these products have produced fantastic results as the stock market has come back up, and also avoided the downside during the recession itself.

The last point for today is about our behavior as an industry.  Many of us want to break in to the high net worth space.  If we use this study as a guide, and define the high net worth space as the top 20%, it translates into about 20 million households (105 mil households per 2000 census.  I could not find 2009 within 30 seconds on Google and decided this was close enough.).  There are surely enough of these families to go around, so why aren't all of us happily working with more high net worth families than we know what to do with?  As with anything, it is a matter of concentration (ironic that we face the same issue discussed in the report).  Also, while not covered in the report, I am guessing that this top 20% is probably the oldest segment of our population.  Why does this matter?  Simple: the easiest path to penetrate this high net worth market is to go after the next generation.  The top 20% will pass this wealth to the next generation and increase the number of households that hold this top 20% (assuming each household has an average of two children the number of households that will ultimately control these assets should double).  While this is assuredly a gross oversimplification, that is where many forward looking carriers are focused when it comes to product development and marketing, and it is where the professional agent who runs a business rather than simply selling insurance needs to be focused as well.  Who knows, maybe the 80 - 40 rule will be the new 80 - 20 rule?!

That's it for today.  Back at it again next week.