Tag Archives: millennials

New Wellness Plans: for Employee Finances

Employee wellness programs no longer just mean healthy office potlucks, pedometers and stress balls. These days, more companies are rolling out wellness programs focusing on the financial health of their employees. The change in tack comes as American workers are struggling to keep their financial houses in order. Companies are acting because financially stressed workers can mean lower productivity and greater absenteeism, among other problems. But, to be effective, a financial wellness program must address the individual needs of workers and their different learning abilities. It also must actually boost workers’ financial management skills, and keep them engaged over the long term.

The Opportunity

In January, benefits consultant Aon Hewitt released a survey of 400 national employers representing nearly 10 million workers. Three-quarters of respondents said they are “somewhat to very likely” to implement a program this year targeting their workers’ financial health and educational needs. Previously, the survey found, companies were most concerned about whether workers were participating in 401k plans. Today, however, employers are expanding their focus  to help workers improve their overall financial health.

“A growing number of companies are offering tools and services to help employees make smarter financial decisions, which can help improve employee engagement and productivity as workers focus less on financial stressors,” Aon Hewitt noted. The survey also found that “employers understand that workers can’t adequately save for retirement if they don’t have their financial house in order.”

These findings come after other surveys have highlighted how financially stressed workers can zap a company’s bottom line: lower productivity, unscheduled absenteeism, turnover and rising health care costs from stress tied to basic money management. It isn’t known if employers are just  becoming aware of these facts — or if it’s the growing fallout that is spurring employers to seek financial wellness programs. Regardless, it’s clear employers want a solution.

The History

Why did financial wellbeing become such a hot workplace issue? The answer is simple. Unless you were raised in a home that practiced and taught sound financial management skills, it’s unlikely you possessed these skills by the time you entered the workforce. Think of your own primary educational experience. Was it void of education in personal financial management? Most would answer, “Yes.”

Consider “the Greatest Generation,” who fought in World War II and kept the home front intact. These men and women worked for companies that provided pensions ensuring a comfortable retirement. They lived in a time when a successful and peaceful life wasn’t dependent on acquiring more things. This generation lived through the Great Depression, resulting in a lasting emphasis on frugal living. For most, this experience was their financial education; but they were unprepared for teaching the next generation about managing financial complexities.

Baby Boomers raised by this generation entered the workforce when the economy was growing. Jobs were plentiful, and so were mortgages, auto loans and credit cards. For many, living with debt became the new norm; however, understanding how to manage that debt was largely dependent on the family environment in which a person grew up.

Generation X saw even greater access to debt. In fact, as if the allure of accumulating more than their parents wasn’t enough, the cultural message suggested that people should spend their way to happiness. Lacking financial management education, many Gen Xers found themselves leaning on employers to solve their personal financial challenges. They requested 401k loans and hardship withdrawals, payroll advances, etc. Most of America’s working class were living beyond their  means and using the equity in their homes to bankroll their lifestyles.

But then the stock market crashed in 2008, resulting in massive losses in retirement and other types of investment accounts. Millions of workers lost their jobs, and many more suffered losses in income. And, in the blink of an eye, the equity in their homes was gone. In fact, a big percentage of these workers suddenly found they owed more on their mortgages than their homes were worth. For most among the working class, the new reality meant living with more debt, less income and fewer assets.

Even now, the Millennials approach the workforce with similar cultural conditions as Gen Xers. But there are two added wrinkles. First, Millennials are entering a more competitive job market. Second, they do so with much higher expectations of what employers will do for them.

Economists agree that navigating our financial system is becoming more complex. In each of the last three years, the American Psychological Association has found personal finances to be the leading cause of stress in this country. And medical research continues to point to stress as a leading cause of disease. We aren’t suggesting that financial wellness programs are the only answer to these problems. But  the facts suggest such an approach is very important to dealing with them.

The Solution

Employers have made it clear they plan to help employees manage their finances. In fact, 70% of employees have indicated they prefer to get such assistance through their employer.

What does the right solution look like? For starters, companies must actively promote their financial wellness programs and ensure they’re readily available to all employees. There’s a misperception that wealthier workers have less need for such assistance. Unfortunately, very few people are immune to economic hurdles: The problem transcends income, job classification and educational background.

The right solution will offer a multidimensional learning format, given that people have different learning styles and preferences. The solution also needs to be communicated in a way that appeals to most people.

In addition, the right solution will seek to keep workers engaged over the long term. Establishing and increasing basic knowledge of personal financial management is mandatory. However, given the ebb and flow of life and its changing circumstances, workers will continue to encounter new financial conditions. As they do, having an objective financial voice available to them will ensure that past mistakes aren’t repeated.

How to gauge success?

