The current insurance model is 'failure' oriented - paying out on something negative happening. Should the industry reconsider this and reward 'success' instead, asks Geoff Knott, a director at Ninety Consulting
In recent years, insurers have been introducing policies that encourage and reward a positive lifestyle and, therefore, reduce risk. Examples would be health insurance with wearable technology, such as Fitbits, and telematics for young drivers.
I was thinking this could be taken a stage further and reward people for achievement – letting people create aspirational goals and rewarding them on reaching these.
Let me give an example.
In 1998, 600,000 babies were born in England. Eighteen years later in 2016, 226,000 students in England at the end of aged 16 to 18 study were entered for A levels. The average in England for the percentage of A level students achieving 3 A grades or better at A level was 13% - that’s 29,000 students. If all those students came from England (which I realise they would not have due to mobility and overseas students), 29,000 students out of 600,000 born in 1998 achieved top grades – 4.8% - a 20 to one chance.
This percentage varies considerably based on ethnicity, region and, I suspect, education level of parents. However, there is the basis of a bet here with differing odds. Thinking of covering university fees for my one year old grandson, could I place a bet now that would pay out at age 18 if he achieved two or three A grade or more, A levels?
What if an insurer offered a university savings plan that includes life insurance - taken out at birth or shortly after. Then bonuses are given if the child gets good grades in nationally or state recognised exams, including SATs, GCSEs, Baccalauréat, graduation tests. All of these would be provable.
It is insurance combined in effect with several bets. Underwriting combined with bookmaking.
Is it ethical? Would such policies encourage pushy parents and raise stress for the child? Does it only serve an elite? On the other hand, given the right odds for disadvantaged children, would it help them continue studies and afford higher education?
Whatever the educational outcome for the child, they would still have a savings plan maturing at age 18 that they could use for other purposes.
What could be other examples?
When people get married, they intend to make it last. Marriage stability is good for any children of the marriage. Could there be a joint life policy which pays a bonus if couples stay married 25 years, 40 years, 50 years? This would be a great aspiration for a couple.
Crop failure insurance could also reward high crop yield.
Expedition insurance could reward achievement, for example, completing a climb of Mount Everest.
Letting people set their own goals, such as a sporting achievement while insuring against accident, and so on.
Current insurance is ‘failure’ oriented - paying out on something negative happening. What aspirational insurance could do is cover the failure aspects but add another dimension - paying on ‘success’, the positive. It could be used to ‘nudge’ people and society towards good aspirational goals.
With all this mind here are three actions you may want to consider: look at your existing policies and see what the flip-side to the coverage might be, ask what are some aspirational goals that could be offered?; ask what people aspire to and does that vary with age?
Then see what are the odds? What policy could those aspirations be linked with?; And could aspirational goals be ‘an optional extra’? Could they be switched on in the future? Would this attract people to your product offerings even though they may not take the options at first? In effect, I may want these in the future – ‘just in case’.