Updated: Jun 6
Vitality Life Insurance latest promotion offers a discounted apple watch in exchange for your activity data, or more precisely; if you continue to hit certain targets through the vitality fitness app then you only ever have to pay an upfront fee for the watch. Fitness tracker linked insurance is nothing new and the John Hancock Vitality program has been a champion of it from the beginning. John Hancock, one of the oldest and largest North American life insurers, confirmed back in 2018 that they will “stop underwriting traditional life insurance and instead sell only interactive policies that track fitness and health data through wearable devices”.
And why not? There are some viable potential benefits of insurers tracking customer’s fitness data for both parties. When a life insurance customer dies, the insurer pays a lump sum to the next of kin. Life insurance companies want to keep you alive so you keep paying your insurance premiums and so, in the case of term policies, they don’t have to pay out upon your death. Therefore nudging you into healthier behaviour is as beneficial for the company as it is for you. But purely for the sake of a balanced article let's address some of the potentially society-crippling ethical, privacy, and equality concerns that come about from insurers taking a keen interest in the use of wearable technology.
What is insurance?
When buying life insurance you are essentially making a bet with your insurance provider that you will die within a certain period of time (cool bet). The insurer bets you won’t and if you do they pay out a lump sum to you; the now dead winner of a bet. The first life insurance plans were developed in London in 1706 where each member paid a fixed annual payment. At the end of the year a portion of the contribution was divided among the wives and children of deceased members and it was in proportion to the amount of shares the heirs owned. Nice, community in action.
The general outline of life insurance hasn’t changed much, however, insurance companies now use a huge amount of data and actuarial tables to calculate members’ likelihood of death. A slightly increased chance of dying means you’ll pay higher premiums, a very high risk of dying and you’re unlikely to be insured.
According to a Penn State University study, 99 percent of all term policies never pay out a claim; the remainder lapse because the customer outlives the term of the policy, cancels, or simply stops paying the insurance premiums.
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Life insurance companies take this bet on whether you will die or not because they have access to years of research of life expectancies of individuals and can make pretty accurate predictions on whether or not someone is likely to die within the term of their policy. If a complete and perfect amount of data was available on a group of people then you can reduce the percentage of the insurers client base that pose a potential financial risk. If this is the case then customers would end up in two groups: 1. Uninsurable - very likely to die within the term of their policy. 2. Insurable - very unlikely to die within the term of their policy. The uninsurable group are customers which would have seen the most likely to benefit from having life insurance but are now excluded. The insurable group are now making a bet with a considerably lower probability of receiving a payout/dying. With these greater odds insurance companies would now have an option to increase the payout amounts and decrease the premiums so your dead person winnings would be considerably higher.
Does this separation of high risk individuals from entering the insurance market completely abandon any sense of community that the insurance industry was originally created to serve? With so many health problems being linked to poverty does this just exacerbate inequality in society?
An increased amount of data on an individual definitely creates questions around the nature and dynamics of life insurance policies however these aren’t necessarily specific to the implementation of wearable tech. So what problems do wearables pose...
So far there is no evidence that the company will raise your premiums if you fail to exercise enough but it’s a valid concern. John Hancock is clear that while all customers will be required to enrol in the Vitality program, the use of fitness trackers as part of their policy is opt-in. How comfortable would you be if it wasn’t?