Last month Allianz Life Insurance Company of North America (Allianz) released its “Generations Apart Study.” Though the focus was on retirement as a whole the study also touched upon people’s attitudes towards robo-advisors.
While it’s always exciting to see robo-advisors discussed in the context of the insurance industry – this is a topic that doesn’t get nearly enough attention given the impact robo-advisors will have on the industry in the next 5 years – I was a bit disappointed with what data was collected (there was one glaring omission) and how the information was presented.
Allianz’s Robo-Advisor Data
2,000 U.S. adults ages 35–67 with a minimum household income of $30,000. The sample was designed to achieve a 50/50 balance of men and women, and a 50/50 balance of [baby] boomers and Generation Xers
According to Allianz, the study revealed:
When asked about engaging robo-advisors, nearly seven in 10 (69%) from both generations indicated they “don’t really trust online advice, making personal relationships more important.” More than three-quarters (76%) believe “there’s so much selling online that it’s hard to trust the financial advice.” While more than a third (35%) of respondents said they have some interest in working with a robo-advisor (46% Gen X, 24% boomers), only 10% said they would be comfortable having their relationship with their financial advisor exist entirely online.
The Glaring Omission: Millennials
The omission of Millennials is disappointing. Simply put, if you’re ignoring Millennials then pack your bags and go home because you’ve already lost. Millennials are the largest generation in US history at 1.2x the size of Baby Boomers and 1.5x the size of Gen X.
But the relative size of these generational cohorts do not tell the whole story. Research from Deloitte has shown younger consumers are twice as likely to switch insurance providers as older consumers. So if you’re focusing on Baby Boomers and Gen X you will be disappointed.
Older customers don’t switch financial services providers often, making them more expensive to acquire as customers. And, if you can acquire them, you are only getting the tail end of their peak spending years. High acquisition costs and weak monetization are a recipe for disaster.
Allianz’s Data May Understate Robo-Advisor Interest
I also wonder if the study methodology was flawed and/or the questions were worded in a way to bias respondents. The figure “69% of Baby Boomers and Gen X do not trust online advice” seems very high to me.
And, Allianz, as an established incumbent, has more to lose than gain from a change in the status quo which could cause it to downplay new technologies that could upset the status quo.
WebMD has multiple times been named “Most Trusted Consumer Brand.” And these awards weren’t limited to “online” brands but also included brands such as Visa, Tide, Crest and Pampers which pre-date the internet.
So people are willing to trust their health to online advice but not their finances?
And a new study by Intentions Consulting tells us that 33% of Canadians ages 20-39 would prefer their job performance to be assessed by an unbiased computer program to the traditional human manager assessment.
Unfortunately the publicly available information from Allianz doesn’t reveal enough about the methodology or wording of survey questions to dig deeper into this item. But the data points above and gut are telling me .
Allianz’s Robo-Advisor Spin
How did Allianz spin the data?
Did Allianz highlight the fact that 46% of Gen X are interested in working with a robo-advisor?
No, they lumped in the Baby Boomers, the least relevant generation for predicting the future of the financial services industry.
If 24% of Baby Boomers and 46% Gen X are interested in working with robo-advisors then how many Millennials are interested in working with robo-advisors?
If we assume that the 22% increase in interest observed when moving from Baby Boomers to Gen X holds true when moving from Gen X to Millennials, then we can assume that 68% of Millennials are interested in working with robo-advisors.
And this 68% figure may underestimate demand for robo-advisors amongst millennials. Facebook’s “Millennials + money: the unfiltered journey” white paper reports that “Millennials are 2.5X more likely than Gen Xers/Boomers to trust robo-advisors.”
Allianz reports that 35% of their combined Gen Xers/Boomers sample are interested in robo-advisors. A 2.5x increase as reported by Facebook would put the percentage of Millennials interested in robo-advisors at a whopping 87.5%.
109 Million US Consumers Are Interested In Robo Advisors
Talking about generations as percentages can obscure what is really going on. So, 46% of Gen X… what does that really mean? At 61,000,000 strong, 46% of Gen X is equivalent to 28,060,000 consumers. That’s a lot of people. Even for a company the size of Allianz, that’s enough not just to move the needle but to radically change the company’s trajectory.
Now, let’s look at the 92,000,000 Millennials. Using the more conservative 68% interest figure derived above using a straight-line approximation rather than- not, the Facebook data which implies that as many as 87.5% of Millennials are interested in robo-advisors – we are still able to identify another 62,560,000 customers interested in robo-advisors.
Throw in the Baby Boomers and, across the three generations, the total reaches 109,100,000 US consumers interested in robo-advisors.
High Income Households Most Interested In New Insurance Products
Using the Allianz data we’ve identified a lot of US consumers interested in robo-advisors. The data show that interest is greatest amongst Millennials. And we know Millennials are the most attractive market segment because their peak spending years are still yet to come.
But what if we dig a little deeper? What else can we learn?
In 2014 Morgan Stanley and the Boston Consulting Group surveyed insurance consumers about their attitudes towards new insurance products (see Exhibit 105).
While they did not ask about robo-advisors they did ask about three new insurance models: mobile enabled insurance that adjusts to on context, risk prevention through sensors, and mobile health data encouraging healthy living.
The Morgan Stanley and BCG survey results revealed that across all three new insurance models, the higher the household income, the greater the interest. Medium income households were more interested in all three products than low-income households. And high-income households were more interested in all three products than medium income households.
Using this data, one could conclude that interest in robo-advisors is unlikely to be evenly distributed across the financial spectrum . Rather, it is highly probable that interest in robo-advisors skews towards high-income households.
So interest isn’t just skewed towards the most lucrative generation, Millennials, it’s also skewed towards the most lucrative income segment, high-income households.
Independently either the data on Millenial interest or the data on high-income households is enough to suggest that there is great consumer interest in robo-advisors.
But when one considers that interest in robo-advisors is highest amongst both the most lucrative generational segment, Millennials, and the most lucrative income segment, high-income households, it seems certain that robo-advisors will play a very significant role in the financial services industry.
The Correct Takeaways
Ok, let’s recap, what we can learn from the “Generations Apart Study”:
- Per Allianz, 46% of Gen X are interested in robo-advisors
- Using Allianz data we can infer that approximately 68% of Millennials are interested in robo-advisors
- Across Baby Boomers, Gen X and Millennials, over 109 million US consumers are interested in robo-advisors
- Of those interested in robo-advisors 57% are Millennials – the most attractive generational segment
- Interest in robo-advisors is likely to skew towards high income households as it does for other novel insurance products
Let me know what you think. In particular let me know how you feel about the 68% of Millennials are interested in robo-advisors stat. The straight line approximation method is not the most scientific approach so chime in and let me know if you feel that it over or under-estimates the actual number of Millennials interested in robo-advisors. Feel free to use the poll above or comment below.
And stay tuned for a future blog post in which I delve into why the insurance industry systematically underestimates the impact of robo-advisors.