Risk Scoring Millennials: 4 Crucial Data Points for Insurers

Tough economic times, the risk classification problem among millennials, and their reluctance to buy life insurance make it hard for insurers to attract customers and remain profitable. The generation of consumers places less focus on ownership and more emphasis on access, and they're more inward-looking than any other previous generation(1). 

Leveraging Data for Accurate Risk Scoring of Millennials

Conventional issues that nudged previous generations to take up life insurance may no longer apply to millennials, and it's a good thing that technology, particularly AI, is bridging the gap with digital health insights that could be critical for risk scoring and pricing.

Less Ownership, More Access

Millennials are less likely to look for permanency, unlike previous generations. A recent study by Citrix systems showed that many in this generation were no longer interested in a full-time office job(2). 

Given that they could be earning less than their peers did in previous years, their interest in owning homes and cars is dwindling, as most prefer to rent instead. The here-and-now lifestyle is one of the main aspects of nudging them away from taking up life insurance policies. 

To cater to this segment, insurers need to be far more creative in responding to their needs. For example, a 2015 article by CNBC affirmed that up to 70 percent of millennials couldn't trust financial services firms after the 2008 crisis(3). 

Regaining this trust means insurers have to look beyond sending a salesperson to knock on doors. AI marketing tools could help companies build better interactions with these consumers, with more targeted communications and enhanced online exchanges.

Exploiting Digital Health Data

Millennials are more individualistic than any other generation before them, and bundling them into a homogenous group to provide a one-size-fits-all policy is no longer tenable. 

Smart insurers who know this package their products based on individuality, and the data aiding them is already available on social media and other digital platforms. Millennials are already doing many things using mobile apps, from running their bank accounts to tracking their fitness routines. Access is proving to be more important than ownership, fortifying the need to make information and services readily available with a click.

For life insurance pricing, underwriters may set their rates using data from medical records, credit history, driving history, and criminal records. The traditional approach was to bundle a group into a homogenous unit and write a comprehensive policy catering to their needs. While this would have been excused in the days when it took longer to fetch and verify the data from the responsible parties, it should give way to customized coverage, thanks to digital records.

Several technological developments underpin the wider shift in habits and preferences between millennials and previous generations, and insurers should capitalize on this to offer made-to-fit options for consumers. Riders can be added at a small, extra fee to increase customization in already-existing products.

Scoring Bias and What It Means to Millennials

Millennials grew up in a society that had begun to encourage diversity, and no other generation has embraced it as they have. Many workplaces are turning to millennials for insights on promoting diversity and inclusion across the organization. While no insurer will ever use race, gender, or religion as a pricing factor, the highly predictive nature of risk scoring may introduce accidental bias.

Credit scores, for example, have a strong relationship with race, unwittingly serve as its proxy, and end up increasing premiums for the protected class. 

Insurers can solve this problem by adopting big data analytics and relying on advanced machine learning technologies to crunch the numbers. It's tempting to think that this might worsen the problem, as some quarters have already argued, but that would be jumping to an unfair conclusion. Human bias accounts for many of the biases introduced in data. But when AI is provided with neutralizing data, such as uniform loss ratios, it self-calibrates to compensate for these biases, leading to fairer pricing. 

A good example of human bias happens during first encounters. There is a natural affinity to categorize people according to our previous experiences, and millennials have been victims, bearing the blame for many high-risk habits.

The Risk Classification Problem

Millennials graduated into one of the toughest economic eras, coming of age when the world struggled with endless crises, from the 2007 Financial Crash to the Covid-19 pandemic in 2020. According to Bloomberg, 40-year-old millennials are faring worse financially, unlike previous generations(4). 

Facing high unemployment rates and saddled with student debt, many millennials are finding it hard to make financial commitments that will secure their financial future, like paying for life insurance or raising a mortgage down payment. Some experts believe that this generation faces the worst risks from unexpected life calamities because of inadequate life insurance coverage. 

A survey conducted by IBM in 2020 showed that more people in the age bracket went for smaller policies, meaning they would likely end up with smaller payouts(5). Insurers need to emphasize to this generation that it's far much cheaper to buy term-life policies when they're younger. AI technologies have made it easier to provide accelerated underwriting(AU).

Underwriting a life policy typically takes five to six weeks, but this process can be shortened when you have more certainty of future claims. Millennials are more likely to be healthy than their older counterparts,  making it easier and more efficient to qualify them for AU policies.

Next Steps for Insurers

Millennials are vastly tech-savvy and likely exposed to numerous data sources, making it easy for them to switch careers or find income-generating opportunities. Many of them rely on the internet as the principal source of information, and they've mastered it so well that comparing dozens of quotes from companies can be done with a click. They demand greater transparency from companies, and any insurer keeping information under the radar will struggle to build loyalty from this customer base. Millennials have already overtaken Generation X-ers and baby boomers as the largest adult population segment, making them a hot prospect for life insurers(6). 

Pilotbird brings unique technology solutions to the underwriting business, creating satisfied customers, improving efficiency, enhancing transparency, and increasing profitability. Contact Pilotbird for a free demo and gain new insights about your policyholders for better health and life insurance pricing.

Sources

1).  "Millennials: The Me Me Me Generation - Time Magazine." 20 May. 2013, https://time.com/247/millennials-the-me-me-me-generation/. Accessed 6 Jan. 2022.
2). "Work 2035: The Born Digital Effect - Citrix." https://www.citrix.com/content/dam/citrix/en_us/documents/analyst-report/work-2035-the-born-digital-effect.pdf. Accessed 6 Jan. 2022.
3).  "Life insurers experiment to attract millennials - CNBC." 16 Jul. 2015, https://www.cnbc.com/2015/07/15/life-insurers-experiment-to-attract-millennials.html. Accessed 6 Jan. 2022.
4).  "Millennials Are Running Out of Time to Build Wealth - Bloomberg.com." https://www.bloomberg.com/features/2021-millennials-are-running-out-of-time/. Accessed 6 Jan. 2022.
5).  "Why aren't Millennials buying life insurance? - Industrious - IBM." 2 Mar. 2020, https://www.ibm.com/blogs/industries/millennial-life-insurance-ibm-ix-survey/. Accessed 6 Jan. 2022.
6).  "• U.S. population by generation 2019 | Statista." 10 Sep. 2021, https://www.statista.com/statistics/797321/us-population-by-generation/. Accessed 6 Jan. 2022.