Could John Hancock upend the life insurance industry by tying premiums to fitness?

A radical move by one of the biggest life insurers in North America has experts questioning whether the company could reshape the model for the industry — by building business around helping its customers live longer.

In September, insurance company John Hancock announced that it will include its Vitality health incentive program, which customers had to opt into in the past, in all its policies from here on out. Policyholders can share personal health information, like their daily diet and data from fitness trackers, and be rewarded for healthy lifestyle choices through prizes and lower premiums.

In some ways, life insurance is an inherently morbid industry, since it requires its customers to prepare for their deaths. But by writing the Vitality program into all its policies, John Hancock is trying to refocus its business model around helping people live longer, healthier lives, the company said. It sounds altruistic, but the benefit is mutual — the longer their customers live, the more money the company makes, since they’ll pay more premiums over time and pay out end-of-life claims less frequently.

“Life insurance is still one of those products that you buy and then sit it on a shelf somewhere and really don’t think about it again,” said Brooks Tingle, president and chief executive of John Hancock Insurance. “But we’re changing this business from one that was barely part of our customers’ lives other than peace of mind to one where we’re very present in their lives.”

Some experts are predicting it’ll set the standard for the future of the insurance industry by making insurance about positive, daily engagements instead of just worst-case-scenarios. But the avalanche of personal data makes the company — and its customers — vulnerable to a new host of threats, and it has sparked “Big Brother” comparisons.

The Vitality program gambles on the popularity of rewards-based consumption, which can be hit or miss, according to Yuping Liu-Thompkins, who researches marketing at Old Dominion University. Often, Liu-Thompkins said, rewards programs mostly appeal to people who are already prone to the good behavior they’re being rewarded for, as opposed to changing their habits in the long term.

“When people first join a reward program, often they’ll be somewhat conscious and might modify their behavior. But after a while sometimes the novelty effect wears off, and they’ll go back to doing what they normally do,” Liu-Thompkins said.

The auto insurance industry has been betting on the efficacy of rewards programs for a while, through the use of telematics — apps or devices that track driving behavior for auto insurance companies, and reward drivers for safer driving through reduced premiums. By 2020, 70% of auto insurance carriers are predicted to use telematics, according to data from the National Assn. of Insurance Commissioners.

Studies show usage-based insurance, like telematics, are more popular with younger consumers — a group that has contributed to the dwindling percentage of Americans with life insurance, which has fallen to less than 60%, according to reporting from Bloomberg.

“Sales of individual life insurance have been relatively weak compared to prior years for people in the 25-to-45 age range,” said Steve Weisbart, senior vice president and chief economist of the Insurance Information Institute. “This might have the possibility of communicating with people in that age bracket in ways that they might better respond to.”

But some are wary of the burden companies take on with such massive quantities of consumer information. Kate Crawford, founder of the AI Now Institute, tweeted about the pitfalls of the Vitality program after John Hancock announced its widespread implementation: false data, consumers trying to game the system, “intimate” surveillance and data breaches. Both Weisbart and Liu-Thompkins agreed that a data breach could be disastrous.

But in the process of getting life insurance, policyholders already have to provide vast amounts of personal information to their insurance company, Tingle argues, so John Hancock is already well-versed in safeguarding sensitive data.

Wearable device makers also have been dabbling in partnerships with health insurers in recent years. Aetna started offering its employees and policyholders Apple watches through a subsidized program in 2017 and might be looking to expand it. Fitbit tried out a similar deal with UnitedHealthcare. But none of these efforts have had the industry-wide impact that John Hancock’s program might, if it has the kind of popularity Tingle expects.

Insurance companies have always been in the business of rewarding customers for good behavior on some level, Weisbart said, whether it’s safer driving or checking the lint trap in the dryer to avoid a fire hazard, so widespread use of a program like Vitality seems like a natural progression. And from an economic standpoint, the company stands to shape its consumers into a more lucrative market.

“They’ll have the best population,” Weisbart said.

Despite the argument that Vitality just attracts customers who want to be compensated for leading healthy lives, Tingle said the company has had high engagement and positive feedback from customers who see it as a means of being compensated for improving their health. He said the program is particularly popular with diabetics, since it rewards them for necessary health routines: visiting the doctor, exercising regularly and being careful about what they eat.

Historically, Tingle said, John Hancock would interact with its customers once or twice a year. With Vitality customers, they average 40 interactions a month.

Time will tell whether the company can sustain such a high level of engagement, but it if pays off, Weisbert said it’ll reshape the insurance industry on a major scale.

“Hancock is at the forefront of something that’s going to emerge,” Weisbart said. “This will be a direction that other companies will chose to follow.”