Royal London

A stitch in time

Simoney Kyriakou

Content plus editor, FTAdviser

The old adage ‘a stitch in time saves nine’ seems not to apply to how young people think about insurance, but they need to know how important it is to get cover as early as possible in life.

Millennials, in general, are struggling with their finances. This is the generation that is having to pay back exorbitant student loans, facing a huge disconnect between wage growth and house price growth and finding it harder to cope with ever-higher rental payments each month.

So it is understandable that when they do have spare cash left from paying their bills each month, it either goes towards saving up for that all-important housing deposit, or providing some light relief in the form of season tickets or shopping.

Immortality

But what this generation also struggles with – as has every young person in generations past – is the thought of mortality and illness. Young people are in the prime of their lives, so the idea of getting a critical illness or becoming incapacitated is far from their minds.

Sadly, we read every week of young people cut down in their prime through unfortunate accidents or rising incidences of cancer among those in their 20s and 30s.

According to statistics from Cancer Research/Office for National Statistics, the greatest increase in cancer mortality rates since the early 1970s has been in people aged 0 to 24.

Millennials have a greater need to look at protecting their incomes and obtaining life and critical illness cover when they can afford it --- Mark Dennison

Even if one survives an accident or illness at a young age, what happens if you become unable to work, and forced to rely on an ever-tight state benefit? The state may have provided for the pre-war generation but not for millennials.

Consider the facts: from 6 April 2017 some applicants for Employment and Support Allowance (ESA), who are assessed as unfit for work but capable of work-related activity, now receive a lower level of State benefit.

This means the value could fall from £5,312 to £3,801 per year – who can afford to live on less than £4,000 a year?

Moreover, statistics from the Department for Work and Pensions suggest approximately 250,000 new, previously-employed people are trying to claim each year.

Currently, there are approximately 2.4m people already claiming State Disability Benefits with an estimated cost to the UK of £36bn. The state will not look after people as it has in the past. So insurance has a key role to play.

Workplace insurance

Sophie Robson, consultant at MRM, comments: “The hangover from the financial crisis works both ways and many millennials find themselves in precarious jobs, with no pay rise in sight.

“This undoubtedly has an impact on their pockets and makes them less likely to be able to readily engage with insurance products, since they can seem unaffordable and unnecessary at this stage in their lives.”

While many employers – approximately one-third of all employers in the UK – offer some form of life insurance, group income protection or private medical insurance to staff, not all of the employees know about or understand the value of this benefit.

For Ms Robson, this means there needs to be more engagement and communication of the value of workplace insurance benefits to staff.

She adds: “Communicating these benefits to younger people would go a long way to providing greater certainty at an unpredictable time globally.”

Individual insurance

For those whose workplaces do not offer insurance, paying for it yourself may not seem attractive, but the fact is, the younger and healthier you are, generally the lower your monthly premiums, whether this is for critical illness cover (CIC) or income protection (IP).

For example, Cirencester Friendly’s basic My Earnings Insurance, for a 30-year-old office worker, earning an average £25,000 and wanting level cover with a four-week deferral period, without severe injury cover, would cost that individual £9.94 a month.

Mark Dennison, principal of LightBlue UK, says: “With less state assistance available, millennials have a greater need to look at protecting their incomes and obtaining life and critical illness cover when they can afford it, preferably while they are still young.

“Innovative policies are now available to tailor the cost of things like income protection to a tighter budget, so getting advice is always best, in order to make sure as much protection as is needed can be obtained for the budget available.”

Trust has always been important to our industry, and never more so than with this generation --- Peter Hamilton

Tom Conner, director at Drewberry, agrees. He says: “Many of the ‘old rules’ haven’t changed. It still makes more sense to take out cover while you’re young enough to afford the premiums (life cover starts to get expensive once you get into your 40s and beyond).”

And according to Mr Conner, the choice available to millennials and the quality of those products has never been better.

He explains: “The good news for millennials is that the UK insurance sector has never looked more robust, payout rates are sky-high and product innovation abounds. The quality and depth of product available is probably better today than it’s ever been.

“Much of this is thanks to the advent of the digital age and it’s millennials that are best placed to take advantage of this.”

Advice

However, the insurance industry and financial advisers should do more to talk to clients – and their client’s children – about insurance, because the risk of tech-savvy millennials taking to the internet without advice is high.

Mr Conner adds: “There’s no comparison between what an unwary millennial might find online (this includes the latest incarnation of PPI – despite the damage it’s already done to the credibility and our financial services industry) and what a tailored policy, arranged by a qualified adviser can deliver.”

Peter Hamilton, insurance expert for Zurich, believes that not only is advice critical, but also that engagement across the industry needs to improve in order to help more young people get the cover they need.

He states: “At the risk of stating the obvious, engagement and fulfilment need to have a strong social and mobile core. Research will frequently be done via blogs rather than papers or magazines. There are still plenty of financial websites out there that are not optimised for mobile traffic.

“Millennials generate vast amounts of data about themselves, which if used appropriately and with relevant permissions, could be harnessed to craft personalised products, processes and communications.”

Moreover, Mr Hamilton believes trust is a key factor, adding: “Trust has always been important to our industry, and never more so than with this generation.

“Tone and authenticity will be important and maybe we need to find a way to inject the kind of humour into our connections that will be responsible for much of the social sharing done by Millennials.”


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