Heather Majewski explores how innovation and opportunity are changing the smoking landscape
The fact that smoking is the leading cause of preventable death in the world is widely recognised. Yet, there are still over one billion smokers worldwide and eight million smoking-related deaths per year.
Life and health insurers are aware of the detrimental mortality and morbidity consequences of smoking. Understandably, then, smoking status is one of the most important rating factors in pricing insurance.
Historically, however, smoking status has been determined only once at policy issue, with no differentiation amongst different tobacco users or an easily validated incentive to quit.
Insurer perspectives on smoking risks report
A new global report titled ‘Insurer Perspectives on Smoking Risks' has been published by Marsh & McLennan (MMC) Advantage Insights, funded by a research grant from the Foundation for a Smoke-Free World. The Foundation is an independent, non-profit organisation committed to reducing deaths and diseases caused by smoking with a mission to end smoking in this generation.
The purpose of the report is to provide an overview of current and potential future practices related to tobacco underwriting, pricing classifications, and smoking cessation activities; it also describes innovations that could impact these areas. The report uncovered, among other things, flaws in the detection of smokers, a lack of measurable data for smoking cessation programmes, and limited sophistication of tobacco risk classification. The report also provides suggestions for how to navigate these challenges, particularly with respect to the application of new science and technology.
Technology is changing the game in every industry, including the insurance and tobacco sectors. In this space, several innovations can now be leveraged, including improved biomarkers for smoking detection, the introduction of "cleaner" nicotine products, and customer engagement or wellness programmes that allow for dynamic pricing of risk.
Leveraging the latest innovations to improve the bottom line
1. Improved identification of smokers at policy Issue
As stated in the MMC report, failure to accurately identify smokers leads to insurers not charging a sufficient premium for smokers who "slip" into a non-smoker class. This kind of "leakage" can also cause customers' policies to be voided for non-disclosure. Some premium leakage might be accounted for in historic experience used for pricing but would be insufficient if more and more smokers are slipping into non-smoker classes - which could be the case, as a quick internet search yields several examples of how to cheat a nicotine test. Improving the processes by which we identify smokers can both (1) enhance our ability to provide health modification programmes to these smokers; and (2) reduce non-smoker rates to potentially attract more customers.
To accomplish as much, medically-underwritten life insurance policies can now make use of recent advances in epigenetic markers. Epigenetics is, in short, the study of changes in gene expression that do not involve changes to the DNA itself. Epigenetics is a dynamic aspect of human biology overlaying the genes that reacts to lifestyle choices, such as diet, exercise, alcohol consumption, or tobacco use. And now, epigenetic tools can be used to identify and quantify smoking and alcohol consumption, even if a customer hasn't used a substance in days.
Already, studies have validated the use of epigenetics as a biomarker of tobacco smoking and to evaluate the success of cessation programmes. In addition, studies have shown that epigenetic indices are strong predictors of mortality.
Further, novel biomarkers for nicotine are in development. Such tools would represent a vast improvement upon the current standard, cotinine, which generally reflects nicotine use only within the past few days. The Foundation for a Smoke-Free World has allocated grants to multiple institutions (including Lumos Diagnostics) to identify inexpensive biomarkers and produce assays that can determine nicotine product use, distinguish between different products consumed (among dual or poly product users), and even quantify the number of cigarettes smoked.
2. Measurable quit smoking interventions
Employers stand to gain from employees who quit smoking because (1) smoking breaks lead to lost productivity and (2) health care expenses are heightened in smokers, as compared to non-smokers. Life insurers also stand to profit from their large in force customer base quitting smoking and thereby delaying or preventing tobacco-related diseases. The MMC report finds that most existing customer engagement or wellness programmes for smoking cessation do not validate whether an insured individual quits smoking or not. This is mostly due to the invasiveness and cost of validation using cotinine.
There are programmes that can monitor smoking using carbon monoxide (CO) sensors, which are quick, non-invasive, and cost-effective. These sensors can be combined with other tools - such as quit smoking smart phone applications, behavioural science, coaching support, and financial incentives - to improve the likelihood of success with a measurable return on investment.
3. Attracting new customers using the newer ‘cleaner' nicotine products
There is an opportunity for insurers to gain new customers by offering differentiated pricing for "cleaner" nicotine users who would otherwise be classified as smokers and potentially turned off by high prices. "People smoke for nicotine, but they die from the tar," said tobacco researcher Michael Russell in 1976. Not all nicotine products are created equal (or rather, equally harmful). Analysis by tobacco experts determined that there is a spectrum of nicotine harm, with combustible tobacco products (cigarettes, cigars, pipes) being the most harmful and nicotine replacement therapies and smokeless tobacco being the least harmful.
Differentiated pricing can be enabled by other innovations, including:
- Epigenetic biomarkers, or even cotinine, coupled with a CO sensor to identify reduced harm users.
- Customer engagement or wellness programmes that allow for dynamic pricing of risk (rewarding smokers for quitting and other healthy lifestyle habits).
- Insurtech companies focused on direct to consumer (DTC) marketing that target niche customers or groups.
Differentiated pricing is already being adopted in the UK. The insurtech start-up Reviti uses DTC marketing to offer life insurance with discounted smoker rates for individuals using IQOS or e-cigarette products; in this system, use is monitored on an ongoing basis, thereby creating dynamic pricing of risk. Reviti has backing from insurer Scottish Friendly and Pacific Life Re.
There are several means by which insurers can grow their businesses or reduce claims associated with smoking. These options include: better validating smokers in the underwriting process, offering measurable smoking cessation programs, and creating new classes of nicotine users with dynamically-priced risk.
These changes can incentivise and support smokers in quitting. In addition to benefiting the health of insurance customers, such changes set a precedent for collaboration between insurers, public health organisations, and governments. To quote Adrian Gore, the founder and CEO of Discovery Ltd, "Insurers, along with government, are the only stakeholders that directly ‘monetize' better health, and less sickness and death, because less of these translates into higher profits. We therefore have a vested interest in collaborating towards driving improved behaviour and health outcomes."
A fellow of the Society of Actuaries, Heather Majewski is vice president of shared value initiatives at the Foundation For a Smoke-Free World
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