Would you let a life insurance company monitor your health for cheaper rates?

The expectation of fraud is built into the very infrastructure of insurance companies. Many companies have departments devoted entirely to investigating claims they find suspicious; others outsource the work, hiring private investigators to gather evidence that confirm their doubts. In recent years, though, insurers have found a friendlier way to collect data from their customers — one that involves their willing cooperation. This new strategy involves giving customers incentives for agreeing to essentially have their habits monitored. In Canada, for instance, insurance companies and even car manufacturers are offering to install technologies like telematics devices and facial recognition software in their customers’ cars. In exchange, the customer might be given a discounted premium.

While incentives to install tracking devices is a relatively established practice among auto insurance companies, it is less common among life insurers — although that may soon change. In 2015, U.S. insurance company John Hancock launched what reviewers have described as a “proactive” type of life insurance, under a program called Vitality. (Manulife made the same program available to Canadian consumers this spring.) Whenever Vitality customers complete a “healthy” activity and report back to John Hancock, the company rewards them points that can be redeemed for discounts and other rewards, like gift cards. Customers are encouraged to track their own performance using wearable tech devices like Apple Watch or FitBit, or apps they can download onto their smartphones.

Vitality is notable for another reason, too: unlike traditional life insurance programs, which require customers to report their medical concerns and “risky” health habits like smoking and drinking, Vitality has flipped the script, asking customers to detail their healthy habits instead. Since Vitality’s launch, John Hancock has framed this facet of the program as empowering for customers: now, the company’s argument goes, customers can finally take “control” over how much their premiums cost. If they want to lower their health insurance rates, all they have to do is log several thousand more steps on their FitBit this week, or choose to eat an extra serving of vegetables. No longer will they be helpless in the face of inflexible premiums — and they’ll be improving their own health, to boot.

Is having your good habits monitored so different from having to report your bad ones, though? As it turns out, yes — but not necessarily in a way that’s good for customers. Privacy experts have voiced concerns about companies that collect data about their customers’ habits, so it’s important to ask the question: who really benefits from this type of program, and who loses out? And who’s actually in control here?

Telematics might not be right for everyone

When John Hancock customers sign up for Vitality, the company will give them a “menu” of activities they can do to earn program points. These activities include, but are not limited to, getting your annual flu shot; scheduling a colonoscopy screening; biking; running; walking; meditating using an app like Headspace; buying nutritious groceries. When a customer accumulates enough points, they can redeem them for a discount on their life insurance premium (capped out at 15%, annually) or other rewards like hotel stays and Amazon gift cards. By giving customers an incentive to maintain their health, John Hancock says, Vitality is good for both customers and the insurance company: customers will feel better and hopefully even live longer. And the longer they live, the longer they’ll keep paying premiums.

By giving customers an incentive to maintain their health, John Hancock says, Vitality is good for both customers and the insurance company... the longer [customers] live, the longer they’ll keep paying premiums.

According to the insurance company, customers have responded well to the Vitality program, and participate with enthusiasm. “All of our customers average about twice as many steps as the typical American,” said Brooks Tingle, John Hancock president and CEO, in an interview with LowestRates.ca last October. He is referring to the amount of walking that the insurer’s customers do per day; Vitality customers who track their steps using an Apple Watch, Tingle adds, log about “2,000 more [steps] than that.” The achievement is one that the insurer is proud of, since it seems to prove that Vitality’s incentive-based model “works” to the extent that customers are genuinely taking up the program’s challenge to be more active, eat more nutritiously and follow through with medical check-ups and exams. The insurer is so impressed with Vitality, as a matter of fact, that it announced a new policy last September: moving forward, all of John Hancock’s life insurance products would follow the Vitality model. 

If John Hancock is confident enough about Vitality to make it the only model for its life insurance products, then it follows that the model must be pretty effective at helping the company’s customers stave off disease and death — or at least, John Hancock executives have to believe that it does. But, how can they tell? Insurance companies are not doctors, and their workers are not required to undergo any of the training that would qualify them to determine, reliably, how successfully their customers are maintaining their health. As a general rule, people are also capable of having wildly diverse bodies, medical histories, vulnerabilities and needs.

To address this knowledge gap, John Hancock deferred to Discovery, the company that invented the Vitality program. In order to come up with the “menu” of activities that Vitality encourages its customers to do, Discovery drew on research from the World Health Organization and the U.S. Department of Health and Human Services; John Hancock additionally partnered with the Friedman School of Nutrition Science and Policy at Tufts University in Boston. The key to making the menu broadly applicable, Tingle says, was to keep it basic. 

If you survey Canadians, or we survey Americans, ‘would you like to be a little more healthy’? The vast majority of people are going to say ‘yeah, I’d like to be a little more healthy.’

“The vast majority of [activities] would be irrespective of one’s body type, right?” he says. “Purchasing a healthy food item or not, seeing a food doctor, or getting your blood pressure taken. Having a colonoscopy if you’re a man or if you’re a woman... there are points awarded for having BMI within a certain range.”

