With the Great Recession now a fading memory for many, and employment data being generally positive, there are new opportunities and challenges for life insurance carriers to address. Recent LIMRA data suggests that growth rates per annum over the next four years will be 1-2%. Younger consumers are not usually interested in traditional life product offerings as they are delaying many of the life events that might have triggered purchases in the past. Millennials were the product of not one, but two, significant economic downturns in their formative years. Consequently, they were forced to respond by prioritizing things in different ways than their parents and grandparents.
Now we look at two interesting demographic events. Recently, Millennials became the largest living generation in the United States. They are now about 18 months away from representing half the US labor force. They are, in effect, the customers of the future, which makes this recent article on savings rates so interesting — and so important.
Putting savings into defined contribution retirement plans is on a sharp uptick, with Millennials leading the way. Far from being frivolous or disconnected from financial reality, this appears to be a pretty conservative cohort that is charting its own course. High savings rates and conservative investments (e.g., time series funds) seem very practical.
The implications of this for IT organizations and the carriers they support could be significant. If younger consumers, representing an ever-larger part of the potential consumer base, find a need for new products that are more responsive to the 21st century, carriers will need to respond in order to remain relevant. The 401(k) study suggests that savings are particularly important, especially when offered in clear and simple ways. Product loads clearly matter, as evidenced by the selection of investment options.
As mortality and morbidity have changed over the decades, the problem of providing income in the case of a premature demise has been replaced with a concern for outliving savings, which produces a very different sort of demand. Hybrid products that adjust over time, just as target funds do when approaching specific dates, might be one response. The operational and technical implications are significant.
How will carriers respond? Certainly not by focusing on products from the past. And not by insisting on providing every customer with the same level and quality of service. Finding ways to target customers’ needs and respond accordingly will be key.
At a recent Plug and Play event in Silicon Valley, I was asked if I thought anyone was doing an effective job of bringing products and experiences together in a meaningful way to target a younger cohort. Fidelity Investments, via its Benefits Marketplace, is doing as good a job as anyone I’ve seen. Fidelity’s wrapper experience, omni-channel access, and diversified product offerings are surprisingly good. The implications of this from a distribution channel shouldn’t be missed. In addition, the use of analytics to target messages and services is impressive. The carrier has not yet gotten to hybrid product offerings, but it does represent the kind of organization that life carriers should keep an eye on. In many cases, the real competitive threats to established organizations and industries come from peripheral spaces.
2020 is not that far away. This is a great time to focus on the rise of Millennials and the reality that the oldest Boomers are poised to turn 74. Legacy products may well be for legacy customers and run fine on legacy systems. Pun intended.
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