Health Data Leads to Floating Premiums in Some Life Policies

By Cyril Tuohy

It is a gambit worth taking with a younger generation of buyers attuned to giving up personal information: Will consumers agree to offer more data in exchange for lower — or higher — premiums on an in-force life insurance policy?

The strategy, known as post-issue underwriting or continuous underwriting, has captured the attention of John Hancock Life Insurance, which in April announced it would offer a “whole new approach to life insurance” through a joint program with Vitality Group, a company that integrates wellness and benefits with life insurance products.

Under John Hancock Term with Vitality, premiums rise or fall on the policy anniversary date depending upon the level of activity recorded by the policyholder. Under the John Hancock Universal Life with Vitality, if annual earned status is different from the status assumed at issue, premiums will be higher or lower than originally illustrated, according to the company.

Protection UL with Vitality is available in 35 states and Term with Vitality available in 28, the company also said.

Unlike health insurance where premiums are readjusted every year, life insurance is a “once and done” proposition, and has remained that way for generations so that concept of premium changes is a novel one.

Industry analysts said the deal between John Hancock and Vitality is more about collecting data than about getting people to modify their behavior through wellness initiatives, but the Hancock initiative will explore what life insurers can do with that data.

If a policyholder shows signs of stress — revealed through data streamed from wearable transmitters — why can’t insurance carriers re-price a policy to reflect the higher or lower risk?

Healthy 30-year-olds often qualify for “superpreferred” rates. What happens when, five years later, the policyholder develops a penchant for alcohol or Oxycontin? Or, say Mr. or Mrs. Superpreferred trades an office job for a life scaling mountains or diving 30,000 leagues under the sea?

If cancer re-emerges, why don’t life insurance premiums go up? If a patient licks the disease once and for all, should life insurance premiums go down?

And what happens when underwriters use data to make incorrect assumptions about a policyholder’s health or fitness habits, or how much will carriers pay in fines if they violate protections guaranteed by the Health Insurance Portability and Accountability Act (HIPAA)?

Tom Benton, a principal with the consultant Novarica, said pedometers used to track leg movements record nervous tics as a “step,” which might lead underwriters to conclude — erroneously — that the employee has gone for a walk.

A blog posted on this website by InsuranceNewsNet’s own Linda Koco discussed the prospect that some carriers may one day offer continuous underwriting for policyholders who want it.

The post focused on a report published last year, in which an analyst at Celent noted that the life underwriting model doesn’t take into consideration future changes to people’s lives. Hancock is changing that approach, but it’s not the first company to do so.

Celent’s Tom Scales writes that Vitality Life in the United Kingdom has already implemented the concept by combining a discount program for their life premium with a loyalty program, and that market attitudes toward sharing personal information makes post-issue underwriting more feasible than at any time in the past.

From baby boomers to millennials, “They share everything, sometimes to the point of embarrassment,” Scales writes.

Streaming data from wearable hardware to life insurance companies so that they can alter premiums to more accurately reflect the risk surrounding an individual life may sound like a progressive idea, one suited for the millennial age.

But Steven Kobrin, a New Jersey-based independent insurance broker who specializes in impairment cases, questions why anyone would consent to post-issue underwriting.

For the vast majority of lives underwritten by life insurers, the older the policyholder the higher the risk so why would anyone want to advertise that by sending data to a carrier? Chances are policyholders will lose superpreferred or preferred status and incur premiums.

“I would never want any further underwriting to jeopardize existing coverage,” Kobrin said in an interview with InsuranceNewsNet.

Kobrin sees continuous underwriting as attractive to carriers looking to capture business, particularly from millennials who value convenience and automation, and don’t seem to mind companies tracking their every move.

But he finds it ironic that a generation that doesn’t think twice about switching cellphone or Internet carrier, seems happy to give up reams of information to life insurers interested in using the information with the intent on building a long-term relationship.

“If you make it convenient for a person to stay with you, there’s less temptation to shop it out but if I’m a consumer I wouldn’t want to prevent the convenience of getting a better deal elsewhere,” Kobrin said.

Besides, Kobrin asks, do people really care to stream location data to far-away servers at 3 a.m. on a Sunday morning? Are people willing to have their personal information exposed to the possibility of a data breach?

He advises consumers to shop out their life insurance coverage periodically, especially if they represent a higher risk.

Agents and brokers can help them because brokers keep track of which companies are competitive for any given risk. A carrier offering a competitively-priced life insurance policy for a diabetic may not be offering as competitive a rate five years from now, he said.

Disability insurers continually underwrite policyholders. A doctor who switches gears and heads for the great outdoors as a lumberjack to chop wood using big chainsaws sooner or later undergoes a complete re-evaluation by the disability carrier in light of a new occupation.

Kobrin said that the decades-old life insurance underwriting model gives policyholders freedom that would be lost in a post-issue or continuous underwriting model.

Continuous underwriting encourages convenience, but at the expense of choice and policyholders often have more choice than they realize. Policyholders dissatisfied with their life insurance coverage are free to shop around in today’s “pro-consumer” model, Kobrin said.

“You should have choice without jeopardizing existing coverage,” he said. “One strength of the life insurance industry is that there is competition and choice and that gives consumers a better deal over time and I wouldn’t want lose that at all.”

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].