Life insurers haven’t changed their approach to underwriting for decades, relying heavily on costly medical screening, such as blood and urine tests.
However, that may be about to change. Life insurers want to monitor how you behave online as a way of assessing your health and bypassing more traditional methods.
According to a story in today’s Wall Street Journal, New York’s top financial regulator is going to allow life insurers to use data from social media and other nontraditional sources when setting premium rates, though the insurers will have to prove the information doesn’t unfairly discriminate against certain customers. Under guidance released earlier this month, life insurers will have to use statistical and actuarial analysis to determine that any algorithms and data are free of bias against racial minorities and other groups protected by law.
Consultants said the use of social media in underwriting decisions is limited so far. “The data exists and is being collected, but the quality and the integrity of that data is not yet demonstrated to be accurate enough to be an underwriting input at this time,” said Ari Chester, a partner at McKinsey & Co.
The story offered a list of some online actions that may an applicant avoid the medical exam:
- Don’t post photos of yourself smoking on social-media sites.
- Do post photos of yourself running. Riskier sports, like skydiving, could complicate the situation.
- Use fitness-tracking devices that indicate an interest in fitness.
- Purchase food from online meal-preparation services that specialize in healthy choices.
- Visit the gym with a phone linked to a location-tracking service. If you visit the bar, leave your phone at home.
I don’t see much of a problem with such an approach.
My guess is that many people aren’t 100% honest when applying for life insurance. They try to paint the healthiest, lowest-risk version of themselves that they can. So if the insurance firms have a way to find corroborating evidence that either supports or refutes such claims, then I think they have a right to do so since they have a financial stake in the outcome of the underwriting process.
This article almost seems to be a follow-up to a story from over eight years ago, also in the Journal. That article looked at how life insurance firms were considering using the vast amounts of consumer-marketing data that are available about people’s habits, such as online shopping details, catalog purchases, magazine subscriptions, and leisure activities, and whether such data could reveal nearly as much about a person as a lab analysis of their bodily fluids.
In one of the biggest tests, the U.S. arm of British insurer Aviva PLC looked at 60,000 recent insurance applicants. It found that a new, “predictive modeling” system, based partly on consumer-marketing data, was “persuasive” in its ability to mimic traditional underwriting techniques.
There are certainly privacy concerns here as well as the possibility that such data could be used for discriminatory purposes. I also think there should be a time limit on how long such data could be sued. If someone posted something stupid on social media when they were 13, that decision should not haunt them for the rest of their life.
But hopefully, working out all of these issues is what regulators are for, so I think it is good they are looking at such issues now, rather than later.
Just like new laws need to be written as a result of the development of self-driving cars, new guidelines need to be written to ensure that consumer data is used correctly by businesses.
I think there are benefits to be gained from carefully analyzing the amount of data that is now available, leading to better decisions. As long as the concerns are properly addressed regarding the use of such data, then to me, it seems the benefits outweigh the costs.
As noted above, just be careful what you post on social media.Insurance companies are watching…