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.

Calling it "an invasion of privacy," she points out that insurers already have access to a broad array of "other information that can be used to determine if an applicant is a good risk." She cites motor vehicle records, financial and medical histories and personal interviews where applicants are asked about cigarette, alcohol and drug use, among other things. "I've often seen insurers receive incorrect information from sources such as doctors' reports and the Medical Information Bureau. Mistakes happen," she says. "Data mining often does not collect correct information or misinterprets that information."

While that may be true, industry defenders argue there's a difference between invading someone's personal information and simply using information that's already available. "The data is out there in the marketplace," says Anand Rao, a principal in PricewaterhouseCooper's Diamond Advisory Services division in Boston. "It's not like the insurance carriers are digging for information surreptitiously."

So far, Rao insists, this information is more of a supplement to than a substitute for the standard medical requirements. He points out that health records may soon be accessible electronically anyway, and consumers will likely allow insurers to download their personal health histories, just as today they permit carriers to see their doctors' records. "Sharing electronic data is just an easier way of giving that permission," says Rao.

Part Of A Historical Movement
At this point, the practice is more theoretical than actual. Yet some insurance companies have begun drawing on consumer data, particularly for their least risky situations-policies for younger applicants, say, or those for which coverage does not exceed $250,000. It's also more common for term life plans than whole-life coverage, for similar reasons. "Insurers are willing to waive medical testing only up to a certain degree of risk," says Rubin. "A $10 million policy, for instance, would require a lot more medical due diligence."

Industry experts further note that although electronically transferred information may be new, the concept behind it isn't. "Insurance carriers and their actuaries are always looking at trends in medical conditions and lifestyles," says Antoniello. "Thirty years ago, someone with high blood pressure or high cholesterol might have been flagged, whereas today, if it's controlled and the applicant is on medication, it's often not a problem."

Though qualifying for life insurance may have gotten easier, sales have actually declined over the past few decades. Part of the reason is the shift in our social fabric. "Two or three decades ago," says Rubin, "most families had one breadwinner. If he died prematurely, the whole family could be in jeopardy. Nowadays, with so many two-earner families, if one breadwinner dies the family's chances of survival are much better."

In addition, medical advances have made premature death less likely. "There used to be much more need for life insurance because the risks were so much higher," says Rubin.

Other Trends
If exploiting electronic data does make life insurance cheaper and easier to get, that may be just the jolt the industry needs. Sales are down in almost every life insurance category except term coverage, which is typically less expensive for consumers and less profitable for carriers. "Life insurance is often presented as a transactional product these days-something you get as cheaply as possible-instead of as an asset," says Cotter.

Yet some say that's already beginning to change. The volatile stock market has brought an influx of dollars to life insurance providers. Cotter notes that, as a kind of alternative asset class, life insurance represents a stable, secure pool of savings with a guaranteed return. In many cases, the cash value of the policy can be a source of retirement or eldercare funding, too.

Furthermore, the rise in life expectancy increases the need for long-term coverage. "People in their 60s used to cancel their insurance, but now they could still have a third of their lives ahead of them," says Rao.

The Health-Wealth Connection
Does the growing emphasis on lifestyle habits mean advisors should tell clients to watch what they eat and what Web sites they visit? Not exactly, says Antoniello. "I advise my clients to give me as much information as possible about their health, finances and lifestyle-but don't broadcast it online," she says. "I also do not think it's an advisor's job to tell clients to live healthier."

Others, though, don't feel it's out of line. "If I tell you there's a 25% to 50% difference in your insurance rate if you maintain a healthy weight-to-height ratio-or stop smoking for one year and you can save 30% on your premium-it makes good health and financial sense," says John Boyd Jr., a benefits specialist at the SIA Group, a full-service insurance agency in Jacksonville, N.C.