ProtectionJul 20 2017

Making insurance work for millennials

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Making insurance work for millennials

Emma Thomson, life office relationship director for Lifesearch, says: "This could be a great way to better engage with millennials, if the product and process design is slick enough to buy easily.

"This kind of concept in itself won't provide the full protection cover, but it could be that first step to thinking about protection against sickness or early death."

Andy Coles, development director at Lutine Insurance, part of Direct Group, said he agrees with comments that this would be a good route into protection for the younger generation.

For many millennials, there will be a protection need, although disposable income will need to be understood and managed. Peter Hamilton

Firstly, a lack of savings is one reason why more expensive, long-term income protection cover might not be as suitable for millennials as short-term insurance.

He explains: "Millennials often have limited savings to cover changes in disposable income."

Employment

He also points to changing lifestyles, whereby the younger generations tend to have more jobs in different industries than previous generations. It has been suggested a millennial could have 10 or 11 different jobs in their lifetime.

However, the idea of a job-hopping millennial might soon be a thing of the past. According to figures from Deloitte Global Consulting's latest survey, millennials are concerned about Brexit, uncertainty about the US economy, a global slowdown in China and social and political upheaval in Europe.

For this reason, the study claims this generation is less likely in 2017 to job hop or take up short-term contracts than they were even one year ago.

The study says: "Millennials seem especially concerned about issues that directly impact the individual or which create an atmosphere of threat and uncertainty.

"This anxiety might be why most would currently prefer a permanent, full-time job rather than working freelance or as a consultant on a flexible or short-term basis.

"Irrespective of perceived across-the-board advantages of working as freelancers or consultants, nearly two-thirds of millennials prefer full-time employment."

According to Deloitte's study, the reasons most often given for preferring a permanent role are:

  • Job security.
  • A fixed income.

However, flexibility is still key. In highly flexible working environments, the difference between those who see themselves leaving within two years (35 per cent) is just two points above those anticipating to stay beyond five years (33 per cent).

Among those in the least-flexible organisations, there is an 18 point gap (45 per cent versus 27 per cent). The difference is significant; if the pay is not going to be adequate, the working conditions have to be.

Affordability

In addition to job flexibility, many millennials choose flexible living in the form of rental accommodation, disencumbered by a mortgage. Not that many could afford to buy a house, with the rate of house price growth and inflation still vastly outpacing wage inflation in the US, Europe and the UK.

For this reason, Mr Coles adds: "Short-term is more relevant for millennials who are often in rented accommodation."

Julie Higman, income protection product manager for Aviva, comments: "Taking a short-term policy may be more attractive to millennials to ensure they at least have some cover. 

"It could also keep down their premiums if budget is a concern."

Flexibility and affordability are twin wins for lifestyle insurance advice, says Peter Hamilton, head of retail propositions for Zurich. He explains: "For many millennials, their financial time horizon will not stretch much beyond the next few months, so it can be hard to position the idea of a plan with a 25-year-plus term.

"They may not yet, or possibly ever, be in a position to buy their own home, but are likely to be paying rent out of income that also supports a broader lifestyle.

"Social welfare provides less and less support."

While some millennials may have employers who offer income protection, many won't. Moreover, with the age range of millennials varying from 18 to 35, some people may have families of their own to protect.

Mr Hamilton adds: "For many millennials, there will be a protection need, although disposable income will need to be understood and managed."

What to watch out for

Short-term insurance products, such as lifestyle protection, may be a gateway for advisers to build up a low-cost client base among the young and maintain a relationship with them as they get older, wealthier and need ever-more complicated financial planning.

However, it is important not to let cost and flexibility blind prospective clients into choosing a product that might not be appropriate. 

Alan Lakey, founder of the CI Expert, cautions: "If the marketing draws in those who would otherwise ignore such cover, then lifestyle insurance is fine.

"It is a way of introducing consumers to personal protection who otherwise would not bother.

"But what would prove unwelcome is if consumers buy such cover based on the low cost when they could afford, and therefore should consider, comprehensive cover to retirement age."

simoney.kyriakou@ft.com