The Actuary Magazine

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One thing we have learned since the arrival of InsurTech is consumers are shaping the future of insurance. The consumers of the future are psychologically needy, and they want insurers to respond to their individual needs with products that are easy to understand and acquire, cost-efficient, well-managed and provide protection for their long-term needs through retirement.

Millennials, the first generation born digital, are the most studied generation to date. We know what they want, how they want it and at what price. We also know this generation is burdened with more than $1 trillion of debt.1 In fact, this group is saddled with more student loan debt than any previous generation,2 and this debt load is delaying their acquisition of the proverbial American dream. The 80–95ers, as they are referred to by some, currently aged between 24 and 39, have more than $300 billion in outstanding student loan debt. Mortgage debt is their second largest debt component—but it is only a fraction of the mortgage debt load of previous generations.

The reluctance of millennials to finance the American dream of their ancestral generations is largely credited to the fact that they lived through the financial crisis as children. Seeing their parents struggle through the financial crisis and witnessing many people lose their homes mutated a fundamental change in the psychological DNA of millennials. They are more fiscally conservative and more socially responsible, gravitating toward brands that align with their values. They have a lower average net worth than Generation X due to a lower rate of homeownership, but they have higher average retirement savings and more education.

This evidence may not suggest a need for financial literacy, were it not for their accumulating levels of credit card debt. A 2019 study conducted by Experian3 revealed millennials carry less credit card debt than the national average, but it is rising. The average debt for millennials rose 7 percent over last year’s levels, the second largest increase over other generations. Generation Z crossed the finish line first with a credit card debt increase of 11 percent over last year. A major factor influencing credit card use among young people is points rewards programs. The top contenders of this generation of “point chasers” are purchases of groceries, dining out, hotel stays and airline tickets, with men more likely than women to use credit cards just for the rewards.4

The need for financial literacy for millennial and younger generations could not be greater, and it presents a golden opportunity for insurers to develop financial IQs and establish long-term bonds with maturing consumers. The future of long-term care insurance, for example, is especially dependent on new premiums for its viability. Insurers can be instrumental in developing literacy programs for such long-term plans of care, improving competencies regarding the complexities of these products in step with consumer maturation levels. The rock ‘n’ roll band Gooding5 is using their music to help high school students become more financially literate.

They were the guest entertainment at the 2019 Global Insurance Symposium sponsored by the Iowa Department of Insurance. Commissioner Doug Ommen endorses using rock bands to get kids excited about financial literacy, saying “the fit is very natural.”6 He points out: “A lot of times as we look at our industry, the companies are grappling with how to reach consumers. We thought it would be appropriate to bring financial literacy together with the innovation that is highlighted in the Global Insurance Symposium.” Insurance companies can follow this lead with outreach to future consumers of insurance products by aiding in the development of their financial literacy, creating early bonds that will last into adulthood.

The digitization of insurance is an important mechanism to reach future consumers of insurance, satisfying one of three basic psychological needs for optimal functioning and growth: connectedness. It is unlikely the psychologists Dr. Edward Deci and Dr. Richard Ryan were thinking of digital technologies when they introduced their Self-Determination Theory in 1985, prescribing the human need for autonomy, competence and connectedness to sustain a sense of well-being and to flourish. Younger generations are dictating how they want to be connected to their environment and others, and digital technologies are native to their ecology. We as a species are evolving, but our reptilian brain, the oldest of our three cerebral structures, remains relevant. It controls our autonomic responses, making quick decisions using immediate stimuli. The more simplistic the input, the more rapid and efficient the decision-making. This translates directly to the design of insurance products: keep it super simple (KISS).

Welcome to “the future of insurance products” issue of The Actuary. The content is intended to help you examine how future trends in psychology-based consumer demands will influence the design, pricing, valuation and digitization of insurance.

Media psychology is essential to appeasing and understanding the insurance needs of future consumers whose native language is digital and a medium for human connectedness technology. Enjoy the issue.

Dorothy L. Andrews, ASA, MAAA, CSPA, is the chief behavioral data scientist for the Actuarial & Analytics Consortium, working on a Ph.D. in media psychology, and a contributing editor of The Actuary.

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