Companies Look to Innovative Options to Hedge Insurance Risk

Companies are constantly trying to find new ways to reduce their expenses and generate revenue each year; some in quite innovative ways. The insurance industry is no different.

On the health insurance side, one example is companies’ entrance into the wellness arena. By teaching members to make healthier choices and engage in healthier behaviors, and even providing helpful tools and resources, insurance companies can reduce the number of claims they receive. This is helpful for both the insurer and the consumer because health care premiums seem to be on the rise every year — particularly in the individual market.

In light of new incentives in the insurance industry, it’s a good idea to have a periodic comprehensive insurance review. There are always new products entering the market, many offering incentives that could lower your current rates, or sometimes the opportunity to combine coverage needs so that you don’t overpay. If you’re interested in learning more, please give us a call.

Rising premiums do appear to be a trend among other types of insurance policies beyond health insurance, and, in response, some insurers are engaging in the same strategy of incentivizing more responsible behaviors by policyowners. For example, some auto insurers now offer “safe driver discounts” as a financial incentive for motorists to be more mindful of their driving habits. The safer the driver, the fewer claims insurers have to pay.1

Auto manufacturer Tesla is taking this tactic one step further by offering its own insurance policy that features reduced rates for customers who use the vehicle’s AutoPilot driver-assist system. The manufacturer believes this feature reduces the risk of having a wreck and therefore will produce fewer insurance claims. Tesla can track usage by tapping into the car’s internal data to calculate any discount.2

If you smoke, Philip Morris now has an insurance offshoot in the United Kingdom called Reviti. The company offers smokers a 25 percent discount on life insurance premiums if they switch to its IQOS heated tobacco device for three months. Because this new product is considered potentially less harmful than traditional cigarettes, customers purportedly have fewer health risks — and thus fewer claims. However, the offer is controversial. For example, the discount is much lower (2.5 percent) if customers switch to any brand of heated tobacco device besides the Philip Morris brand. This lower discount also applies to smokers who switch to e-cigarette or vaping devices (also considered less harmful than cigarettes), signaling that the company may be using this strategy to increase sales of its newest product.3

Speaking of life insurance, John Hancock recently added a feature to all of its life insurance policies called Vitality. This is a behavior change program that rewards policyowners for taking specific steps to live longer, healthier lives. The program offers incentives to encourage healthier nutrition, exercise and mindfulness choices.4

A new study revealed that homeowner’s insurance rates have increased by as much as 88 percent over the past 10 years, largely due to an uptick in natural disasters.5 If you’re considering any remodeling updates, it’s worth finding out how you might qualify for lower rates while doing so. For example, when replacing a roof, you can qualify for discounts by installing wind-mitigation features. According to State Farm, major safety improvements to a home can generate premium savings up to 60 percent.6

Content prepared by Kara Stefan Communications.

Geoff Williams. Bankrate.com. April 29, 2019. “State Farm auto insurance overview: Pros and cons.” https://www.bankrate.com/insurance/car/carriers/state-farm/. Accessed May 13, 2019.

Michael Martinez. Automotive News. May 13, 2019. “How Tesla plans to cut customers’ insurance costs: Tap into Autopilot.” https://www.autonews.com/finance-insurance/how-tesla-plans-cut-customers-insurance-costs-tap-autopilot. Accessed May 13, 2019.

Matthew Chapman. This Is Money. May 11, 2019. “Fury as Philip Morris offers 25% life insurance discount if smokers switch to its tobacco device – but not if they vape.” https://www.thisismoney.co.uk/money/news/article-7018779/Fury-Philip-Morris-offers-life-insurance-discount-smokers-switch-tobacco-device.html. Accessed May 13, 2019.

John Hancock. “John Hancock Vitality.”  https://www.johnhancockinsurance.com/vitality-program.html. Accessed May 22, 2019.

Mark Huffman. Consumer Affairs. April 23, 2019. “Study finds homeowner’s insurance rates have surged in the last decade.” https://www.consumeraffairs.com/news/study-finds-homeowners-insurance-rates-have-surged-in-the-last-decade-042319.html. Accessed May 13, 2019.

Mark Fitzpatrick. Value Penguin. April 12, 2019. “Renovating Your Home? 3 Ways It Can Save Money on Home Insurance.” https://www.valuepenguin.com/2019/04/home-insurance-renovation-savings. Accessed May 13, 2019.

We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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