Once viewed by many as just another human resources buzzword, financial wellness is now generally considered an integral component of a person’s well-being.
The economic fallout from COVID-19 and the millions of people now facing financial hardship have further underscored the importance of financial health to overall wellness. Insurers are taking notice: Financial wellness programs incorporating life and disability coverage are expanding beyond the group space and moving into the individual market. Many of these programs feature innovative technologies and user-friendly digital tools that are opening a new channel for insurers to reach and retain customers.
Financial Wellness Supports a Longer, Healthier Life
Financial stress over issues with budgeting, debt, and personal money management are certainly nothing new, but as key financial goals have become more expensive relative to income, increased anxiety has followed. A national survey from the U.S. Federal Reserve reported that 40% of people can't afford a $400 emergency expense. In a 2015 LIMRA survey, 42% percent of Americans said that household finances caused “somewhat high” or “very high” stress levels in their daily lives. While the majority of the respondents (60%) said they were saving for retirement, only 32% had a long-term financial plan. On the plus side, the study found that eight out of 10 consumers had an interest in at least one area of financial education, with half looking for help with general budgeting.
While consumer interest in safeguarding personal finances and improving financial literacy was evident before COVID-19 threatened global economies, it is likely to become even more pronounced in the wake of the crisis. The pandemic is exacerbating existing financial security issues such as unpaid debt, inability to save and invest for retirement, and lack of short-term and long-term financial planning.
Studies have made it clear that mental and physical health directly benefit from sound finances. A 2016 report that examined the links between retirement, stress, and health found that employees with high financial stress are twice as likely to report poor health overall and more than four times as likely to complain of headaches, depression, or other ailments. High levels of stress manifest in sleep loss, anxiety, weakened immune systems, digestive issues, high blood pressure, muscle tension, and heart issues. Financial challenges can lead to stress and physical issues, which are intensified by unhealthy behaviors (i.e., substance abuse, poor diet, smoking, inactivity) often used as coping mechanisms.
The consequences of a sudden loss of income, or a negative wealth shock, can impact long-term health. A 2018 Northwestern Michigan study that included 8714 adults aged 51 to 61 years at study entry, found that participants who experienced a negative wealth shock during the 20-year follow-up compared with those with continuous positive wealth had a significantly increased risk of mortality (hazard ratio, 1.50) or a 50% increased risk of all-cause mortality. The study built on prior work that looked at the 2008 financial crisis and the resulting short-term health effects such as depression, anxiety, increased blood pressure, impaired cardiovascular function, suicide, and substance abuse. The study notes that not only do declining financial resources lead to negative physiological changes, but also to reduced spending on healthcare, delayed treatment, and incomplete adherence to prescribed medication – all of which have long-term health consequences, including increased mortality.
Financial Wellness Goes Digital, Connects to Insurance
Financial wellness programs are often part of a corporate benefits package that may include a group life insurance or disability benefit. As these programs have developed, wellness offerings associated with health insurance policies have become more common. Individual life insurance carriers are also focused on wellness. Several have invested in startups and forged strategic partnerships to tap into the market and connect policyholders to user-friendly digital financial wellness tools and fintech platforms, which offer educational content and resources to bridge the financial knowledge gap and help people proactively save, invest, pay off debt, manage a budget, and build resilience to unexpected events. Other insurers are engaging policyholders in financial wellness through podcasts and blogs and developing unique new content and meaningful dialogue around personal finances.
The past several years have seen substantial investment interest in the financial wellness space in insurance. In 2019, for example, a major insurer introduced a new student loan repayment and management program provided through its investment company. The program was integrated into a financial wellness tool, which helps workers assess, score, and improve their financial health. Similarly, last year another large carrier invested in Hometap, a fintech startup that provides new loan alternatives and allows homeowners to gain early access to their home equity without taking on debt. This move comes in addition to the insurer’s new partnership with Votaire, a financial wellness and benefits platform that analyzes users’ financial health.
Yet another insurer actively investing in the financial wellness space partnered with consumer engagement company Welltok in June 2020. Through Welltok’s holistic digital wellness solution, users can manage day-to-day finances, plan their financial goals, and protect against key money risks. Additional strategic investments included fintech company Point, a home equity investment solution that helps users reduce or avoid debt, and Vault, a student loan assistant resource offering flexible repayment programs.
Despite an overall dip in investments following the onset of the pandemic, there has been continued movement in the financial wellness tech space. The brightest example is Albert, a fintech startup designed to help middle-income Americans automate their financial wellness and connect them with financial advisors. With over 3 million users, Albert raised $50 million this year in a Series B funding round led by CapitalG, Google/Alphabet’s investment arm. The summer of 2020 also saw multiple insurers invest in Splash Financial, a student loan refinancing company that provides online lending options to assist young professionals in achieving financial freedom earlier in their careers. Yet another fintech receiving insurer investment was Steady, a financial health platform for the independent labor and gig workforce that provides on-demand job access and financial services.
Holistic Wellness Programs Create Deeper Consumer Engagement
The breadth of these investments reflects the multi-faceted nature of financial wellness that stretches well beyond day-to-day budgeting and financial planning. Many in this space have already learned that there is no single digital solution. There is no silver bullet. Financial wellness is a lifelong endeavor to make healthy decisions about money in order to achieve security and enjoy life.
Insurer investment in fintech solutions is an indication of continued consumer interest in financial wellness. A Broadridge Survey of over 300 financial advisors revealed that 51% plan to increase focus on holistic financial planning within their practices moving forward. This trend is likely to continue, as younger advisors (under 40) were four times more likely than older advisors (over 55) to believe that the main value they provide to clients is holistic financial planning.
Products linked to promoting financial health could help alleviate stressors, improve health, and possibly improve and extend lives. According to the Insurance Information Institute, people who manage their finances also manage other aspects of their lives. A truly holistic approach to wellness in the future will incorporate financial strength along with physical and mental health. For insurers, financial wellness programs should no longer be considered a nice little perk, but rather a direct avenue to engage policyholders on a deeper level.
- Report on the Economic Well-Being of U.S. Households in 2018," Board of Governors of the Federal Reserve System, May 2019.
- Association of a Negative Wealth Shock With All-Cause Mortality in Middle-aged and Older Adults in the United States. https://jamanetwork.com/journals/jama/fullarticle/2677445