Life insurers have a problem with millennials.
After all, who wants to contemplate mortality, or even retirement, when they're just beginning their adult lives? Fewer than 20 percent of those between 18 and 34 years of age say they're very likely to buy life insurance, according to insurance research and consulting firm LIMRA.
Yet three major life insurers have recently started or purchased businesses designed specifically to reach that age group. MassMutual opened a Generation Y-friendly hangout space near Boston in October called the Society of Grownups that offers financial education through supper clubs and wine tastings. Northwestern Mutual bought millennial-focused financial planning company LearnVest for $250 million in March. And Pacific Life funded Swell Investing, which launched in March and helps tech-savvy investors buy stock in companies that support their favorite causes.
Why? Growth potential, for one. In 1985, life insurers represented about 40 percent of the financial services industry by market capitalization; that figure had fallen to 25 percent by last year, according to management consulting firm McKinsey & Co. McKinsey consultants encouraged life insurers to look for unconventional sources of growth and Generation Y was an attractive target: There are more millennials now than baby boomers.
Another reason for life insurers to experiment with new businesses is that traditional approaches to marketing financial products may not work well on a generation that came of age during the Great Recession. Nearly seven out of 10 millennials said that financial services firms have not regained their trust since the 2008 financial crisis, compared with 59 percent of people aged 35 to 54, and 54 percent of people aged 55 and older, according to the 2015 Makovsky Wall Street Reputation Study. The communications firm surveyed more than 1,000 adults in March. "Millennials are much more sensitive to negative news about the industry," said Scott Tangney, executive vice president of Makovsky. "And they are looking for better service through digital channels."
All of these experiments by life insurers are about establishing a relationship with millennials. They may not bear fruit right away, but the hope is that it will build trust and may lead to sales down the road, said Jamie Bisker, a senior analyst with financial research firm Aite Group,
Life insurance executives recognize both the opportunity and the challenges. "Millennials are a big focus of ours," said Michael Fanning, MassMutual's executive vice president of the U.S. Insurance Group. MassMutual worked with design firm IDEO for two years to develop the concept for Society of Grownups and plans to expand it beyond its Brookline, Massachusetts, location to other cities, he said.
Society of Grownups is small and sleek like a cool neighborhood boutique. It sells 20-minute check-ups with a certified financial planner for $20 and 90-minute sessions for $100 as well as financial education chats with six participants for $10 or $30 classes classes with a dozen students or less. But the company's most popular events are its $40 dinners at which small groups of people feast on artisanal food and wine and discuss the importance of credit scores or retirement savings. Its office has a library stocked with issues of the "slow living" bible, Kinfolk Magazine, and The Economist, The Atlantic and The New Yorker as well as books like "The Alchemist" by Paulo Coehlo and "Outliers: The Story of Success" by Malcolm Gladwell. The office's coffee bar sells pour-over Counter Culture coffee, tea and Spindrift sodas.
Since it opened in October, nearly 1,000 people have participated in Society of Grownups classes, chats, supper clubs and events.
No specific products are pushed at Society of Grownups and the classes are strictly educational. You might not realize that it is owned by a multibillion-dollar life insurer unless you looked at the fine print on Society of Grownup's slick brochures or the bottom of its well-designed website to see that it is "a MassMutual learning initiative." None of the group's 37 employees worked for MassMutual before joining the company.
Why focus on financial education? It's a smart move, Aite's Bisker said, because many millennials lack the assets to be big purchasers of life insurance policies and annuities or generate asset management fees. As their finances improve, so will the chances that they might purchase a life insurance product.
Society of Grownups is still learning what classes and events appeal most to millennials, said Nondini Naqui, 35, the company's president and chief executive. Planners frequently change the curriculum to draw more students. Naqui said that she wants the Society of Grownups to change financial planning the way stylish start-up Warby Parker has changed once staid eyewear business.
"That's what I like to think Society of Grownups is doing to the financial services industry. We're disrupting the financial planning industry and making it accessible and exciting," Naqui said. "We've done something different from the rest of the industry, and created a place where no financial products are sold, where each financial plan is holistic, and where much of the learning takes place over dinner and drinks in a class with 10 others."
Northwestern Mutual is happy to run LearnVest as a separate company after its recent acquisition.
The second-largest life insurer is quick to point out that it had already been attracting millennial clients without the online financial planning service. "More than half of our new clients are under age 34," said Emily Holbrook, Northwestern Mutual's director of millennial marketing. "Last year, Northwestern Mutual advisors delivered more than 100,000 financial plans to millennials."
Northwestern Mutual has more than 4.2 million clients served by about 16,000 financial advisors. Meanwhile, LearnVest has about 1.5 million people who use its free tools as well as 25,000 users whose employers pay for LearnVest financial planning services, and 10,000 premium customers who pay for access to certified financial planners.
The LearnVest deal will help Northwestern Mutual learn more about millennial behavior, said Chris Brown, co-founder of retirement market researcher Hearts & Wallets. "Better segmentation approaches can help firms and advisors understand key younger consumer segments," Brown said. His firm's focus group research, conducted in 2014, showed that young women found LearnVest more appealing than other online financial services as a way to help them save. "A lot of people will be tracking the LearnVest acquisition," he said.
Northwestern Mutual plans to integrate LearnVest's technology over the next two years, a Northwestern Mutual spokeswoman said, with the goal of making it easier for clients to get their financial plan details, see real-time updates, manage their spending, access information on mobile devices and simplify the sharing of information with their Northwestern Mutual advisors.
Millennials want their investments to earn more than financial returns, they want them to have a social impact. Twenty-nine percent of millennials in a recent Bank of America Merrill Lynch survey said they want their financial advisers to provide values-based investing, the third-most requested service after understanding their needs and communicating in a way that resonates with them.
Swell Investing, a subsidiary of Pacific Life Insurance Co., aims to fulfill that desire. "Swell is a research company founded on the belief that you can do well for yourself and do good for those in need," said Dave Fanger, the company's co-founder and managing director. Swell conducts research on the social causes and partners with online broker Motif Investing to execute the trades and manage the portfolios.
Since its March debut, Swell has created four values-based portfolios: "Improving Education," "Ending Poverty," "Upholding Human Rights" and "Fighting Cancer," which is the most popular portfolio now. The company said it plans to add more portfolios soon.
Swell's investment models buy stocks of companies whose foundations gave the most to that cause. Swell then gives 20 percent of the revenue in each portfolio to those same causes. The minimum investment is $250 plus a commission of $9.95 per trade to Motif.
"Swell appeals to a broader audience than our traditional life insurance client base and we look forward to helping people in their efforts to make money and make a difference at the same time," said Khanh Tran, president of Pacific Life.
Whether such efforts will pay off for insurers is still unclear. But there's no question that their future success depends heavily on their ability to attract millennials, who now number more than 75 million, to their financial products.
"[This] is about insurers telling millennials, 'We've got your back,' " said Aite's Bisker. "Nothing about their core message has changed. It's how the message is delivered."
This story has been updated with more details about how Northwestern Mutual plans to use LearnVest's technology.