Rates in Era of New Relationship Norms

As relationships have adapted to suit modern lifestyles, insurance companies are adapting to better understand and quantify risk.

About 50% of U.S. adults are married today. While this number has stayed fairly steady over the past five years, it represents the bottom edge of a downward trend that has continued for decades, according to Kim Parker and Renee Stepler at the Pew Research Center. Marriage rates have dropped 9% from 1998, and 22% from 1960. So, what’s causing the change in marriage rates? Financial security is a top consideration for many young adults, says Benjamin Gurrentz, a survey statistician at the U.S. Census Bureau. Higher marriage rates are correlated with full-time employment, median annual wages and home ownership. The financial security associated with marital status has long played a role in determining property and casualty insurance rates. For decades, insurance companies have relied on studies and data indicating that married adults file fewer claims and present a lower risk than unmarried adults. As U.S. adults delay or skip marriage, here’s how the landscape changes for P&C insurers. The Changing Landscape of U.S. Marriage Many adults are simply postponing marriage rather than skipping it altogether. The U.S. Census Bureau found that the median age for a first marriage rose about seven years between 1960 and 2016. In the 1960s, women generally got married around age 20 and men around age 23; today, those ages are closer to 27 for women and 30 for men. This doesn’t mean that younger adults in the U.S. are all living the single life. The number of adults who were cohabiting increased 29% from 2007 to 2016, according to Christina Cauterucci at Slate. About half of these adults were younger than 35, and nearly half this group doesn’t see marriage as a priority, either for themselves as individuals or for society as a whole. “The share of never-married adults under age 65 has risen dramatically — from 26% in 1990 to 36% in 2016 — which has directly contributed to the declining share of currently married younger adults,” says Wendy Wang, director of research at the Institute for Family Studies. Yet when younger adults get married, they tend to stay that way: The U.S. divorce rate dropped 18% between 2008 and 2016, with more younger couples staying married than in previous generations, says Philip Cohen, a professor at the University of Maryland. When adults in the U.S. do marry, financial stability ranks among the top six reasons, according to Abigail Geiger and Gretchen Livingston at the Pew Research Center. Making a lifelong commitment and creating a stable relationship in which to raise children also made the top six list, indicating that the declining marriage rate may be related to a rising sense of instability. See also: Even in Big Data Era, Relationships Count   The overall result is that fewer auto and home insurance customers are married overall, and the trend is particularly striking among younger customers, who also don’t see financial benefits like lower insurance rates as a compelling reason to marry. Marriage and Consumer Insurance Marriage brings certain benefits for property and casualty insurance consumers, Penny Gusner explains at Insure.com. For instance, auto insurance rates may decrease by 5% to 15% for married couples. Newlyweds who combine households may also qualify for multi-vehicle or multi-policy discounts. The insurance industry factors in marital status when setting P&C insurance rates because the statistics tell them to. “Individuals who are married tend to expose insurers less to overall claim costs,” explains Robert Hartwig, who works at the Center for Risk and Uncertainty Management at the University of South Carolina. The use of credit scores as a factor in determining property and casualty insurance rates can also change the calculation, says Karn Saroya at Cover. While spouses don’t share one another’s pre-marriage credit history, joint accounts do appear on both credit reports. Rates may be calculated differently on any purchase the spouses make together, such as a multi-car policy or an auto and homeowner insurance package deal, says Lance Cothern at Credit Karma. A married couple seeking homeowners insurance, for instance, can see their rates increase or decrease based on their jointly considered credit scores, Les Masterson writes at Insurance.com. Even unmarried couples living under the same roof must choose one of the pair to apply for homeowners insurance. Often, this will be the partner with the better credit, leading to lower rates from the insurance company. The problem? These rates may not accurately reflect the risk involved of insuring the couple as a family living under the same roof. “Sure, married people tend to get (financial) breaks, with their taxes and elsewhere,” says William F. Harris, an independent insurance agent based in Los Angeles. “It just happens to be the same when it comes to a homeowners policy.” Growing Families and Insurance U.S. demographic statistics indicate that while couples may be choosing not to marry, many are still choosing to have children. As these children mature, their presence can affect auto insurance rates, as well. For instance, Raltin’s Ishan Mukhopadhyay says that families with young drivers tend to pay more for auto insurance than other households. While this makes sense from a risk perspective, it also indicates a new calculation for both households and insurers: the teen driver whose parents, unmarried, have separate auto insurance policies and separately calculated risk. Younger adults are citing financial stress as a reason not to marry, but when they do marry they tend to be more financially secure, to share a commitment to the relationship and to stay married for longer than previous generations. As a result, P&C insurers must reconsider the value of marriage as a method of calculating risk — particularly in an era that offers unprecedented access to personalized data analysis for individual customers. How P&C Insurers Can Respond to Decreasing Marriage Rates As data becomes easier than ever to collect and analyze, some insurance companies are recalculating the value of lowering premiums for married customers. Several studies in the late 1990s and early 2000s did demonstrate a lower risk among married drivers. For example, a 2004 study in injury prevention became the basis for a number of insurance industry decisions to factor marriage into insurance premium rates. However, many of these studies have since been questioned for their relatively small sample sizes, and all of them are out of date. In the digital era, insurers have access to the quantity and quality of data they need to make more accurate, personalized decisions about the specific customer populations they serve. See also: Making Life Insurance Personal   Personalizing the Calculation of Risk A renewed focus on driving behaviors in the age of telematics has made calculations more accurate. Specifically, insurance companies can hone their focus on auto premiums that accurately reflect real-world driving risks, says Ed Leefeldt at CBS News. Calculations based on mileage, road congestion and driving behaviors like hard braking can help insurers focus on the risks individual drivers pose. This can be a more effective way to understand each customer’s risk, beyond looking at marital status. Staying in Touch: Examining Life Changes as a Way to Calculate Risk Some insurance companies are also considering life changes when they calculate risk. “Effectively capturing changes that may warrant up-charges or require the application or removal of a discount is best achieved at renewal,” says Jennifer Graham at Verisk. Checking in at renewal can help insurers keep better track of the changing patterns of customers’ families and living situations, even when these aren’t marked by official events like marriage. Recalculating for individual customers can also take into account changing patterns in household income related to evolving marriage patterns. For instance, median household income for homes with two adults is $86,000. For singles, it’s just $61,000, says Meera Jagannathan at Moneyish. She says that 42% of adults consider themselves not only unmarried but “unpartnered,” as well. As relationships have adapted to suit modern lifestyles, insurance companies are also adapting to better understand and quantify risk in the context of these relationships.

Tom Hammond

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Tom Hammond

Tom Hammond is the chief strategy officer at Confie. He was previously the president of U.S. operations at Bolt Solutions. 


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