A price on your head: determining the value of a 'life'

Reinsurance Group of America are asking 'How much is life worth?' The article goes on to say 'From a strictly fiscal perspective, however, determining a person’s long-term financial value is exactly what financial underwriting in life insurance seeks to do.' Click here to read more. They have their approach, and, frankly, I dispute the idea that they are determining a person's long-term financial value. They are determining insurable value. The interest that I have in my life is clearly unlimited. The care that others show for that life is limited. The difference is the measure of risk in our society. Insurance is an attempt to bridge the gap a little - by allowing for financial risk transfer so that some of my future value to my family, and the folks I borrow money from, can be replaced should I die. But provocative titles get clicks, and most of us are here for commercial reasons, so I understand.

Different approaches to establishing the value of a life can offer good tools for the professional adviser, life insurance marketer, and would-be digital advice designer. Finding simple ways to get the consumer to think about what they should insure and for how much are central to those roles. Especially since we know that, typically, most consumers a) don't like thinking about really bad news like death and disablement, and b) don't like doing maths.

Given that knowledge here are some uncommon suggestions for talking about values for insurance:

  1. Use the Government's number: "You are worth 3.35million to the government, how much of that do you have insured?" Using a report issued a little while ago by New Zealand Transport you can check out the value of a statistical life. Now, this isn't going to be a match with most reinsurer's views of the insurable amount for most lives. I didn't expect it. But it is a useful challenge to the majority of people currently buying $200,000 life cover and no income protection.
  2. Ask "If someone took away every physical ability, but left you alive, how much compensation should we sue for?" This is not a ridiculous question - I wish that it was. Each year some people left totally and permanently disabled - for sake of argument, think of quadriplegia. They have to be compensated. There is also a method in the madness. Fewer people are suffering early death (before age 65) and people find it easier to think about the consequences if you keep them in the picture.

    In New Zealand ACC handles the payments to the person, but in the UK private settlements must be made. An example is available at this link - it suggests GBP 1.5 million to GBP 3.5 million pounds. Arguably, ranging from the current level in the question above to about two and a half times more. It also handily underlines the problem of projecting costs, and therefore compensation, over a lifetime. The answers, after a bit of stammering, will probably amount to more than the person can afford, so the budget window then becomes the main determining factor. With luck, you have have pried open the budget just a little bit.

Of course, there are perils with over-insuring your life. These are well known, and you can rely, to some extent, on insurers to protect you: they share your concern, as over-insured lives don't live as long, and become bad claims disputes when they are murdered. But it is also rare, and the balance of probabilities is that your cover is low - particularly your income protection insurance.





RGA: the answer to digital disruption is engagement

RGA has a view on the answer to digital disruption. They feel that the answer is increasing engagement and they list a number of ways to tackle that are listed in this excellent article. There is gold in this list, and perhaps one of the best points is buried a bit lower down: 'leverage the data you have'. Insurers collect almost unbelievable amounts of data. I mean 'unbelievable' too. For clients that have never bought life insurance before they are usually astonished, and disbelieving, about the extent of the application form. Applications to borrow huge sums of money are usually shorter. But the sad fact is that most of that information will be barely glanced at, just once. For a few clients it will be studied hard - sometimes twice, but even more rarely, more than that. If the information could be used to connect better with the customer over the medium term, to achieve something of daily relevance to the customer, then they may be less inclined to cancel their insurance.

With wearables companies, focused on engagement first, their businesses seem to have developed almost the opposite way around. "Look at all this cool data we could give people!" Then, based on what they found, served to customers all the time, they gradually began to build business models. Of course, many of them will fail - and only a few succeed. Technology is littered with failures - consider the brief and beautiful explosion of navigation systems for cars, now mostly subsumed into Google and smartphones. Life insurers, who write contracts with promises to pay many years in the future, cannot afford to run with the typical start-up attitude. But they could pinch a few tricks from them which, I think, is the overarching message of this piece from RGA.

Strategy and change

RGA Re has the results of a survey performed in conjunction with LIMRA and the Society of Actuaries. There is a lot of information, but it is well worth the read. The report resources are extensive, but have some limitations, as does all such syndicated research. But this being January, and while I am still on holiday, I feel free to comment on wider strategy issues, rather than the procedural aspects of improving the product development process. 

It is clear from the report that many product development managers (including heads of marketing, sales, and those responsible for innovation and change) feel trapped by the business in which they operate. They labour under many constraints: old systems, poor administration performance, and pre-existing problems such as channel conflict, legacy product ranges and so on. 

Most insurers do not actually set a product strategy. This is a refreshingly honest admission. Many insurers talk about a market strategy, with a significant product component. Yet what passes for 'innovation' in many companies would get laughed at by companies that exist in categories such as software, consumer products, and so on. That's not actually a bad thing. People come to insurance companies for certainty, not excitement. But it has an effect of making insurers slow to change.  Probably too slow. Yet dramatic change is probably required, if you are to avoid becoming some start-up's lunch. That's more change than the annual search for what is possible without breaking any constraints. "What can we do without any system change?" can only ever be a stop-gap measure - because if you don't have to do anything difficult to achieve a change, neither will your competitors, and so you will gain no sustainable competitive advantage. Here's a different take on a strategy challenging question: "what could we do that is both valuable and difficult, so no-one will dare follow us?"

But at this point it is best to stop criticising insurers for faults they know they have. It is so easy to point at others and judge them. Why don't they change? As one reinsurer put it in a recent meeting - 'before I came here, I thought I knew all the solutions'. Things are harder when you have more at stake. The reality is, change is hard. Not just for the industry, for you, for me.

At a time of reflection it is worthwhile pondering, not how others could change, but how I can change. What new skills an resources should I seek out this year? Which of my current assumptions about the market are faulty? What new things might arise and how would I find them? What will I do daily in order to realise my change? How will I keep track of my performance against these new goals and move to correct my course as I go through the year? What invisible fences are stopping me from creating new possibilities for me and for my clients? Whatever change I am trying to bring to an organisation, I must first be the change. 

United States: RGA Re on Group Insurance Use of Electronic Underwriting Tools

If you are frustrated at the pace of uptake of electronic underwriting in the individual market then you should consider how different New Zealand practice in the group market is from the US. RGA Re has this survey on group insurance use of electronic underwriting tools. Link

RGA's Report on e-cigarette Use

RGA has this new report on e-cigarettes. They don't like them, and while research evidence remains thin, it looks like even non-smokers should not like them either. The surprising item for me was that the report suggests that far from producing nothing but water vapour in the atmosphere there is a cocktail of chemicals that can affect people around the person using the e-cigarette in ways which are similar to the consumption of second-hand smoke - just less noticeable. Link