Changing demographics create opportunities
Allianz capitalizes on growing multicultural and senior populations
By Phil Zinkewicz
Twenty-five years ago, when we talked about demographic shifts in the United States, we usually displayed statistics on how the country’s population was moving from urban areas to suburban areas and/or vice versa, which states were losing population and which were gaining, and how insurance and financial products were being designed to reflect those demographic changes.
Today we must add to that demographic pot the effects that our multicultural environment is having on the providers of insurance and financial products and services, and also how the growing senior population is changing the demographic scene.
Last October, California-based Allianz hosted a roundtable in New York to explore those issues and to show how the company is uniting three of its subsidiaries to tap into those markets. Those subsidiaries are Fireman’s Fund Insurance Company, Allianz Life Insurance Company and Allianz Global Investors Distributors LLC.
Baron A. Carr, vice president of branding and multicultural marketing for Allianz Life, opened the proceedings, noting that of the 300 million people in the United States, 30% fall under the category of multicultural. By 2020, he said, that percentage will rise to 40.
“There are three things that are driving current demographic shifts,” he said. “They are birth rate, longevity and immigration. Of the three, immigration is having the most profound effects. The ethno-cultural opportunity is not emerging … it’s exploding around the globe,” Carr said.
Carr noted that there are more than 100 million migrants in developed countries, an increase of 35 million since 1990. He said that there are more Hispanics in the United States (44.3 million) than in Spain (40.4 million). He said also that without migration, there will be a 30 million-person labor gap in developed countries by the year 2020.
“We decided that, in order to tap into the multicultural market, we had to change our mindset; hence our new unified approach. We want to be the premier provider of multicultural products for African Americans, the Spanish community and the Asian community,” he said. “We want to increase top-line growth by infusing ourselves into our distribution channels internally and increase our market share.”
Carr said that Allianz intends to increase the number of multicultural agents with whom it does business and solidify the Allianz brand in those targeted segments. “We have established a Web portal to assist producers in becoming part of those multicultural communities.”
High cost of higher education
Brian Jacobs of Allianz Global Investors examined the changing U.S. workforce in terms of education. Noting that employers have established more stringent job requirements and that more people graduate with a college degree today than ever before in history, Jacobs said that, in 2005, women ages 25 to 34 with bachelor’s degrees earned 70% more than those with only high school diplomas, and for men the difference was 63%. He said also that middle-class Americans face an increasing challenge in paying for college costs.
He noted further that costs may be prohibitive in the future. “Using historical rates of increases to project future tuition costs, in 18 years the average cost to attend four years at a public school is estimated to be more than $180,000 and four years at a private school to be more than $340,000. Student loans leave graduates heavily in debt just out of school. As the number of students attending universities increases, the demand for financial aid increases; yet financial aid growth has not kept up.”
Jacobs then addressed the growth of 529 plans, which are tax-advantaged investment vehicles to help people plan for their children’s higher education. He said the benefits of investing in a 529 include: earnings free from federal income tax, if used for higher education expenses; qualified withdrawals free from federal income tax; an account that is owner-controlled and flexible enough to allow for a change in beneficiaries periodically; no age limits and no contribution limits.
Next Jacobs described College Access 529, a savings plan offered by Allianz in South Dakota with 12 different mutual fund families, including Allianz Funds, PIMCO (Pacific Investment Management Company), American Funds, MFS, Franklin-Templeton, Legg Mason, and others.
“The combined assets of all Section 529 plans grew 8.3% to $89.5 billion during the first quarter of 2006,” said Jacobs. “By the year 2011, it is estimated that $257 billion in assets will be in 529 plans. And, 529 plans are predicted to be the second-fastest growing investment product after exchange-traded funds over the next five years.”
Graying of America
Finally, Chris Smith, vice president of Fireman’s Fund’s commercial lines business, addressed the “graying of America.” Smith pointed out that currently some 17 million Baby Boomers (born between 1946 and 1964) are starting to hit retirement age. Women are having fewer children and people are living longer, he said; hence the overall number and proportion of seniors in the population is increasing. Smith offered the following statistics:
• The 75+ age group will grow 12% to 20.1 million by 2010.
• The 86+ age group will grow 33% to 6.8 million by 2010.
• The 65+ age will reach 50 million (17% of population) by 2020.
• The 80+ age group will grow 300% between now and 2040.
• Today there are fewer than 70,000 centenarians; there will be 700,000 in 2050.
Smith also said that, statistically, someone reaches 60 years of age every seven seconds. All of these factors mean that there is now and will continue to be a growing need for insurance, particularly commercial insurance coverages to meet the needs of senior living facilities.
There are four basic types of senior living facilities, Smith said.
The independent living facility (ILF) is residential living for seniors that may or may not provide hospitality or support services. Residents lead an independent lifestyle and require minimal or no assistance.
The assisted living facility (ALF) combines housing with support services, personal assistance and limited health care for daily needs. ALF services typically include bathing, dressing, medication reminders and housework.
The skilled nursing facility (SNF) provides 24-hour skilled nursing care and assistance with daily living activities such as bathing, dressing and toileting.
Finally, the continuing care retirement community (CCRC) offers several levels of housing, services, assistance and health care (ILF, ALF, SNF) at one site.
Smith said that these facilities currently represent a $13 billion commercial insurance market. “Fireman’s Fund plans to capitalize on this growing market,” he said. “We are already a leading provider of senior living business insurance and risk solutions, and we have designated senior living underwriters, risk control and claims professionals on deck.
“Our tailored insurance coverages for these living facilities include excess liability, commer-cial auto, crisis management, directors and officers, employment practices liability, fiduciary, key employee extra expense and workers comp,” Smith continues. “The areas of exposure include business income and extra expense, contaminated food, communicable disease, emergency evacuation, personal property of staff and residents, mobile medical equipment, employee theft and many more.”
Clearly, Allianz believes that the graying of America and multicultural shifts represent significant opportunities for the insurance industry.