Life insurance lags behind other sectors in adopting behavioral benefits

Behavioral insurance has found a place in health, auto, and home coverage, but U.S. companies have been relatively slow to apply the dynamics to life insurance.

This type of insurance underwrites, prices, and pays out according to a customer’s behavior. Auto insurers use telematics or mobile apps that can reward drivers with lower premiums based on their driving habits. Health insurers feature wellness programs that can provide either credit or health savings account contributions linked to positive health behaviors. There are also home insurance discounts for consumers who use household security equipment, smart locks, and doorbell cameras.

But such features are fairly new – and rare – in the life insurance space. John Hancock was likely the first, and perhaps one of the only, insurers to apply behavioral criteria to life insurance with its Hancock Vitality product eight years ago. Now, Vitality, a separate UK-based insurer, operates in 40 different markets across the country with more than 30 million members enrolled.

“Is behavioral insurance the future of life insurance?” asks John Snider, assistant vice president and associate counsel at John Hancock Advanced Markets. “I personally believe that it is."

Vitality clients can accumulate points for simple health related activities like walking, eating healthier, getting regular checkups, and getting a flu shot, to earn premium savings as well as rewards and benefits.

More than 71% of deaths worldwide are related to just four chronic diseases: diabetes, respiratory ailments, cardiovascular disease, and cancers. Most are linked to lifestyle choices, statistics show, involving smoking, excessive alcohol consumption, poor nutrition, and lack of physical exercise.

According to John Hancock, proprietary data shows that of registered John Hancock Vitality PLUS members over the course of 12 months:

• 80% reported similar or better overall health year over year
• 71% of members improved or maintained a health weight
• 34% with high cholesterol reported bringing their measure in range

Sales were up 7% in Q2, according to John Hancock, as they continue to expand the John Hancock Vitality program.

A 'unique position'

“Insurers are in a unique position to influence people’s health,” said Matthew Gibson, head of Strategic Distribution Initiatives at Hancock. “The simple response to this is we all should just make better behavioral choices. But we all know that that isn't easy; human behavior is complicated. And it's a result of where that shared value and behavioral insurance can come into play.”

Shared value is created, Gibson says, when companies innovate to address social problems, while at the same time drive key business objectives. The obvious benefit for policyholders is a longer, healthier life. For insurers, Gibson bluntly listed the advantages.

“It’s good for life insurers because they haven’t made a death claim,” he said. “They’re able to defray claims out, instead of paying at 80, to 83, or 87. That's obviously good for us as a life insurer. And this is really the driving philosophy behind behavioral insurance or shared value. If you're able to encourage customers to take those healthier steps, health results and mortality improves, which provides value to the insurer. And the insurer then can share that value back to the consumer for those healthy actions and use that as the carrot to drive those future positive behaviors and drive even further health results.”

Other insurers have begun offering behavioral discounts and credits, include Manulife International, in Asia and Europe. The concept is closely related to the behavioral economics most insurers use in designing products, selling, and marketing. It is also related to what’s called the “nudge theory,” the idea that by shaping the environment, also known as the choice architecture, one can influence the likelihood that one option is chosen over another’

Benefits of 'nudging'

“Used successfully in the insurance industry, the benefits of nudging may include increased sales, reduced fraud, or improved customer and employee satisfaction,” management consultant McKinsey said in a report on the topic. “Many insurers use nudging selectively: some, for example, use it to optimize digital solutions. Others have conducted structured reviews of the biggest business opportunities for nudging and deployed a few discrete use cases. Still others have anchored nudging and behavioral science deeply in their organizational strategies by hiring experts and dedicated teams or by creating management positions devoted to behavioral science.”

Hancock said it has seen an increase of customer engagement of about 20%, over the last two years as more people began focusing on health and wellness as a result of the pandemic.

“Behavioral insurance allows the industry to shift from a more passive product provider or claims only provider model to one that really helps partner with the consumer as an active risk management,” said Gibson.

Employers, too, might benefit by offering behavioral insurance as a perk to boost recruitment and instill worker loyalty.

“Employees in our survey were focused on things like gym memberships, fitness, health and lifestyle coaching, on-site gyms, personalized health coaching, all things that are very much in the rubric of employee health and well-being,” said Hancock’s Snider. “And so you're going to see a nice fit between behavioral life insurance and some of the things that these key employees would see as a value.”

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

© Entire contents copyright 2022 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].