Changing demographics and socio-economic realities in the U.S. mean personal-lines insurers must find ways to cater to growing segments, such as the seniors and hispanics, while also serving other groups whose habits have changed in the wake of the recession.
The pace of population growth in the U.S. is slowing, with the decade that ended in 2010 showing the slowest rate of population growth since the Great Depression, according to Conning's latest report, "Personal Lines Consumer Markets Annual." The growth rate is expected to slow even more for the current decade.
But the good news is that the U.S. fertility rate is still among the highest of economically advanced countries. While birthrates of the current U.S. population are declining, Conning says higher birthrates among immigrant populations are expected to make up the difference and push U.S. fertility rates beyond economic competitors.
The demographics, however, will differ going forward. Conning says the senior segment will be the most rapidly growing group as the Baby Boomer generation enters the "over-65 population."
Additionally, the ethnic composition within the U.S. will change. Conning says those of Hispanic or Latino origin are expected to make up about 30 percent of the population by 2050, and 20 percent by 2020. Asian-Americans are expected to make up 5.4 percent of the population by 2020 compared to 3.6 percent in 2000.
Economic realities also come into play. Conning says the 2010 Census showed a decline in median household income for the first time on record. In the post-recession "new economy," Conning says behaviors are changing. For example, homeownership rates are at their lowest level since 1995 as more people opt to rent after the real estate bubble burst.
For insurers, these new realities mean staying on top of the trends and meeting the needs of a changing population. For example, Conning says the current market size for combined personal lines among the senior segment is approximately $29 billion, and it is expected to grow at a rate of over 10 percent per year.
In meeting the needs of this segment, Conning says insurers need to be aware of the risks as well as the benefits. "While this segment is appealing due to its growth prospects, its insurance needs and its ability to pay for risk-management products and services, there are a number of risk factors that make this segment challenging," the report notes. "The most notable of these is the increasing risk this group represents from a personal-auto standpoint."
Young adults account for $17.6 billion of the personal-auto market, Conning says, but they are also the highest-risk group for auto insurers. Young adults are also the most price-sensitive segment, and have low or limited income streams.
Their participation in the homeowners market is limited as well, as many more young adults rent. This segment, says Conning, only makes up about $500 million of the $17.6 billion homeowners marketplace.
In meeting their needs, Conning notes that insurers should be mindful that the segment is both racially and ethnically diverse. "Approximately 50 percent of whose in the under-21 age group consider themselves something other than white, non-Hispanic," Conning says.
Regarding the Hispanic market, Conning notes that the 43 percent growth rate within this segment between 2000 and 2010 was more than four times the growth rate of the total U.S. population.
Conning estimates that the Hispanic segment accounts for between $17 billion and $18 billion of the personal auto market and about 8 percent, or $5.6 billion, of the homeowners market. "The opportunity presented by this growing segment has not escaped notice of the leading personal-lines insurers," Conning says. "Allstate, Nationwide and State Farm all devote significant resources to account acquisition and client servicing in this segment.
In serving this segment, Conning says it is important to recognize that Hispanics hail from several different countries, and can be further broken up into first, second and third generation immigrants — all with unique needs. "Understanding the needs of these different elements of the Hispanic market is critical to success in developing a competitive advantage in this market," states the report.
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