Re-thinking how we underwrite, engage and cover life insurance
by JJ Carroll
JJ Lane Carroll, FSA, MAAA, is Head of Swiss Re’s New Solutions Group, an innovation team dedicated to developing solutions for life insurers to close the $20 trillion mortality protection gap in the US. Visit www.swissre.comA chronic epidemic of “non-communicable diseases” (NCDs) is sweeping the world in growing proportions. NCDs include things like diabetes and heart disease, which are not “caught” but instead are created by factors that have a lot to do with diet and lifestyle. The fact that people’s choices are contributing to their own ill health makes the explosion in NCDs alarming – and yet likely the greatest opportunity for life and health insurers (and reinsurers!)
First, consider the size of the problem, as reported by the World Health Organization*:
- NCDs kill 41 million people each year, equivalent to 71% of all deaths globally, according to World Health Organization statistics from 2018.
- Cardiovascular diseases account for most NCD deaths, or 17.9 million people annually, followed by cancers (9 million), respiratory diseases (3.9 million), and diabetes (1.6 million).
- These four groups of diseases account for over 80% of all premature NCD deaths.
- Tobacco use, physical inactivity, the harmful use of alcohol and unhealthy diets all increase the risk of dying from an NCD.
The size of the problem is stark and the global trends are alarming
But there is a wonderful opportunity for governments, health organizations, employers and other interested parties to take action and reverse this problem. There’s no magical scientific cure required – the magic will come in engaging and empowering individuals to take personal control over their future health.
Life insurers have already started work in this space by providing fitness trackers, online health coaching and various forms of rewards for positive behavior. We’ve seen some successes, but has it truly changed health outcomes for the people with the most to gain? We’d argue no.
But what if the economics of life-insurance products were more continuously linked to health outcomes? What if life insurers developed an authentic role as personal-risk advisors to their customers? What if we created new products that could truly meet the needs of any individual regardless of their health status?
The opportunity to develop solutions targeting those who could benefit from positive change seems largely untapped. Not only is there an altruistic appeal, but there’s a growth opportunity for life insurers and reinsurers to dive into a new risk pool in a very different way.
Moving toward dynamic-risk management models
To succeed in this space, we do need to demonstrate a genuine desire to help people manage their health risk. To achieve this, we’d be better served breaking free from our existing risk models by embracing an ongoing dynamic-risk assessment that can drive both pricing and health-management activities.
Consider the shortcomings of our current practice: underwriting applicants at a single point in time at policy issue. This method ignores any future changes in behavior that may impact an individual’s risk. Customers that make positive changes to their health are actually incentivized to lapse their policies and be re-underwritten for a new policy at a better rate. This creates anti-selection for the insurance companies.
But what if we instead change financial incentives for customers to manage their health by introducing policy changes that reflect improvements in health outcomes over time? Such a shift could change overall industry economics. 63% of people aren’t buying life insurance because they think it is too expensive, according to the LIMRA 2018 Insurance Barometer Study. This tells us that we must make life insurance more accessible to a population that isn’t buying insurance due to high perceived costs and uncertainty of coverage. We can do that by transferring control of the real (and perceived) cost to the individual by rewarding improvements in health factors. By changing the perceived cost, we take away one obstacle to purchase and open up growth in new risk pools.
Taking on the role of ‘risk manager’
A significant challenge in producing dynamic-risk products is the need for life insurers to define a new role for themselves. In a world when everyone’s doctor, employer and healthcare provider are issuing nudges and advice on healthy living, why listen to your insurance company’s advice about managing your health?
Insurers have struggled to establish credibility beyond offering rewards for fitness-related activity because they are not seen as authentic providers of healthcare advice. Insurers are also hesitant to drift into medical territory.
The authentic role an insurer can play is that of ‘risk manager.’ In the same way that a property insurer’s risk assessment might advise a small business to invest in new fire escapes or sprinkler systems, a life and health insurer can demonstrate the additional risk and financial consequences of elevated BMI levels.
With continuous risk assessment as a core element of the product, there is a clear role for the insurer to play, e.g., signposting corrective action, and charging a higher price for the risks that have not been mitigated. While a property insurer does not pretend to be the expert for fitting the solution, it is recognized as an authentic voice recommending necessary actions.
Creating life-insurance products that work for everyone
Finally, insurers need to create products that are tailored to the needs of a range of people. One of the downsides to selling products with only one underwriting assessment is that it forces the insurer to box the proposition to a specific market segment. The product will typically be either tailored toward a mass-market segment of largely healthy lives, or branded to target impaired lives, or those with specific conditions like diabetes.
There are examples in the industry that enable producers and underwriters to make one-time adjustments to policy features, such as re-underwriting a smoker as a nonsmoker after a smoking cessation program. However, these solutions tend to be very niche and are not designed to encourage continual, long-term health maintenance.
A benefit of continuous risk assessment is that it allows the product and pricing to be tailored to the needs of any customer over time. The product can be sold to the diabetic, pre-diabetic, or completely healthy life, while ensuring the support offered and the coverage provided are appropriate to the need. This approach can address a customer’s needs today and grow with them into the future.
Stepping back to look at the big picture, our structural and cultural challenge is very similar to what governments and health organizations are experiencing as they contemplate how to drive behavioral change around these risks. The US healthcare industry is responding to this challenge by pushing more responsibility for health prevention onto individuals and healthcare teams. The move to value-based healthcare models rather than a fee-for-services model requires health providers to measure their success by the overall health and well-being of the patient, not the number of services provided to the patient.
Similarly, insurance companies need to acknowledge the role individuals are taking in their own health management and help them in understanding their risks from both a health and financial perspective. By serving as the customer’s personal-risk advisor, the insurer can acknowledge changes in risk quickly and reward changes in actual health outcomes directly through policy features.
It seems like we have much in common with many stakeholders outside of insurance in this respect, and maybe there is potential for us to engage, align thinking and share best practices on this important topic. ◊
Why not have agents re-define themselves as “personal risk managers”?