Why you should care

Struggling to market themselves to a leery Gen Y, life insurers are resorting to guilt trips and dubious alternatives to what should be a valuable financial security product.

Faced with slumping sales, life insurers throughout the developed world are targeting young adults for a massive infusion of little-risk income. Trouble is, their would-be customers distrust their objectives; see their products and sales methods as antiquated; and aren’t thinking about death, given their record life expectancies.

The seller-buyer disconnect is just short of comedic: Firms 100 years or older deploying legions of middle-aged agents to sell policies to online-shopping Gen Yers who may very well live to 100. It doesn’t help that insurers keep pitching lifelong, investment-linked products that millennials (born in the 1980s and 1990s) don’t much want, and coverage for single people they don’t much need — in many cases employing dubious marketing practices.

Instead of pursuing innovation, analysts say, the industry is instilling guilt and fear to promote sales of its stale product line.

“The life-insurance industry has been geared to an Old World proposition for too long,” says Jamie MacGregor, senior vice president for insurance practice at U.K.-based Celent, a global financial-services research and advisory firm. “It’s the case throughout North America, Western Europe and Japan.”

Insurers know they’re out of touch with young consumers, and they desperately need them to replace deceased policyholders, yet they remain shackled to traditional products and sales tactics, says Maria Ferrante-Schepis, managing principal of insurance and financial-services innovation for Elmhurst, Ill.-based consulting firm Maddock Douglas. “The industry feels a sense of impending crisis, and they’re wondering, ‘Are we becoming irrelevant?’”

The financial collapse took a heavy toll on life insurers, in the investment portfolios they amass through premiums, the cancellation of existing policies and the writing of new ones. By 2010, the percentage of U.S. households with any life-insurance coverage fell to a 50-year low. Now, as the economy heats up again, life insurers are struggling to attract the next generation of customers, who view them suspiciously as part of the financial-services industry whose transgressions triggered the calamitous recession.

Insurers need to create flexible, short-term, low-cost products, MacGregor says, such as policies with “on-and-off switches” that can be suspended rather than canceled by a policyholder between jobs who can’t make premium payments. Instead of pursuing innovation, analysts say, the industry is instilling guilt and fear to promote sales of its stale product line.

The industry is now playing a guilt card hoping that Gen Yers buy policies to repay their parents for all they’ve done for them.

Two life events typically trigger life-insurance purchases: marriage and having children. When two people marry, they may buy coverage for the higher-earning spouse, or for each other following a home purchase to pay off a mortgage in the event one dies. The imperative grows greater with the arrival of children, to better secure the entire family’s financial future. But insurers’ revenue streams are taking a hit as Gen Y delays marriage, home-buying and childbearing longer than previous generations.

In a bid to land clients at a young age — like credit card companies going after college students — some insurers are advising agents to push policies to Gen Y singletons. The premise: In the event of death, the benefits can be used to pay off student loans co-signed by their parents, or to support their parents in retirement. Co-signers of deceased borrowers, however, are not liable to repay governent-funded loans, only private bank loans — and not necessarily in every instance. And while life insurance was designed primarily to offer financial security for dependent children, the industry is now playing a guilt card hoping that Gen Yers buy policies to repay their parents for all they’ve done for them.

Some firms are urging agents to exploit millennials’ other vulnerabilities, such as the insecurity born of coming of age in a crushing recession or the unfounded fear that Social Security will be bankrupt when it’s their time to collect. Moreover, agents are pushing conservative “whole life” and similar investment-linked policies — essentially life insurance inside a tightly governed, long-term-savings wrapper — with returns many financial advisers warn are less than what individuals would get investing on their own due to both performance and expenses.

Sophia Bera, a certified financial planner with Minneapolis-based Gen Y Planning, advises her fellow Gen Y clients to avoid investment-linked products and, instead, to buy fixed-term policies that carry a level annual premium. By shopping on sites such as as Lowloadinsurance.com and Quickquote.com, she says a 28-year-old, nonsmoking woman living in Minneapolis can get a $500,000 policy for 30 years at a preferred annual rate of $370. That same coverage for a 28-year-old man would be $475 a year.

“There’s definitely fear tactics used to coerce millennials to buy insurance that they don’t need,” Bera says. “For 99 percent of people, a basic-term life policy is going to be the best fit for them.”

The industry’s problem reaching Gen Y in all developed countries is its continued reliance on agents whom millennials don’t want visiting their homes and suspect will try to oversell them, MacGregor says. Insurers should be gravitating more aggressively to online sales, which he says account for just 10 percent of all life-insurance sales in the U.K. — the highest of any developed country.

Given that one in three U.K. babies born today is expected to live to 100 — and there may be limb and organ farms to replace their body parts if they do — the insurance industry may want to hurry up and create new products for Gen Y … and to begin conceiving of quality-of-life insurance for the centenarians of the 22nd century.

This OZY encore was originally published Jan. 23, 2014.

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