These days, privacy may seem like a quaint notion. Everything you buy, every Web site you visit, is tracked. That's why you receive coupons in the mail that seem to anticipate your needs and Internet ads tailored to your tastes and location.
It was only a matter of time before insurance carriers found you the same way. What's more disturbing, however, at least to some industry watchers, is a burgeoning trend among certain life insurers to use such personal data to assess your insurance eligibility.
"Are behavior patterns more predictive of life expectancy than the traditional medical examinations?" asks Daniel Cotter, a Cincinnati-based principal and director of risk management at Rehmann, a financial services firm headquartered in Saginaw, Mich. "It's a hot question that's being discussed a lot today."
For financial advisors, the most crucial question of all may be how this development affects-or should affect-the advisor-client relationship.
The Theory
It's a simple idea: If past purchasing patterns are predictive of future shopping behavior, why can't they be used as indicators of lifestyle and, by extension, overall health? Someone who frequently buys athletic shoes and gym memberships is more likely to be fit and healthy than someone who buys lots of cigarettes and potato chips instead, right? And people who are fit and healthy tend to live longer,
and therefore represent a better risk for life insurers.
That may be jumping to conclusions, but it's not necessarily bad news for clients or insurance carriers. "It's a big positive for most clients because using behavior patterns is easier, quicker and less invasive than medical testing," observes Raquel Lorenzo Murphy, an insurance specialist at New York-based HUB International Northeast, a full-service insurance brokerage. But, she adds, "It is too soon to tell whether this ultimately makes for cheaper rates."
Many Advantages
For insurers, it's appealing, too. "Medical testing and the home-office handling of that information comes at a cost," says Chris Graham, vice president and chief underwriter at Hartford Life Insurance Cos. in Woodbury, Minn. "Imagine being able to assess insurability without these costs and in just a matter of minutes or seconds."
Incorporating consumer behavior into risk-assessment models could also improve accuracy-or at least aid in appropriately pricing different life-insurance products. "Consumer behavior profiles may add strength to the underwriting process by increasing the quality of actuarial data," asserts John Graves, a financial advisor with the Renaissance Group in Ventura, Calif. "Pricing is at least partially based upon risk. In the case of life products, consumer behavior can be the major pricing metric."
Equally appealing is how consumer data can help insurers promote their products. "It can be useful for targeting who is likely to qualify for coverage," explains Larry Rubin, a principal in PricewaterhouseCooper's actuarial practice in New York. "Every business wants to find people who will buy what they're selling. This may be even better than targeted marketing by ZIP code."
The Bad News
On the other hand, the budding trend has its shortcomings. "I don't think it's good if personal information from data mining is used [by insurance carriers]," says Joan Antoniello, vice president of personal and corporate insurance at Weiser Capital Management in New York.