Shooting The Gap

Can We Make Life Insurance More Relevant?

How the industry holds the power to cover more customers

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. JJ is responsible for the coordination of Swiss Re’s strategy related to new underwriting and customer experience solutions that help clients better connect, transact and retain insurance customers. With more than 20 years in the industry, she has served in a wide variety of roles within life reinsurance. A Fellow of the Society of Actuaries, JJ received her Bachelor of Science in Mathematics from the University of Michigan and Master of Science in Mathematics from the University of Illinois.

Leveraging existing technology and employing better consumer engagement — we as an industry have readily usable tools at our disposable, but can we do more to reach people who are not buying insurance today? Bottom line, there are small changes we can make that can really move the needle on life insurance.

Right now the landscape looks like this: insurance companies are working hard to close the $20 trillion dollar mortality protection gap, but how many people with a gap can afford to buy what they are being sold? Perhaps it is not a coincidence that the rise of obesity and diabetes in the US over the last decade corresponds to the decline in the number of life insurance policies sold. We generally attribute this decline to a focus on high net-worth individuals, but could it also be true that we simply have fewer eligible applicants and thus fewer polices? To truly accomplish our goal of closing the protection gap, we have to find ways to make insurance more relevant to people with mild chronic conditions.

Helping Anne

To me, it all starts with a mindset. As an industry, we spend so much time evaluating risk and mitigating risk that I think sometimes our brains get stuck. We focus on “preferred lives” with the image of a healthy 6-foot-tall person weighing 175 pounds, with blood pressure of 110/75, and normal blood sugar and all the rest. That’s a nice life insurance candidate. But in reality, as long as we price risks appropriately, we should be just as happy insuring real people (who make up most of the population) that struggle daily with managing their health. And yet we make it so difficult for that person.

A friend and colleague of mine — I’ll call her Anne — would really like to buy life insurance, but she can’t even start the journey because she struggles with weight-related medical issues.

Well aware of her mortality protection gap after nine years of working, Anne recently completed a couple of online quote calculators for a $500,000, 20-year term policy. These asked for her health status, and in each case she chose the least favorable option (“average” and “fair”). The first calculator did not ask her height and weight, and it came back with a quote of $63.50 per month or $762 for a year. Not a deal breaker, but almost double the rate quoted if she changed her status to “excellent health.” The second calculator did ask about height and weight, and it came back with this message: “Your situation is unique. Based on the information provided we cannot display an online estimate.” After that, she was inundated with calls and emails from insurance companies that wanted to sell her insurance policies she could not really afford. Anne has opted not to go through the life insurance process now because she wants to avoid the risk of being denied a policy, which she worries would hurt her chances of ever getting one in the future. She’d rather focus on trying to improve her health first before she applies.

The sad fact is, Anne’s situation is NOT unique. My own mother shared her feelings of anxiety over whether she would be approved for insurance. In our customer research, our team has spoken with many people in similar situations. The people we spoke to either don’t think about insurance at all, or if they do, they all too often fear that insurance will be too expensive or they won’t be approved. Just look at the numbers: 9.4% of the US adult population has diabetes, yet only 2.6% of insurance applicants have diabetes.

Without looking at the real contrast between applicants and the broader population, it’s easy to see past the problem. Based on underwriting manuals, most diabetics that are managing their condition and many people whose BMI classifies them as overweight or obese would actually qualify for mildly substandard or even standard rates. But a perception gap persists. For insurance to work for the average person, something has to change.

Changing how we do business

The best way to hold people accountable would be to allow premium increases for deterioration in health. It’s not clear that people would be open to increases in premiums to reflect worsening health...

If we want to insure more people, we should start looking at the way we underwrite risk. Today, while underwriters do their best to understand an applicant’s health trajectory, underwriting is done only at a single point in time, based on whatever information is available at the time of application. Thereafter, premiums are fixed, regardless of the future path of one’s health. But if a person is motivated to change their behavior, where’s the motivation to lock in higher premiums today?
And how do you attract people to buy insurance when the very thought of it is riddled with fear of rejection? Design thinking teaches us to look closer at the customer’s tasks. In Anne’s situation, she wants to lose weight so she can keep up with her kids. So how can we position our offering to help her meet her health objectives through lifestyle changes while also ensuring she can continue to provide for her children?

When surveyed, 66% of customers would be open to or interested in a life insurance policy that provides benefits to them when their health improves. The goal is to transform the proposition of life insurance into something that ‘helps me manage my health risks, while protecting those I love.’
By partnering with Sharecare, a digital health engagement platform, and connecting an individual’s health changes to their insurance coverage in a more dynamic way, we can make insurance more accessible and more relevant.

In Anne’s case, an insurer could offer her insurance coverage that is tied to her health changes along with an invitation to register for a health app and wearable device to help her improve her health over time. On the app, she could receive recommended goals with coaching services and health tips to help her achieve her goals. Upon showing measurable progress toward her health goals over a specified amount of time, she could be re-evaluated so she can be eligible for premium decreases or an increase in the face amount of the policy that reflects the changes in her health. This approach has the potential to motivate Anne to live a healthier life with periodic upgrades to her life insurance policy based on her tracked health improvements.

Clearing the goal line

Clearly, this kind of proposition would require a change in the traditional underwriting approach of evaluating risk at a single point of time. But by shifting to a more dynamic approach of re-evaluating periodically, it would be possible to make insurance more accessible to people who wish to make health improvements.

This scenario also fixes another flaw in the current underwriting system, the idea that applicants submit their personal data without receiving any tangible value in return. But if the same data helps people measure progress toward their goals and for ongoing alerts to health risks, it becomes less of a burden to share that data. 77% of people in our survey, in fact, would be open to or willing to share annual reports of health factors (weight, blood glucose, blood pressure, cholesterol and smoking status) with their life insurer.

By definition, holding people accountable for their future health improvements shifts some risk back to the customer. So, what happens if Anne’s health worsens instead of improves? The best way to hold people accountable would be to allow premium increases for deterioration in health. It’s not clear that people would be open to increases in premiums to reflect worsening health. However, in a recent survey, 18% of people would understand an increase in premium related to health deterioration. That answer was independent of any association with health support. If integrated within a health proposition that helps people identify and reverse negative trends, and if there was plenty of warning before an increase, would people be more comfortable with a variable premium structure? That remains something to test.

We know that people don’t want you to take away something that they’ve earned. Since our goal is to create an authentic, trusted environment, we need to be careful to take into account issues of fairness in product design. The revised underwriting approach would have to only reflect changes that are largely within an individual’s control. We call these “modifiable risks” and they include factors like BMI, blood glucose, blood pressure, cholesterol and smoking status. Nevertheless, the design would have to account for accidental factors outside of someone’s control. A careful balance is required, because the more complexity introduced into the product, the less transparent and clear it likely is.

The end desired result is clear: by providing a support system for people to manage their health journey, and creating a more holistic view of insurance in the context of health management, I believe we can create a more relevant offering for people striving to manage lifelong challenges like diabetes and obesity. ◊