By Tara Siegel Bernard
Andrew Thomass 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. By staying in good shape, it is 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, being announced 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 consumers best interests.
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 persons medical status. Now, John Hancocks 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 programs administration, though the aggregate data could be used to inform the development of new insurance products.
Nonetheless, some specialists expressed privacy concerns.
All customers participating in the program will start by paying a premium priced at the gold level. That is a discount of about 9 percent for a 45-year-old man who bought a $500,000 term insurance policy that covered a 20-year period: He would pay $750 annually, compared with the $825 it would cost outside of the Vitality program.
The strategy also tries to tap into the way humans are naturally wired: There is generally no immediate tangible benefit to life insurance, but this program is structured to try to change that.
People respond far more to immediate gratification than delayed gratification, said Dr. Kevin Volpp, director of the Center for Health Incentives and Behavioral Economics at the Leonard Davis Institute. (He has done consulting work for Vitality.)
Vitalitys research has found that Americans are generally five years older than their actual age, after taking into account various health and wellness factors. All participating policyholders will be given a Vitality age, which will help the program set personal guideposts.
John Hancock, which operates in all 50 states, said the universal life program had been approved by insurance regulators in 30 states, while the term program is available in 20 states; more states are expected to be announced throughout the year. It said no regulators had declined to approve it yet.
It changes the paradigm of life insurance, Dr. Volpp said. In some sense, it tries to change your insurance into less of a passive vehicle that pays the bills if something happens, into a more active vehicle to get people to lower their risk.
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Image credit: Charlie Mahoney for/via The New York Times