Protection providers will soon be considering customer telematics. Phil Jeynes examines the consequences.
So, what effect would this more accurate view of a policy holder's health have on pricing? Currently, insurers take a snap shot of an applicant's health, factoring in their previous medical history, family conditions and their general health (including height and weight for example) at that moment.
Actuarial calculations are then used to predict that person's likelihood of claiming over the term for which they are applying. This is where factors such as smoker status, alcohol consumption and waist size come into play.
If the applicant fits within acceptable parameters they are offered a standard premium, if they are deemed a higher risk they might be charged more, have a particular illness excluded from their policy or outright declined cover in the most extreme circumstances.
Assuming this initial process remained largely unchanged, real time knowledge of a client's changing health could allow insurers to offer improved terms even during the course of a plan, acknowledging weight loss, improved diet or smoking cessation as it occurs.
Just like telematics in car insurance, this could have the dual effect of attracting healthier lives in the first instance and encouraging those who are outside optimum levels to become healthier to the mutual benefit of insurer and client.
Of course, the flip side to this benefit would be providers' ability to notice deterioration in their insured lives' health (an inevitability over a long enough period) and potentially increase the cost of cover accordingly, thereby penalising those customers most in need. After all, not all health issues are as a result of poor lifestyle choices.
So a perfect solution would seem to be a guaranteed premium which has the ability to reduce in line with improved health and wellness but not rise exponentially should a person's health deteriorate due to no fault of their own.
Encouraging Protection customers to take a more active role in their health is in line with research showing how disease and medicine are evolving, rapidly, towards non communicable illnesses presenting the largest threat.
Lifestyle diseases
According to the World Health Organisation, in 2011 over 63% of deaths worldwide were caused by illnesses such as heart disease, diabetes and cancer - largely lifestyle related diseases, as opposed to the infectious conditions which were the major threat as recently as the 1990s.
Indeed, the Oxford Health Alliance's oft quoted 3-4-50 model (demonstrating that three lifestyle factors: smoking, diet and exercise are the major caused of four diseases: cancer, diabetes, heart and lung disease, which in turn cause 50% of deaths worldwide) has lately been updated by researchers to a more up to date 4-4-65 version, adding alcohol consumption to the causal factors and upping the percentage of resultant worldwide deaths to 65%, accordingly.
Closer engagement with clients is something that protection insurers have never been brilliant at and the contact points have tended to be only at purchase and claim stages, leading to many surveys indicating that customers have a poor perception of the value of their cover.
This attitude needs to change. We must keep pace with our colleagues in other sectors and not be afraid to embrace new thinking if we are to take our industry to the next stage of its evolution.
Phil Jeynes is head of account development at PruProtect
