Portable protection for Generation Rent

Saloni Sardana

features writer for FTAdviser and Financial Adviser

For many millennials, holiday and mobile phone insurance is more important than income protection and critical illness cover. What are the protection needs of millennials?

Say the word protection, and millennials tend to think about their two most prized possessions: mobiles or holidays, if they think about any protection at all.

Taking out traditional protection products, such as income protection, critical illness cover and life insurance, is generally an alien concept to them.

Generation rent

But a number of experts say millennials, often dubbed “Generation Rent”, should purchase income protection, as many of them struggle to climb the property ladder.

Stephen Whitfield, senior consultant at Altus Consulting, comments: “You could argue that the protection needs of the millennial generation are greater than any other cohort. If you live in rented accommodation and suffer some form of serious illness how are you going to pay the rent?”

Rob Harvey, head of protection advice at Drewberry Insurance, says its 2018 Protection Survey finds even though millennials were willing to pay the most for income protection once they found out what it was, they were least likely to have it, citing lack of awareness.

Income protection guarantees regular monthly payments if you are unable to work, assuming medical evidence supports this.

Millennials will no doubt have their mobile devices insured before anything else and who can argue with that? — Roy McLoughlin, Cavendish Ware

In contrast, critical illness provides a lump sum amount if you fall critically ill.

“Landlords will generally have no sympathy in the event of an illness that means a tenant will struggle to find their rent,” says Roy McLoughlin, associate director of Cavendish Ware Wealth Management and Financial Planning.

Peter Hamilton, head of market management at insurer Zurich UK, highlights reduced welfare support exacerbates the situation for renters.

“Renters also need to bear in mind that with local authorities reducing welfare support for those unable to work, protection can mean people keeping a roof over their heads should the worst happen,” he confirms.

Vincent O’Connor, senior business development protection manager at Royal London, says: “Some millennials choose not to buy a house and instead prefer to rent because it better suits their lifestyle.”

Types of insurance

So millennials arguably need to get income protection to help foot their bills, of which rent usually represents a big chunk, should the worst happen.

But what other protection needs do millennials have?

Kathryn Knowles, managing director of Cura Financial Services, comments: “In some ways having a medical condition can prompt millennials to sort out their protection needs, as they realise just how fragile health can be.”

Mr McLoughlin observes: “Millennials will no doubt have their mobile devices insured before anything else and who can argue with that?”

“Travel insurance is probably the most common type of insurance taken out by younger millennials as it’s viewed as more relevant to their immediate needs,” notes Mr Hamilton.

James Brown, director of gadget insurance provider Protect Your Bubble, says millennials are more likely to claim on insurance for accidental damage than other age groups.

“Students in particular, are also much more likely to live in some sort of shared accommodation, meaning that they are less likely to rely on standard contents insurance,” he adds.

Gig economy

According to some in the industry, the UK’s insurance market fails to tailor to the gig economy, despite it increasing in size over recent years.

Data from the Office for National Statistics shows in 2017 4.8 million people were self-employed, representing 15.1 per cent of the UK’s workforce. This compares to 3.3 million, or 12 per cent of the workforce in 2001.

Janthana Kaenprakhamroys founder of Tapoly explains: “We expect [millennials’ use of protection] to grow exponentially in line with the growth of the gig economy. We therefore expect a greater need for comprehensive products that cover the risks in this market that traditional insurances do not.”

There is real need for flexibility and products that are portable and that can be flexed up or down to offer more or less cover. — Peter Hamilton, Zurich UK

Jeannie Boyle, director and chartered financial planner at EQ Investors says gig workers require more flexible solutions because one needs to work a minimum of 16 hours a week to get income protection.

Mr Whitfield agrees. “We are seeing a significant uplift in areas such as the gig economy and most traditional policies do not provide the flexibility that this expanding sector needs.”

He says most millennials want to insure products only when they use them.

New products are coming to the market, such as usage based insurance (UBI), which are better tailored to serve millennials, notes Mr Whitfield.

How to better serve millennials

Products need to be more “portable” in order to address the evolving and short-term needs of millennials, say experts.

Mr McLoughlin says: “The biggest success of auto-enrolment is its portability. That's what millennials arguably relate to more than anything else in a financial services product, and that should be applied to insurance products.”

“There is real need for flexibility and products that are portable and that can be flexed up or down to offer more or less cover,” adds Mr Hamilton.

Mihir Kapadia, chief executive of Sun Global Investments, says promoting life insurance based on ‘worst case scenarios’ does not reflect actual situations facing millennials.

“Highlighting the importance of more relevant insurance products will have a better effect on attracting the millennial customer, instead of trying to create a moral panic based on the fears of their parents’ generation,” notes Mr Kapadia.

Saloni Sardana is features writer for FTAdviser and Financial Adviser

Published 02/10/2018

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