The Price of an Insurance Discount: Private Data on Health

By Bernard, Tara Siegel | International New York Times, April 10, 2015 | Go to article overview

The Price of an Insurance Discount: Private Data on Health


Bernard, Tara Siegel, International New York Times


John Hancock will become the first life insurance company to offer a program for Americans that offers lower premiums for healthful behavior.

Andrew Thomas's life insurer knows exactly when he arrives at his local gym. The company is notified when he swipes his membership card, and 30 minutes later, it checks that he is still there, tracking his location through his smartphone.

The insurance company has a vested interest in keeping Mr. Thomas alive and well. In return for sharing his exercise habits, his cholesterol level and other medical information, Mr. Thomas, a 51- year-old medical publisher who lives in Johannesburg, earns points, which translate into premium savings and other perks. His staying in good shape makes it less likely that Discovery, his insurer, will have to pay out his life and disability policies.

"Every Saturday morning, just for playing golf, I get points," said Mr. Thomas, who said he received about 9 percent back on his life insurance premiums for each of the last five years. "It is trying to make people live a healthy lifestyle."

Now John Hancock will become the first life insurance company to introduce a similar program for American consumers. The program, which was to be announced on Wednesday, will apply to both term and universal life insurance policies and is being operated through a partnership with Vitality, a global wellness company that already works with employers and health insurers in the United States.

The concept -- which has been used in South Africa, where Vitality is based, Europe, Singapore and Australia -- has the potential to transform the way life insurance is priced, at least for consumers who are willing to continually share their health data. But it also raises questions about how that information will be protected and whether it could be used in ways that ultimately work against a consumer's best interests.

People who sign up will receive a free Fitbit monitor, which can be set to automatically upload activity levels to the insurer. The most active customers may earn a discount of up to 15 percent on their premiums, in addition to Amazon gift cards, half-price stays at Hyatt hotels and other perks.

John Hancock, a division of Canadian insurer Manulife Financial, says it hopes the program will help reinvigorate life insurance sales, which have stagnated industrywide for decades. Just 44 percent of households in the United States own individual policies, according to Limra, a trade group, a 50-year low. Any product that reminds consumers of their mortality is hard to get excited about, but industry analysts said that financially strained households, changing demographics and increasingly complex and expensive products have led to the decline in sales.

"It has been a slow to no-growth industry for a long time," said Michael Doughty, president of John Hancock Insurance, based in Boston. "It is crying out for innovation and for someone to try to reinvent the product to make it more relevant."

The new program also upends the traditional approach to life insurance underwriting, which typically bases its pricing on a detailed but static snapshot of a person's medical status. Now, John Hancock's term and universal policies will be priced continuously, at least for consumers who choose the Vitality program.

John Hancock and Vitality, which is owned by Discovery, said the information would not be sold and would be shared only with entities that help with the program's administration, though the aggregate data could be used to inform the development of new insurance products.

Nonetheless, some specialists expressed privacy concerns.

"All of a sudden, everything you do and everything you eat, depending on which bits of the information they collect, is sitting in someone's database," said Anna Slomovic, lead research scientist at the Cyber Security Policy and Research Institute at George Washington University and a former chief privacy officer at Equifax and Revolution Health. …

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