I was recently asked to be a judge at an insurance innovation day for people working across the industry. The participants were asked to present their view of the insurance world in 2030.
The teams did a great job presenting their views of the future. What struck me most was just how similar all their views were!
Most teams presented a picture of insurers using loads of data in real time to asses risk continually. Moving away from static policies to dynamic ones.
I wrote in a recent blog post the Joys and oys of life insurance, that life insurance companies forecast your entire life from a single form (usually paper based).
They then expect you to stay the same until the day they predicted that you would die.
If you want to be kind to the Actuaries, please die on the day that they predicted. It will make them look good to their bosses.
Currently, life insurance companies rely heavily on the law of large numbers. Simply put, if they “guess” when a whole lot of people will die, they will hopefully be right on average.
For pricing, they focus on large groups of similar people rather than looking at an individual’s actual risks. This is not a bad thing, pooling of risk is absolutely key for insurance to function at all.
However, given the changes in technology, healthcare and the quantified self, people will demand more personalisation throughout their relationship.
And there is a very real and long term relationship between a person and their life insurer. After all, the average marriage in the UK lasts 11.7 years, but your life policy is often 20+ years!
The solution is a dynamic policy, right?
Well yes, with two very big buts.
Flexible policies that change with people over time are the future. Of this I have no doubt. There are many benefits, here are three:
- Better matching of needs — Cover can change to meet changing needs.
- Fairer pricing — less cross subsidisation across people and even for the person. When you take a long term policy with a fixed price you effectively pay too much when young and then too little when older. This means if you cancel your policy before the end you have overpaid for the actual risk!
- Behaviour change — If people better understand how their behaviour affects their life, they can be enabled to make positive changes.
Now back to those buts.
But 1 — How Ben & Jerry’s could kill life insurance.
A famous person once said:
“We noticed that you ate an extra-large Ben & Jerry’s today, so your premiums are going up 1.5% until you hit the gym.” — Jonathan Roomer
(Does quoting yourself make you famous?)
If your insurer sent you the message above, they would certainly have crossed the creepy line. Personalisation is the goal, but it has to be heavily viewed from the customer’s perspective.
The frequency of policy changes and communication will have to be carefully balanced and figured out over time. Too few means nothing changes from the status quo, while too many means that Mr Ben and Mr Jerry may end up killing dynamic policies all together.
But 2 — It could exclude lots of people
This is a potentially very large problem.
More data=more personalisation = more accurate pricing for individuals.
This is great for healthy and active people. But what happens to people who, through no fault of their own, have health and/or other issues?
As mentioned, at the moment insurers do a lot of averaging, meaning that healthy people partially subsidise less healthy people. Inevitably, giving healthy people preferable rates means that other people will be given worse rates or even denied cover completely.
A partial solution to this problem, is actually an even more dynamic policy. So many conditions are treatable, measurable and predictable these days. We are already seeing early sign of these types of polices. The Exeter launched their Managed Life policy last year which is bespoke life insurance for people with type 2 diabetes or high BMI. The policy offers incentives to customers for measuring and improving their HbA1c reading and BMI.
Normally at this point, you would expect me to conclude this blog with some sort of brief summary. I would then end with an upbeat (probably a little irreverent as well) message about how the future of insurance is bright.
But life has taught me that you often don’t get what you expect.