Consumer interest in life insurance spiked during the pandemic, but U.S. insurers may not want to wait for customers to knock on the door, virtually or in person. Growth could depend in part on understanding and cutting through the barriers that separate consumers from the coverage they need.
Those barriers often relate to potential customers’ concerns over their chronic illnesses, biometrics, and lifestyle. More than half of American adults have at least one chronic illness, and more than a quarter have two or more.1 The first article in this series noted how advances in acute care tend to mask the prevalence and blunt the impact of chronic conditions on overall lifespans. Still, such diseases can shorten healthspan—the time that people are able to live independently and productively—in proportion to lifespan. And chronic illness often cuts lifespan short of its full potential.
The smart watch market alone is forecasted to grow nearly 10 percent a year from 2022 through 2027.
Given connections between chronic disease and insurability, opportunities for life insurers and potential customers to build mutually satisfying relationships can slip away in stages. Consumers, insurers, or both may feel they have little control over a waterfall of decision points:
- First to go are the people who never apply. There can be a variety of reasons, including the belief that they don’t need coverage, but many are likely not to apply because they have chronic illness. They expect insurers to reject them or price them out of the market. More than 50 percent of Americans think life insurance costs more than it does—some by a factor of three.2
- Next are those who apply and see their fears confirmed: Chronic illness causes them to be denied coverage or quoted a higher premium than they’re able or willing to pay.
- Finally, existing customers may pay high rates to insurers that give little attention to their individual journeys with chronic disease. Policyholders who proactively manage their condition might qualify for lower rates, which could aid retention, upselling, or cross-selling—if only insurers could identify those cases in their portfolios.
About 40 percent of American adults believe they need to buy life insurance or increase their coverage, which amounts to 102 million people uninsured or underinsured.
A persistent gap
Assumptions made on both sides around chronic disease contribute to the vast life insurance gap in the United States. About 40 percent of American adults believe they need to buy life insurance or increase their coverage, which amounts to 102 million people uninsured or underinsured.3 These shortfalls may threaten their financial resiliency, while insurers miss countless opportunities to grow and help meet a pressing need.
For many people living with chronic disease, their perceptions regarding life insurance may be close to the truth. The application process can indeed feel intrusive and stigmatizing, and the results of underwriting scrutiny can feel punitive. This is especially so for people who follow their treatment regimen and make lifestyle changes that help delay disease progression. Seeing these hurdles before them, many may put off buying or increasing their insurance.
Conventional thinking might suggest that from a business perspective, life insurers are better off leaving chronically ill customers to writers that cater to this segment. Simplified issue coverage substitutes lengthy health questionnaires for medical exams, while guaranteed issue compensates for minimal underwriting by charging significantly higher rates.
But given the size of the chronic disease cohort among American adults, can any life insurer afford to treat these potential customers as homogeneous groups based on the average risk of associated various chronic conditions? Or is it wiser to dig in and master the nuances of risk determined by differences in lifestyle and medical compliance among chronically ill people?
Looking deeper into the current portfolio
Turning inward to the existing portfolio, there’s still more for a life insurer to consider. One customer may have come aboard already living with chronic disease, placed in a rating bucket with her apparent peers. But she’s quit smoking and managed her condition by getting regular checkups, taking her prescribed medications, eating well, exercising, and moderating her alcohol consumption. Could she qualify for a lower rate? There may be an opportunity to build goodwill that at least heads off a policy surrender or cancellation, and in time could create a cross-selling or upselling opportunity. Multiplied across a portfolio over time, such a strategy could result in increased premiums and stronger returns.
On the other hand, a man underwritten 30 years ago as a healthy 30-year-old may have become a 60-year-old with poorly managed diabetes and hypertension. The disease could be left to run its course—assuming the insurer even knows about it—or intervention might help to extend the customer’s healthspan, lengthen his lifespan, collect more premium, and ultimately delay the claim payout.
Beyond the individual implications, how many more like him are in the portfolio? What does that mean for overall portfolio risk? Acquiring this data could help guide an array of decisions, from reserving to selling or reinsuring blocks of business.
Minimizing coverage gaps
Studies suggest that some ethnic and racial minorities may be disproportionately affected by chronic conditions such as hypertension, diabetes and high blood pressure, in part a reflection of historical disparities in access to healthcare.4 Human health metrics could help point the way to individualized risk assessments that enable better coverage and pricing for people who, as documented by wearable devices, are managing their chronic conditions proactively. This knowledge, in turn, could help combat possible biases and potentially discriminatory underwriting practices that trace their origins back to historical race-based rating tables.5
The largest prize
Still, the greatest opportunity could lie at the beginning of the life insurance value chain. It’s here that insurers may be able to change how they engage with the major groups that tend not to buy life insurance. One cohort is the young and healthy, who see little need for the protection. And there are the elderly, who are more apt to have chronic disease—but need not be ignored in terms of healthspan and its potential effects on mortality and morbidity. Perhaps the most challenging to approach is the chronically ill population at large, which calls for new tools such as human health metrics to drive and apply fresh thinking.
Together, these groups can present a sizable, perhaps even transformative opportunity for life insurers that plug into human health metrics and align their actions with their mission to prioritize healthspan, for societal as well as corporate good.
Wearing it well
Technology is creating new possibilities for pursuing these goals. Wearable, web-enabled devices such as fitness trackers, smart watches, and more specialized sensors can capture and transmit a range of metrics, from basic vital signs that indicate levels of physical activity to blood sugar and heart rhythm. The smart watch market alone is forecasted to grow nearly 10 percent a year from 2022 through 2027. 6
Beyond the immediate, actionable information provided to users and their healthcare providers, human health metrics from wearables can help support modeling and analytics for life insurers across their business, including how they connect to and account for consumers with chronic illness. Underwriters can use modeled data from wearables in conjunction with electronic health records (EHRs) to help refine their risk assessment of chronically ill applicants, adjusting quotes as appropriate for those who proactively manage their condition.
For existing life insurance portfolios, wearable data coupled with stochastic risk modeling and analytics can help yield deeper understanding of mortality risk already on the books. At the policy level, this can drive engagement with existing customers to encourage disease management that may extend their healthspan and lifespan, to the mutual benefit of the policyholder and insurer. It’s a repeatable exercise that can help raise the return on investment from in-force business.
Verisk is at the forefront of realizing the full potential of EHRs to transform life underwriting, and Verisk’s portfolio modeling tools can yield fresh, penetrating insight into mortality risk. Now, Verisk is building new collaborations to broaden the human health metrics data and analytics available through these innovative platforms.