The Loop

Putting Life Back Into Life Insurance

Filed under: Benefits

Much the way health insurers have emphasized preventive medicine and employers have launched wellness initiatives, now the life insurance industry is joining the bandwagon to promote healthier lifestyles.

It makes perfect sense. The longer a policyholder remains alive, the longer the insurer can use his premiums to invest for a higher profit margin. As such, life insurers are becoming more focused on keeping policyholders alive.

As it turns out, keeping people alive longer is an achievable goal. That's because many of the leading causes of death are related to lifestyle choices, such as physical inactivity, an unhealthy diet, excessive alcohol and smoking. Those four lifestyle behaviors combined account for more than 60 percent of deaths and contribute to 80 percent of serious health conditions.

In the US, the first life insurance carrier to take a proactive approach to prolonging life is John Hancock. Last year, the insurer introduced "Vitality" as a complimentary program for all of its life insurance policyholders. Vitality is a platform designed to incentivize customers to adapt healthier behaviors related to exercise, nutrition, and mindfulness.

Once a policy is issued, the owner can immediately begin accumulating "Vitality Points" for completing health-related activities such as exercising, getting an annual health screening or even a flu shot. Policyholders enroll in an online account where they can input their workouts, doctor visits and meditation sessions, receive personalized health goals and use automated tools that can be integrated with wearable devices.

According to John Hancock, about 40 percent of its life insurance policyowners have opted to engage in the Vitality program and the average user logs in to his account about 40 times a month.

Vitality Points can be exchanged for valuable travel, shopping and entertainment-related rewards. For example:

• Discounts from outdoor gear retailers, such as REI and Amazon
• Discounts on wearable fitness devices, such as Fitbit®
• Free healthy living publications
• For a nominal fee ($2/month) participants can upgrade the program to receive:
             - more generous discounts from a wider variety of retailers
             - a free Fitbit or an Apple Watch for $25
             - up to 15% off annual premiums if they meet certain benchmarks

In 2018, John Hancock's Vitality program added discounts for 400,000 hotels around the world through This year, the program began offering a free one-year membership to Amazon Prime to participants who maintain the platform's platinum status for three consecutive years.

While the carrier benefits from delayed insurance payouts, policyowners are likely attracted by the opportunity to lower their premiums – in addition to subsequent health benefits. For example, a 45-year old couple could potentially save $25,000 by age 85 on premiums for two universal life policies with a face value of $500,000 each.

One drawback for customers is that to qualify for discounts, they must be willing to enter their health-related activities at the insurer's online portal. This gives the company a treasure trove of data it can use to cross-sell other products and even raise rates in the future for higher-risk customers. While insurance companies claim they are highly regulated and intend to use participants' data only to enrich their experience, customers should consider the potential ramifications. After all, life insurers can be as vulnerable as health insurance companies, credit card issuers, and social media websites when it comes to data breaches.

While John Hancock may have been the first American life insurer to launch a health-related initiative, the Vitality platform has been around for quite awhile. It was developed by a South African financial services group called Discovery, which offers the innovative behavior modification platform across its business channels, including insurance and banking.

The philosophy behind Vitality is that helping customers helps hedge company risk. For example, the Vitality Money program links interest rates directly to its bank customers' financial behaviors. Consistent saving habits and timely credit payments enable them to earn more interest on savings and pay less interest on credit.

The company's Vitality business model has yielded remarkable results, such as reduced morbidity and mortality rates and, subsequently, lowered payments on claims. The company then "reinvests" a portion these savings into participant rewards and reduced premiums. As proof of its success, Vitality boasts that its members have 30 percent lower hospitalization costs and live 13 to 21 years longer than the rest of the insured population.

Across the globe, other insurers have demonstrated similar success at shaping healthier customer lifestyle behaviors. For example, Skandia has partnered with a healthcare nonprofit in Sweden that features a caller hotline for employees. The program connects them with professionals that specialize in holistic counseling for physical/mental health, family or work-related problems. The program asserts a 50 percent decrease in sick leave and offers up to 80 percent reductions on annual premiums.

These new perks provide the insurance industry with an entryway to a previously disinterested market: Young adults. Because they tend to be healthier and not encumbered by mortgage debt and familial obligations, young adults have traditionally eschewed life insurance until they start a family. However, today's average Millennial carries a heavy student debt load, so a payout to unburden loved ones should they die young offers a viable reason to purchase life insurance.

However, the key is affordability, and value-minded Millennials may well be attracted by the lure of free fitness devices, sporting gear discounts, affordable gym membership and low insurance rates.

The investment is well worth it for insurers, as the inclusion of younger, healthier entrants to the insurance pool helps offset the cost of death benefits and can even help reduce premiums for everyone – including employers who provide it as a paid benefit. In fact, clients who use the Vitality platform report a 21 percent better claims rate and two times better mortality rate for members who remain in the risk pool.

In the year since it first introduced Vitality to its insurance contracts, John Hancock has high levels of activity among its customer base. For example, John Hancock Vitality policyholders:

  • Take nearly twice as many steps as the average American
  • Have logged more than three million healthy activities including walking, swimming, and biking
  • Engage with the program approximately 576 times per year – compared to customers with traditional insurance, who engage with their life insurance company only once or twice a year

Incentivizing positive policyholder behaviors appears to be an insurance idea with legs. We've seen it with safe-driver discounts for auto insurance policies. Tesla auto manufacturer has begun offering its own auto insurance policy that features reduced rates for Tesla customers that use the vehicle's AutoPilot driver-assist system. Even Philip Morris now offers life insurance that rewards smokers who switch to its IQOS heated tobacco device with a 25 percent discount on premiums. Because this new product is considered potentially less harmful than traditional cigarettes, customers can potentially live longer – prolonging death benefit payouts.

According to the industry trade group LIMRA, the percentage of US households that purchase individual life insurance policies has stagnated in recent years. Insurers offering lifestyle incentives have basically created this new marketing idea to help drum up business on the front end while increasing revenues on the back end.

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