Trade your privacy for an insurance discount
John Hancock on Wednesday introduced a life insurance program that matches price to fitness, but the discounts come at the cost of privacy.
The approach is already in use in other parts of the world, according to the New York Times, which said John Hancock is the first U.S. company to start a similar program for American consumers.
New policyholders take an online evaluation of their health habits and agree to disclose medical information, such as blood pressure and cholesterol levels. The consumers receive personalized health goals and can work toward discounts in their premiums.
Consumers use online and automated tools to track their progress to healthier -- and, presumably, longer -- lives, the company said in a news release. People can accumulate points by exercising, which is recorded through a Fitbit provided by the company, getting a flu shot and going through an annual health screening.
Tying insurance to personal habits is far more than a gimmick. It's potentially a way that insurance companies can collect valuable information to help them set more effective rates.
Insurance is a controlled form of gambling, whether the subject is life, cars, homes or body parts of celebrities. Carriers essentially bet that, across all the people or property they insure, the number of claims paid will be smaller than the premiums collected.
Premiums are then invested to generate more money, preparing for the day that payments are eventually made. The longer a person lives, or the longer property goes without damage, the more time the insurance company has to invest and make money.
Companies use actuaries to examine data to see how rates of death, accidents or other events happen.
But those factors, while helpful, are still general.
Two 35-year-olds living next door to one another with apparently similar medical histories might still differ in significant ways because of their habits. One might regularly exercise while the other didn't. And once a policy is written, there generally isn't a clause allowing for the continued reexamination of the policyholder's health and a reconsidered premium rate.
A company like John Hancock could consider the increased lifespan certain habits would likely provide, calculate the additional premiums and investment income it could gain during the period, and set discounts and rewards to less than that total. Getting continually updated medical information would mean that should good habits disappear, so would rewards and discounts.
The approach has appeared elsewhere in the insurance industry. Such carriers as Progressive, Allstate and State Farm have programs where drivers allow the installation of GPS trackers on their cars. Habits that suggest safer driving and lower chances of accident translate into lower rates. Some of the factors that carriers consider can include times of day that a vehicle is operated, quick acceleration or deceleration, speed, and how sharply someone turns.
However, no matter what is being monitored, the result is a loss of privacy. The amount of data stored would be significant and potentially available for marketing purposes or even subject to subpoenas by governments or third parties involved in a lawsuit.