“Bear in mind we’re talking about a set of activities that the vast majority of people are inclined to want to do anyways,” he continues. “They’re hard to do. They are reasons not all of us were as fit as we wish we were. But everyone sort of starts from a place — if you survey Canadians, or we survey Americans, ‘would you like to be a little more healthy’? The vast majority of people are going to say ‘yeah, I’d like to be a little more healthy.’ You give people the tools to do it, reasonable goals and objectives that are attainable. If you make them impossible, people are going to give up. They’re not going to try it. But if they’re attainable, there are small steps they can take every day.”

So Vitality is just giving people a push, I suggest.

“Nudge,” Tingle corrects me. “‘Nudge’ is the popular phraseology we use.”

But could telematics improve life insurance overall?

If Vitality is only encouraging people to make lifestyle changes that they already wanted — but didn’t necessarily have the incentive — to implement anyway, the program’s additional benefits of premium discounts and gift cards only seem to sweeten the deal.

“You can argue well, great — it’s encouraging them to have a healthy lifestyle,” says Norman Shaw, a professor at Ryerson University whose work looks at the retail and hospitality industries.

But, Shaw warns, certain demographics stand to benefit more than others.

If he had a Vitality policy, Shaw says, “I will benefit as long as I’m healthy. But as soon as something goes wrong, because all this data is now shared with the insurance company — hey, wait a second. Am I going to have a problem with renewing my insurance?”

For any insurance company, Shaw explains, an ideal customer base would have as few customers filing claims as possible. Insurers can only profit if they are taking in more money in premiums than they are paying out in claims; auto insurers, for instance, have a tangible stake in minimizing the number of customers they have that get into accidents. In the case of a life insurer, the focus shifts to health. “They don’t want any unhealthy people,” says Shaw. The more likely a customer will have an early death, as calculated based on their health stats, the less likely they’ll qualify for an affordable premium rate. They may even be denied a policy or a renewal outright.

I will benefit as long as I’m healthy. But as soon as something goes wrong... am I going to have a problem with renewing my insurance?

What criteria does an insurer use to determine whether a customer falls into the “healthy” or “unhealthy” camp? That will vary depending on the insurance company. In John Hancock’s case, however, the company will have more data to work with than a traditional insurer — data that’s been submitted by Vitality customers themselves.

From Tingle’s perspective, Vitality’s wealth of customer data actually has the potential to improve a customer’s experience, even beyond the discounts and perks. Many traditional term life insurance policies don’t give policyholders the option to renew when they expire. To get coverage again, customers have to apply for a new policy — a less than ideal situation if, at the point of re-application, the customer’s life has changed in such a way that renders them more “high risk” in the eyes of the insurance company (e.g., if they’ve aged into a high risk age bracket).

Because Vitality customers are routinely reporting their health stats to John Hancock, the company does not require life insurance policyholders to go through the underwriting process again when their policies expire. “Why do we need to put you through that again?” Tingle asks. “You bought from us three years ago, we know you’re healthy now. You need another $50,000 in life insurance? Click here. You can get it.”

When an insurance company chooses to use a checklist of 'good behaviours' instead of a checklist of 'risky behaviours' to assess risk... customers are not only expected to stop doing certain things... they’re also expected to start participating in certain activities

What happens, though, if a customer isn’t healthy? What if, for instance, they have a heart attack before they can renew their policy? Or what if they are even, by most other standards, perfectly fine, but have failed to check any of the boxes on Vitality’s “good behaviours” checklist — either because they didn’t meet the exact criteria, or because they’ve neglected to track their activity? Will they get hit with higher premiums? Will they get denied a new policy altogether?

For the time being, Vitality customers who fail to meet the program’s health goals only get denied discounts and rewards. But the model of insurance it represents is a substantial change from what the industry is used to.

Still, some facets of Vitality are only superficially different. When an insurance company chooses to use a checklist of “good behaviours” instead of a checklist of “risky behaviours” to assess risk, for instance, customers are not only expected to stop doing certain things (smoke, drink alcohol); they’re also expected to start participating in certain activities — some of which may not actually make sense for their bodies, or their lives. David Mendenhall, manager at Mendenhall Financial, said that both checklists represent the same problem with how insurance underwriting works: it’s reductive. “I think it can be more personalized,” he said of underwriting. “They pigeonhole people — I have people that just get denied straight because they got their four x’s in the four bad categories. When in reality, everybody’s not the same.”

Mendenhall thinks Vitality’s checklist has the potential to improve on the canonical underwriting model since it asks for more information from customers, but there are still questions that await answers. Could such an approach actually end up being more prescriptive — making more demands on the time and effort of customers — than a traditional life insurance policy would? And could the data that customers are giving to their insurers in unprecedented volumes, via programs like Vitality, end up being used in a way that actually hurts customers — say, by helping to create more rigid and exacting health standards that customers will have to meet in order to qualify for life insurance at all?

For now, it’s still hard to say. But  if — or when — the rest of the industry catches up, the implications could be huge.