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Behaviour-based insurance: is the revolution underway?

Some companies are offering health insurance products whose premium is linked to the policyholder's behaviour. What does this mean? What issues does this type of offer raise? 

Behaviour-based insurance: is the revolution underway?

Give up smoking, eat more fresh fruit and vegetables, take up a regular physical activity: these are actions that insurers appreciate and even encourage to the point of rewarding them financially. This is the principle behind behaviour-based insurance, pioneered by South African insurer, Discovery with the Discovery Vitality program, launched in 1997.

How does it work? Policyholders who are interested complete a questionnaire to describe their state of health, diet, physical habits, etc. They then receive recommendations from the insurer on lifestyle improvements they can make: lose weight if they are overweight, take up a sport if they do not already practise one, etc.

If policyholders follow these recommendations, they will then receive a reward, which may take the form of a lower premium (reductions can reach 16% in some cases) or price reductions with partner brands (fitness centres, travel agencies, organic food chains, etc.). The system is based on trust: policyholders declare their activities themselves and decide whether or not to connect their objects (their watch for example) to the insurer's app. All the products on offer operate in more or less the same way.

According to Discovery (which mainly offers health insurance policies and/or collective personal risk policies to companies via local partners), the policyholders that take out these behaviour-based policies are:

  • More inclined to accept physical activity; they go into hospital less often and stay there for shorter periods;
  • Good risks; logically they make fewer claims.
  • More loyal. 

In the end, Discovery (which capitalises €8bn) generates good profit margins, whilst offering a genuine service.

The South African insurer also claims that:

  • The benefits are particularly clear-cut for lifestyle-related conditions, such as cardiovascular diseases, diabetes or cancer.
  • The progress observed, with fewer hospitalisations, reduced healthcare costs, increased productivity at work and an improved mortality rate, has been the subject of articles in a number of renowned academic journals.

Nevertheless, this type of insurance raises some questions:

  • The policyholder provides a lot of highly sensitive data. This poses the problem of their use by the insurer and their protection for the policyholder, in particular in the light of the new European General Data Protection Regulation which comes into force on 25 May 2018. It places more responsibility on organisations, which will now have to guarantee optimum protection of data at all times and be able to demonstrate it by documenting their compliance.
  • With this type of cover, is insurance not moving away from its original role, which is to pool risks? Those at the top of the class will indeed benefit from lower prices. But what about the rest?
  • Similarly, does this product not risk stigmatising smokers, the overweight, etc.?
  • Will the reward be attractive enough for policyholders to agree to provide their data?

The international development of Discovery's well-being programme (over 7 million people have signed up in 16 countries, including the United States, the UK, South Africa, Germany and France) confirms the current trend for personalisation. Nonetheless, its continuation will depend not only on how it is received by policyholders, but also whether or not insurers handle the data entrusted to them within the legal framework. 

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