As the average financial advisor who sells insurance edges closer to retirement and fewer young advisors enter the business, the insurance sector has become considerably less active in soliciting young clients. This trend has created a growing cohort of underserved, underinsured young Canadians who make up a sizable market of potential new business for advisors.
“It’s always been a premise that your ideal market is five years on either side of your own age,” says Rick Forchuk, special advisor, retail insurance distribution, with Kingston, Ont.-based Empire Life Insurance Co. “The number of younger people coming into the business has been dramatically reduced and, as a result, you don’t have those people seeking those younger markets.”
This disregard for 20- and 30-somethings poses a problem for the sector, which faces the prospect of a declining client base as its existing policyholders age. But the situation also presents a sizable opportunity for advisors.
“The younger customers are a big demographic,” says Doug McPhie, partner and Canadian insurance leader at Ernst & Young LLP in Toronto. “The products that life insurance companies offer apply to people through all of the major life events, which start very early.”
Many clients in their 20s and 30s need a considerable amount of financial protection. Life events such as marriage, having children and buying a house can trigger the need for life insurance. And living-benefits products such as critical-illness insurance and disability insurance are relevant for many young people. In addition, given the considerably lower cost of insurance for clients who are younger, some clients simply like the idea of signing up for permanent life insurance coverage sooner rather than later.
Some advisors shy away from younger clients, assuming that there’s less wealth in this market and, therefore, less money to be made. But that isn’t always the case.
“Just because [the prospects] are young doesn’t mean they don’t have money,” says Brian Shumak, an independent financial advisor and owner of Brian Shumak Financial Services in Toronto, who works with many young clients. He says that in some cases, clients who are in their 20s have more disposable income than those in their 50s, depending on their circumstances. “They may not have millions of dollars,” Shumak says, “but I have 25-year-olds who own property outright.”
Young clients with more modest portfolios still can be lucrative prospects. By forming relationships with such people now, you could become their trusted advisor down the road as their assets grow and their insurance needs evolve.
“They want to buy from suppliers they trust,” McPhie says. “Building that client loyalty starts early, which is another reason for targeting the younger clients.”
Even advisors who are beginning to think about exiting the insurance business would be wise to target younger clients, Forchuk says. A stable of young clients would add value to your businesses from the perspective of potential successors.
The volume of prospects in this neglected demographic is large – and so is the opportunity for advisors.
“We have this whole cohort of Canadians who aren’t being properly protected,” Forchuk says. “We need to – somehow, as an industry – get our eye back on that market and do something about it.”
There can be challenges to serving younger clients. For example, it can take longer to educate these clients on the basics of life insurance, so the sales process may take longer than it does with older clients.
“In the younger markets, those people are less experienced at buying the product,” Forchuk says. “They have a tendency to have more questions – and more skepticism. As a result, the length of time spent to make that very simple term-insurance sale might be two to three times the amount of time spent doing a much larger piece of business with an older, more established individual.”
Furthermore, the returns on such sales often are limited. For many young clients, a basic 10- or 20-year term policy is suitable. With the premiums on such policies having declined in recent years, commissions have also dropped.
Nonetheless, Shumak says, he has built a successful book of business by targeting younger clients and taking a comprehensive approach to their financial planning needs. In addition to life insurance products, he finds living-benefits products very popular among this demographic.
“I do an awful lot of critical illness,” he says, “and an awful lot of disability insurance in that marketplace.”
To attract business in this market, it may be necessary to tweak your marketing strategy slightly. Specifically, having an Internet presence is critical. The vast majority of clients in their 20s and 30s conduct research online prior to purchasing a product or service. So, if you don’t have a website, clients in this age group are not likely to know where to find you.
“The younger crowd is now looking for more transparency and a more information-rich environment,” McPhie says, “because they want to do their own independent research.
“As an advisor, if you don’t have the right presence on the Internet or you’re not offering the right data or you aren’t making it friendly to use or really informative, [prospects] are going to move on to other companies.”
Social media can also be an effective way of generating leads in this market, according to Shumak. He is active on Twitter and LinkedIn, and he has also found that maintaining a blog and sending out e-newsletters is effective.
These channels resonate well with young clients, Shumak says, and he has found that the time invested in these activities has paid off in the form of new clients.
Says Shumak: “The return has been very well worth it.”
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