Run for Your Life Insurance
Someday soon, Big Brother may be watching you. Only his name will be "John Hancock."
The insurer is rolling out a program in the U.S. similar to ones already deployed in other parts of the world, where your life insurer tracks your fitness levels, then gives you rebates depending on how active you are. Folks who get up in the morning and jog five miles will get rebates; couch potatoes who can barely make it to the kitchen for another soda will be paying more.
I'm sure this makes sound business sense in an industry that isn't exactly experiencing roaring demand growth. But if it becomes common, I'd expect some pushback. After all, this is exactly the sort of sound underwriting we just outlawed in the health insurance market.
When this shakes out, we're likely to find that the biggest discounts are disproportionately going to folks with higher incomes, who are educated and healthier. On an actuarial basis, this makes total sense, because those people are the least likely to die in the near future and cost their insurer a bunch of money. But the necessary corollary is that people who are poorer, less educated and not as healthy are, on top of all their other worries, also paying more for their health insurance. So programs like John Hancock's are likely to attract negative attention from the same people and groups who don't like insurance companies using credit ratings to price insurance.
As far as life insurance goes, complaints may be muted because this is already basically a middle-class product. (And now seems as good a time as any to remind you that if you don't have life insurance to protect your family from financial catastrophe, you should go get a nice term policy this very instant!) But what if employers offered to pay more of the health insurance premiums for employees who agree to fitness monitoring? Is this a worthy nudge, or is it discrimination?
We used to say that insurance markets were hampered by asymmetrical information. But if asymmetrical information continues to decline, we may end up with a different problems: prices that are too accurate for comfort.
But why should they use credit ratings? you ask. After all, you're not borrowing money, you're paying money. Why does it matter whether you're behind on your credit card payments? Because, the insurance companies reply, people with lower credit ratings are at higher risk of making more claims. I don't know why this is -- whether it's something about being poor (like living in a high-crime neighborhood), whether credit ratings point to trouble managing money and other parts of your life, or whether people make more claims because they're short on cash and can't decide if they'd rather eat a moderate damage claim to keep their premiums from going up. But the insurance companies aren't doing this to be mean; they're doing it because people with low credit scores tend to cost them more money.
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