Workers will no longer get distracted by their financial challenges, thereby increasing their productivity and decreasing unscheduled absences. Workers who get spending and debt under control are saving enough for retirement — rather than extending their employment years and expanding employers’ costs. Helping workers make better healthcare choices in terms of benefits selections as well as lifestyle decisions also will help with costs.

Overall, financial wellness programs will have a positive impact on workers’ quality of life — as well as companies’ bottom lines.

$1.2 Trillion Disruption in Personal Insurance

Most of us don't think much about insurance. That's by design, of course. Insurance is supposed to be a safety net that affords us the leisure of not thinking about it. Unless of course, we have to. That generally happens about once a year when we're reacquainted with our premium. Ouch. According to statisticians, most of us will also have to think about our insurance about once every seven to eight years when we'll encounter a loss of some sort. Another ouch.

My insurance is pretty confusing. I pay for coverage of my house – a fairly precise calculation based on its quality, size, age, materials, etc. I get a guarantee that, if I keep paying my premium, my home will be covered for its replacement costs. That's pretty reassuring. But then it gets a little weird. I get a “blanket” (insurance-speak is very comforting), which is really a formula that assumes that all the stuff I own is worth, um, somewhere around 50% to 70% of the value of my home. Huh? Maybe there's a bit of science to this, but surely there's a lot of guess…and, according to research, about 39% of the time the formula is just wrong. (As one insurance CEO recently confessed to me, most folks are probably 50% underinsured). The complications go on: If I own something really valuable, some bauble or collectible, well, that has to go on a list of things that are really valuable, and those things get their own coverage. Then, so my stuff continues to be well-protected, I have to re-estimate the value of those things from time to time, or employ an appraiser. What's more, if I buy something or donate something I own, or if any of my things goes down or up in value for whatever reason, my insurance doesn't change — because my provider doesn't know about these changes. And, if you've ever had a claim to file, the process starts with the assumption of fraud, with the burden of proof borne by the policyholder, because most people don't have an accurate accounting of their possessions and their value. Still another ouch.

So while I'm not supposed to be thinking about insurance, maybe I should be paying closer attention.  

Change is coming like a freight train, and its impact has the potential to shake one of the world's largest industries to its core. For a little perspective: The property and casualty insurance industry collected some $1.2 trillion (!) in premiums in 2012, (or about twice the annual GDP of Switzerland). 

At the core of the P/C insurance enterprise is (and I know I am simplifying here) the insurance-to-value ratio, which estimates whether there's enough capital reserved to insure the value of items insured —  if values go up, there'd better be enough money around in case of a loss. All good, right? Except that for as long as actuaries have been actuarying, the value side of that ratio has been a guess — especially for personal property (the stuff I own other than my home). So, if I forget to tell my insurer about something I bought, or if I no longer own that painting, watch, collectible, antique; or if the precious metal in my jewelry has increased…then what? Am I paying too much, or am I underinsured for the current value of the things I own? Of course, these massive companies make calculated allowances for the opacity…but these allowances also cost us policyholders indirectly in increased premiums, and the inefficiency costs the insurer in potential returns on capital. 

The coming changes can be summarized in terms of three trends. First is the expectation of the connected generations, now entering their most acquisitive years and set to inherit $30 trillion of personal wealth. Second is the connected availability of current data about the value of things. Third is the emergence of the personal digital locker for things.

Data, data! I want my data! — the expectation of the connected generations.

If they're anything, the connected generations are data-savvy and mobile. If you’ve shopped for just about anything with a Millennial recently, you’re familiar with their reliance on real-time data about products, local deals, on-line values and even local inventories. (I was with one of Google's brains, and he showed me how retailers are now sending Google local inventory data so now it can post availability and price of a searched-for item at a local store). Smartphone usage is nearly 90% for Gen Xers and Millennials, and data is mother's milk to the children of the connected generations who are being weaned on a diet rich with direct (disintermediated) access to comparisons, descriptions, opinions, crowd-sourced knowledge and even current values. The emerging generations rarely rely on the intermediation of experts (unless validated on a popular blog with a mass following) and are not likely to be satisfied with an indirect relationship with those affecting their financial health. Smartphones in hand, depending on data in the cloud, they will demand and receive visibility into the data shaping all their risk decisions.    

And here's where the insurance revolution will begin: A connected generation that is apt to disintermediate and has access to real-time info on just about any thing will demand that they insure only what they own (bye bye, blanket); that their insurance should track to real values, not formulaic guesses; and that they have the ability to reprice more frequently than once a year. 

The time is coming for variable-rate insurance that reflects changes in the values of items insured and is offered on a real-time basis for any item that the owner deems valuable. 

The price is wrong — the real-time valuation of everything.

