(Young people  playing RISK in an Amsterdam street cafe. Photo credit: Jorge Royan.)

Recent studies indicate that Millennials/Generation Y customers present special challenges to companies marketing life insurance and retirement products. For example, according to a new report by Corporate Insight, Millennials are risk averse, cost-conscious, skeptical and socially aware, and they tend to mistrust financial institutions. However, these and other characteristics present not only barriers but also opportunities to life and annuity (L&A) carriers. Combined with Millennials’ tech-savvy and digitally engaged character, these qualities have clear implications for L&A companies’ technology strategy.

Generation Y will be a difficult market for the financial services industry to crack, according to James McGovern, VP, consulting services, Corporate Insight. “This is a diverse generation that’s struggling with serious financial problems, such as college debt and underemployment,” he says. “Millennials put a high value on transparency and are wary of financial institutions, particularly when it comes to ambiguous fees or pricing.”

In The Millennial Shift: Financial Services and the Digital Generation, Corporate Insight describes Generation Y as risk-averse and financially conservative. While those characteristics should give insurers a competitive advantage over other financial service sectors, the New York-based researcher reports that Millennials significantly overestimate the cost of life insurance, while ignoring the benefits of other insurance products such as renter’s insurance.

LIMRA and Life Happens’ 2014 Insurance Barometer Study, published in April presented findings that were in some ways remarkably similar to those of Corporate Insight. The LIMRA/Life Happens study found that younger Americans, including Millennials age 25 to 34 showed the highest level of concern of any generation with regard to financial planning issues, including saving for retirement, paying for a child’s education or burdening others with final expenses.

Anxious Generation

Half of consumers 25 to 34 (52 percent) responded that they are very or extremely concerned about having sufficient funds for a comfortable retirement compared with just 46 percent of consumers aged 35 to 54, according to the LIMRA/Life Happens study. Nearly a third of Millennials are as concerned about paying for a child’s schooling (27 percent – only 20 percent in the 35 to 44 cohort) and burdening others with financial expenses (26 percent, compared to 19 percent in the 35 to 44 bracket). The contrast of Millennials’ attitudes to older generations was most striking in their demonstration of worrying more than any other age group about paying for medical expenses (43 percent very or extremely concerned), leaving dependents in a difficult situation if they were to die prematurely (38 percent), and paying for a child’s education (36 percent).

“Having come of age through the recession and facing uncertainty about the future of employer and government protections, Millennials are having to take financial responsibility to ensure their future plans are secure,” explains Martin Feldman, president and CEO of Life Happens. “While younger Americans recognize its importance, they lack a basic understanding of life insurance, and this may be hindering them from getting the coverage they need.”

Millennials’ Misconceptions

That lack of understanding is perhaps most starkly expressed by Millennials’ gross overestimation of the costs of life insurance. When the LIMRA/Life Happens study asked the price for a $250,000 level-term insurance policy for a healthy 30-year-old, the median estimate given by individuals under 25 was nearly 10 times its actual cost. Nearly 20 percent over-estimated the cost by 30 times.

Corporate Insight’s report likewise emphasizes insurers’ need to combat Millennials misconceptions about the cost of their products and suggests they provide education, advertising and more prominent and effective quote-generation tools.

L&A companies should apply similar tactics to address what it calls “self-defeating behavior” on the part of Millennials with regard to retirement planning, according to Corporate Insight. Gen Y consumers understand that Social Security won’t provide much help when they retire, but current financial conditions discourage them from saving, according to Corporate Insight. The research and consulting firm recommends that retirement plan providers engage Millennials through education, online planning tools and mobile platforms.

Digital Generation: Not only do a higher percentage of Millennials own smartphones than any other generation, 3 but 18% are mobile‐only Internet users versus just 5% of Generation X and 3% of Baby Boomers. Sources: Corporate Insight, comScore.

While Millennials can be tough customers, their attitudes and behavior are advantageous to L&A carriers in two ways, according to Tom Scales, research director, Celent. The fact that they seriously overestimate the cost of life insurance constitutes a barrier, but it also creates an opportunity. A customer who badly overestimates the cost of a product is primed for an offer of a quality product at a much lower price than expected – and digital sales technology provides an apt vehicle for communicating that proposition to Millennials.

“This is the perfect opportunity to leverage everything from social media to mobile technology to gamificaton,” Scales comments. “For the average Millennial, the cost of life insurance is quite modest; if offered at the right price through a simple sales method, they will buy.”

“The challenge is that most carriers are not positioned for a mobile self-service app, let alone gamification,” Scales adds. “This could lead toward more life insurance being sold through the exchange marketplace.”

Millennials’ own priorities could still blunt insurers efforts for some time, suggests Todd Eyler, research director, Aite Group. “I think it’s going to be a few more years before they’ll be truly interested in actively learning about and buying life insurance and most annuity products,” he says.

Keep It Simple

Aite Group research shows that, from a financial product perspective, Millennials are focused on low-cost accumulation vehicles now, according to Eyler. However, as more Millennials start families, life insurance will become attractive to them, provided that it’s sold in a way that’s easy, intelligible and done within the context of their broader financial needs. They will mostly reject expensive annuity and non-term life products, according to Eyler.

“A key enabler in the life insurance market will be radically simplifying the underwriting process to reduce turnaround times and make it an easy, single-day type of transaction,” Eyler asserts. “This will allow for sales of products through banks, discount brokers, direct and RIAs – the growth channels for Gen X and Gen Y.”

“For wealth accumulation, the biggest opportunity is with simple, very flexible, very low-cost annuities,” Eyler adds.