money

Life insurance is becoming increasingly sophisticated

Getting covered now will save you money

Toby Simpson, Special to Gulf News
13:54 September 17, 2016
life insurance policy

Complete an application form for life insurance and you will be asked to provide a range of information — from your address and date of birth to your occupation and state of health.

It’s then probably no surprise that some of this information will be used to help determine the premiums you pay.

But what if the questions went further, perhaps asking for your eating, food shopping and exercise habits, or other personal information? The responses could determine how much it would cost to insure you.

So would this be a good or a bad thing? An unwelcome intrusion into your lifestyle and habits, or simply a sensible approach for insurers to take?

Whatever your view, there is no need to consider “what if?” It is already happening as insurance companies closely align the premiums people pay with the risks of insuring them.

Insurers have always considered customers’ height and weight details to help assess whether someone is overweight, and consequently more likely to suffer serious health problems.

Likewise, smoking and drinking habits are taken into account. Smoke or drink and you’ll pay higher premiums because the risk of you dying prematurely is greater. Simple, really.

Increasing personalisation of insurance

What is now changing is the level of individual tailoring being applied to this type of risk assessment. Insurance has historically operated on a pooled risk approach, with prices determined by demographics, such as age and gender, height and weight, smoker status and broad statistical averages.

But things are moving on. A handful of insurers are already rewarding people who appear to live healthier lifestyles, with those who visit the gym regularly or eating lots of fruit and vegetables, receiving cheaper health and life insurance premiums as well as cash back on healthy food and lifestyle purchases.

But this could just be the tip of the iceberg; the underwriting of life and critical illness insurance policies could go much further, potentially right to the fundamentals of our existence — our DNA.

A big leap that could yet come is the widespread use of genetic testing in assessing insurance risk. Taking the UK as an example, currently insurance companies can request disclosure of the results of any diagnostic genetic tests customers have already taken, though they cannot ask them to take the tests.

People usually take genetic tests because there is a history of a condition in their family and they want to know if they have it or are likely to develop it.

The principle by which insurance companies can request this information is the same as that which requires someone applying for insurance to disclose their own medical history, and their family’s, where relevant. It is known factual information that can be used to help assess risk.

Predictive testing line in the sand — for now

But a line has been drawn at the more controversial area of predictive genetic testing in the UK, for now at least. Predictive testing, as distinct from a diagnostic test that reveals the presence of a condition, shows a person’s chances of developing cancer and other serious illnesses.

Such information could have huge implications for a person’s insurance premiums, perhaps even their insurability.

Companies could refuse to insure a person because of the presence of a gene that increases their likelihood of suffering from an illness, even if they don’t have it today and perhaps will never develop it.

The UK insurance industry, represented by the Association of British Insurers, is currently subject to a voluntary agreement not to ask for the results of any predictive genetic tests, or ask a person to take one (with the exception of Huntingdon’s disease).

The agreement was introduced in 2001 and has been periodically reviewed and renewed since, most recently from its previous cut-off date of 2017 to its new review date of 2019.

Will it be renewed in 2019? In all likelihood I would say yes, but what about the next time, or the time after that?

Insurers, like any business, constantly consider ways to minimise their costs, which they could seek to do by more accurately assessing customers’ genetic predispositions to illnesses and basing their premiums on this information.

So, if routine genetic testing may have seemed like the stuff of science fiction only a few years ago, in a few years’ time it could easily become a reality.

The only thing stopping it from happening in the UK is a voluntary agreement between insurers and the government. Meanwhile, the increasing personalisation of insurance based on lifestyle choices and other previously unconsidered factors is already here, and its use is likely to grow.

This is not a bad thing. If someone eats healthily and exercises regularly, the chances are that this will be reflected in lower premiums, incentivising them to make choices that are good for their health.

The attractions for insurers are clear too: By encouraging people to be healthy, they are less likely to have to pay out on policies.

In many ways, genetic testing represents the antithesis of this approach. If a test reveals you are genetically disposed to developing an illness, no amount of jogging or health food is going to change that. Genetic testing computer says there is an increased likelihood of contracting a serious illness — end of story!

Term life insurance 

What do the latest trends mean for someone who doesn’t have health or life insurance, but perhaps should be thinking about it? 

Or who may be considering getting additional cover such as critical illness?

To my mind, it may be a case of better the devil you know. As you read this, you are the youngest you are ever going to be. 

If you have a need for life insurance now — to protect your family or cover for a mortgage for example, take out a term life insurance policy today and the premiums you pay will forever be based on the information supplied at this point in time. They will not rise with age or changes to health. 

That means buying a term life insurance policy now will be cheaper than taking it out next year — perhaps even as soon as next month. Waiting will only make it more costly.

Furthermore, as depressing a thought as it is, your health is likely to deteriorate over time. Just because you are fit today, you may not be tomorrow, next week or next year. Life is uncertain and you never know what might be around the corner (forgetting predictive genetic testing for a moment…).

All you do know for sure is that if you wait, insurance is likely to become more expensive — if you are able to obtain it at all. Insurance is one of those things that you hope you never need to claim on, but you should never regret having it — one day you might need it. Its value then can be much higher than the total premiums paid.

So if you don’t have life, critical illness or health insurance, or if you are underinsured, it’s worth reviewing the situation and maybe speaking with a professional financial adviser.

In the meantime, keep up the gym sessions and healthy eating, because they’re good for you and you probably enjoy them. And before long your insurance cover could depend on them.

 

Toby Simpson is a Regional Director for Friends Provident International, based out of Singapore.