They're young, they're rich and they need insurance


Young, rich and glamorous: Generation Y has grown up. The little brothers and sisters of Generation X and the children of the baby boomers, these 15 to 28-year-olds are set to become the high net worth (HNW) clients of the future, according to a report from Deloitte.

In the USA, Generation Y is projected to be the wealthiest ever, boasting an annual income of up to $200bn (£141bn) and an expected inheritance of $17.8 trillion. But the bright young things are often ill-educated about financial services and see insurance as a grudge purchase with price the only deciding factor.

Insurers need to develop new HNW products and market them in a different way if they are to attract the attention of the Gossip Girl kids. Wealthy they might be, but they are less prepared to spend on service and more likely to shop around than traditional HNW consumers. They are also particularly likely to buy online.

Insurers such as Chubb are already targeting Generation Y with specific products, aiming to direct them into their traditional HNW policies in later life. The consensus is that, despite the credit crunch, this market segment has massive growth potential.

Who is Generation Y?

Generation Y is a culturally diverse set of teenagers and twentysomethings whose attitudes have been defined by new social trends such as single-parent households, diversity in the workplace, new technology and connectivity, consumerism, corporate scandals and the Iraq war.

They will search for information on financial services, but will often seek recommendations from family, friends and financial advisers. Given their stage in life, they are naturally price sensitive.

They may be less concerned about an insurer’s reputation and more driven by the need to purchase products quickly and conveniently, for example, online. One survey quoted by Deloitte found that they were the least loyal generation: only 49% of those surveyed were “reluctant to switch business from their existing insurers”, compared with 67% of Generation Xers, 71% of young baby boomers and 75% of older baby boomers.

Novices at financial services

These well-heeled and tech-savvy consumers are novices about financial services, however, said Deloitte. According to one study, 57% could not say they were “making good decisions about their finances”. One big problem, they said, was that products were too complex and specialised.

This is backed by findings from the Chartered Insurance Institute, which claims the UK financial services industry is letting down young people. In a report published last October, it highlighted how one third of 18 to 34-year-olds think financial advisers are out of touch with younger generations.

How Britain’s high net worth insurers have targeted Generation Y

A typical Generation Yer is a frequent traveller, loaded up with a laptop, an expensive mobile phone and an iPod with thousands of downloaded songs and videos. As such, their insurance needs are high and complex, making them the ideal target for high net worth (HNW) specialists. But unlike their older counterparts, they may be reluctant to spend time and money on choosing the right policy – making insurers work harder.

“Young people today have quite different needs to those of 25 years ago,” says Charles Dupplin, head of private clients at Hiscox. “They have expensive assets with them the whole time; things for which they need insurance.” But he says insurers fail to realise these young people lead busy lives and can’t be bothered to spend time with a broker picking a policy.

Although they have a lot of portable wealth, they are less likely to have grand homes stuffed with expensive assets. This means, says Barry Neil, chief executive of HNW specialist insurer Home & Legacy, they need a different style of underwriting. “It’s a different mix of assets that requires specialist knowledge,” he says.

Generation Yers are more likely to buy online; Hiscox attributes much of the recent growth in its direct household book to this trend. But it has not launched a HNW product specifically for younger people. Dupplin believes that while their purchasing habits may vary, they are essentially looking for the same back-end levels of service, claims handling and so on. “I don’t believe a 28-year-old has particularly different needs to a 48-year-old, though they may go about things in a different way,” he says. “And remember, today’s 28-year-olds are tomorrow’s 48-year-olds. Just like the private client banks, we need to get people early.”

In contrast, Chubb launched Masterpiece Initial, a diluted version of its high net worth policy, two years ago. Aimed at younger clients, it features the same claims service as Masterpiece, but omits bells and whistles such as cover against kidnap. A limited valuation of appraisal and other watered-down features enable Chubb to offer a lower premium without compromising service.

“The level of premium has been strong and the policy has been profitable,” says Simon Mobey, UK and Ireland personal lines manager at Chubb. He won’t say how much premium has been placed, but says 25% of quotes have been converted into policies.

He adds that Masterpiece Initial is a deliberate attempt to create a new business channel for Chubb’s high net worth policies and, eventually, its ultra high net worth policies.

Masterpiece Initial is distributed through brokers, like all Chubb’s products, but the insurer is looking at new ways of helping brokers talk to these hard-to-reach customers.

This is a challenge for all insurers and one that Zurich, for example, has met through cross-selling. A 25-year-old taking out a motor policy for a high value car is an unusual occurrence – and a great opportunity to inform them of the high net worth household products available. “We’ve seen some real success through cross-selling,” says Nick Brabham, Zurich’s head of private clients.

Likewise, specialist brokers are looking for new ways of getting close to young customers. For Steve Smith, managing director of Smith Greenfield, this means working closely with banks, car retailers and financial advisers.

He is also considering advertising in new media, such as Facebook. “For a broker trying to sell HNW policies to young people, there are a lot of challenges – but the rewards are potentially massive,” he says.