The PruHealth model might seem to make sense but don't expect too many copycats
Innovation in protection comes around once in a generation. That might be a good thing – products can run for decades so stability is all important – or it could be "why change a model that still has at least three wheels left?"
The little new thinking has often come from South Africa – we “inherited” unit linked life, critical illness and – in private medical insurance (PMI) – policyholders helping themselves to lower premiums with good behaviour.
So actively working towards health via exercise and diet reduces insurance costs – the paradigm elsewhere assumes a steady health decline with age. This “take care of your health and we'll cut your premium” was introduced to the UK by the PruHealth model.
Now, amazingly, this protection concept which stresses carrots – literally in the case of health cover – rather than sticks has been picked up elsewhere in insurance. How rare is that!
A small but growing number of motor insurers have adopted black box technology that lets them know when policyholders are driving well or driving badly – all in real time. This contrasts with the usual once a year renewal declaration which only rewards for an absence of crashes and motoring offences. This can be a matter of luck – you can drive badly and get away with it.
Aviva pioneered this concept, figuring that driving between 11pm and 6am was riskier than other times while motorways were safer than winding country lanes. The technology, known as telematics, tells insurers where and when someone is driving – and adjusts monthly premiums accordingly. Aviva dropped the project because of the cost of fitting boxes – it wrongly assumed car makers would include them as standard. But from an underwriting view, it worked.
Others have now refined the concept. Firms like Co-operative Insurance and the lesser known Insurethebox can tell if drivers are emulating Lewis Hamilton or Miss Marples as they drive down the local high street. They can even tell if a corner or a road hump is taken too fast.
Those that drive well get rewards – lower premiums or bonus miles to add to their allowances. Customers are mainly young – faced with astronomic premiums elsewhere. They don't seem to mind the “spy in the car” – it's no more intrusive than Facebook or Twitter.
PruHealth has had critics and doubters – including me. Every time it changes its Vitality points incentives, it faces a barrage of “Fury at PruHealth” headlines. But is its focus on fitness – measured by nutrition, exercise and health screening – a genuine proxy for lower risk or just a marketing gimmick?
Certainly, it could be the latter. There's the carrot of discounted gym membership, low cost fitness paraphernalia, and the extra incentive of cheap cinema tickets – the rationale is that we all deserve treats even though PruHealth can't stop filmgoers buying a monster cola and popcorn. And the real discounts take three years at accrue – it's worth paying something for policyholder continuity.
But it's the former, claims PruHealth which now cites an “independent five-year retrospective longitudinal study” demonstrating “a strong correlation between member engagement in incentivised health programmes and subsequent low hospital admissions.”