Life Insurers Find New Way to Identify Risky Customers

Purchasing life insurance has never exactly been an easy process. Not only do you have to disclose a long list of personal information, but in many cases, you must also take part in a medical exam–something you don’t even have to do when purchasing health insurance.

The good news is that life insurance companies are considering a new way to determine the risk level of prospective customers, one that could eliminate the standard blood and urine tests. The only problem is that this new way of identifying risky customers could compromise consumer privacy in more ways than we could ever imagine.

New Risk-Assessment Technology

Getting ready for a life insurance exam is often a tedious process–one that many prospective policyholders don’t look forward to. The standard life insurance test consists of a blood test, urine specimen, blood pressure reading, series of health questions and sometimes an electrocardiogram (EKG), which is often considered to be overly-intrusive by many applicants.

It may be that companies are just as annoyed by the process, too, which is why they are seeking the help of a new technology known as the “predictive modeling” system. This system looks at consumer-marketing data, which is traditionally used for advertising purposes, to predict risks for complications like high blood pressure based on lifestyle choices like exercise habits and diet.

Some insurers have already tested out this technology, including the U.S. arm of the British insurer Aviva PLC (which looked at 60,000 recent insurance applicants), American International Group Inc. and Prudential Financial Inc., while others are considering it.

Proponents of this technology believe it could lower insurance costs for both companies and policyholders while making the process less intimidating for consumers. However, some think that would only sacrifice already-diminishing consumer privacy.

The Implications of Trading Privacy for Low Costs

The idea that the process of purchasing a life insurance policy could be streamlined and costs could be lowered is an enticing one for anyone, but if the new technology that insurers are considering becomes prevalent, would our privacy be compromised?

Here is a short list of potential personal questions you’d have to answer:

  • How many children you have and when you had them (to determine stress levels)
  • How many years you’ve lived in your home (financial stability)
  • Whether you rent or own (financial stability)
  • How many miles you commute to work (stress)
  • What type of bank card you have (premium or low-level)
  • How much TV you watch (inactivity)
  • What foods you buy in the grocery stores (health)
  • Where and how often you buy fast food (health)
  • What magazines you buy (interests)
  • How often you read books (inactivity)
  • What you do on your job (do you sit behind a desk or work actively)

Companies would take information like that listed above (which would be gathered by consumer data agencies) and couple it with their own criteria to decide whether to accept you and how much to charge if they do.

To some, collecting this information would be a definite violation of privacy. Especially when considering how much information life insurance companies would need to collect to feel satisfied that they’ve determined risk. Even more, some are skeptical about whether we would actually see cheap life insurance if companies are allowed to make their own risk assessments based on random consumer data.

Depending on how the information is utilized, just about anything from how many burgers we purchased at a fast food chain to how much TV we indicated we watch on an online survey could create a case for us having preexisting conditions and their need to increase costs.

This level of intrusion, scrutiny and potential discrimination, not to mention what laws could be broken on the part of insurance companies, is something that troubles those looking into the idea with skepticism.

Rebecca Kuehn of the Federal Trade Commission’s division of privacy and identity protection recently told the Wall Street Journal that the use of this information would likely “raise questions” about whether the data would be subject to the federal Fair Credit Reporting Act since marketing-database firms are now only lightly regulated.

If companies were able to use the data they gathered from unknown sources to deny insurance or increase rates, she believes this law and others just might have to kick in.

What Does the Future Hold for Insurance Applicants?

Currently, insurers are only testing out the idea of utilizing this new technology since they still don’t know how they will gather data and actually use it to make their determinations.

Companies like Aviva that are working to understand it say they want to figure out how to use the marketing information to reach the same underwriting conclusions found with traditional methods while also looking at how they would have to change their underwriting process to accommodate the technology.

Of course, with the government questioning how the technology would affect privacy and whether it would be fair or discriminatory, it’s not likely that we would see it introduced to the public for some time.

In the meantime, if you’re looking for an easier way to get your hands on life coverage, consider the no exam life insurance.