Over the past few years, several data services have sprung up whose charters are similar: something like developing the world's largest collection of data about products — their descriptions, suggested retail price, current resale value, user manuals, photos and the like. No one has yet dominated, but it's early yet, and someone (or probably a few) will conquer the objective. Similarly, there are a few excellent companies that are collecting and indexing for speedy retrieval the information about every collectible that has been sold at auction for the past 15 years. I know something of these endeavors because our core product relies on the availability and accuracy of these data providers to collect the values (and other attributes) of the items people are putting into their Trovs (our moniker for the personal cloud for things). It is only a matter of time before we will be able to accurately assign a fair market value to most every thing — in real-time and without human intervention. This real-time value transparency will transform the way that insurance is priced, and how financial institutions view total wealth.

My stuff in the clouds — the automated collection and secure storage for the information about my things.

Within 12 to 24 months, connected consumers will embrace applications that will automatically (as much as possible) collect the information about all they own and store it in a secure, personal cloud-hosted locker. These “personal data lockers” will proliferate because of their convenience, because of real financial incentives from insurers and other service providers and because data-equipped consumers will have powerful new tools with which to drive bargains based on the data about everything they own. These new tools will pour fuel on the re-invention of insurance because all the information needed to provide new types of insurance products will be in the personal cloud-hosted data locker.

Progressively (pun noted, not intended) engineered insurance products that account for the connected generations' expectation of access to data, the abundance of data about products and collectibles and the active collection and accurate valuation of the things people own may turn the 300-year-old insurance industry on its head. Doubtless, the disruption will leave some carriers grappling for handholds and wondering how they could have insured against a different outcome.

This article first appeared in JetSet magazine.

The 'Sharing Economy': What It Means for Insurers (Part 1 of 3)

Insurers have always been at the forefront of responding to user needs. Direct marketing and online portals make it easier for consumers to understand and purchase insurance. Usage-based insurance (UBI) allows safe drivers, particularly those who drive less, to reduce their premiums. Even insurance company-sponsored coffee houses offer a unique way to gain financial service knowledge and one-on-one access to experts.

Today, a different type of opportunity exists that may help insurers not only meet changing consumer needs but gain first-mover advantage in the process. Called the “sharing economy,” this market involves renting privately or company-owned assets—generally cars or homes—primarily through an online, peer-to-peer network. While the car-sharing market in North America is exploding, few insurers have even begun to explore this market.

As people continue to seek new opportunities in this economy, and as Millennials begin to take control, it’s likely that this idea of “sharing” will not only thrive but expand. The question is: Can insurance companies make a reasonable profit from this market? If so, how will they adapt their models to meet the new consumer demands?

To begin answering these questions, we will take a look at three areas. In this article, the first part, we’ll define the sharing economy and examine some of the innovative models already in play. Then we’ll discuss the insurance challenges that sharing-economy companies are facing, and the insurance industry’s response. Finally, we’ll look at four steps insurers can take to begin evaluating the sharing economy as a viable business opportunity.

Access trumps ownership

The sharing economy offers a fast and efficient way for owners of assets and renters to connect through online services. Two main stars have emerged in the sharing economy: auto and home. Companies like RelayRides and Getaround can help a consumer rent a car for a few hours of errands or even enjoy an SUV for a weekend in the mountains. The other main sector, home rental, allows owners to rent out their homes or simply a room on a short-term basis through companies like Airbnb. As the sharing economy branches out, owners are renting out other assets such as parking spaces, tools and camping gear.

It’s all about monetizing unused capacity of an asset for owners. For renters, it’s about gaining quick and easy access to those assets without being bogged down by ownership. Access, in a sense, becomes a service that is paid for per time increment or by distance.

Much of this market is being driven by the Millennials who grew up with the ideas of sharing, renting and paying small transactional fees for access to things such as music and movies. This generation has been slow to move out of their parents’ houses, and many delay getting their driver’s license for a few years. They simply don’t value ownership the way previous generations have. That means sales are down for this generation, especially on large items such as cars.

As the sharing economy becomes more popular, large companies are jumping into the mix. For example, Avis paid $500 million for Zipcar to gain access to the peer-to-peer market. Daimler’s Car2Go charges 38 cents per minute including fuel, insurance and parking. And GM invested in RelayRides to allow peer-to-peer rentals of OnStar-enabled cars.

There’s a reason consumers and corporations are embracing this model. Forbes predicts that the global sharing economy will grow by 25 percent this year, reaching more than $3.5 billion. Frost & Sullivan estimates that the North American car-sharing economy alone will reach $3.3 billion by 2016, with 9 million members participating. And once self-driving cars come into play, decreasing the risk inherent in different driving behaviors, the car-sharing model could explode.

Next week, we'll explore the interactions between sharing-economy advocates and insurance companies.