Oct 21, 2022 4 min read

Challenges Emerge for Insurance and Wellness Products

‘Moving beyond insurance’ is a popular digital trend across many markets. Why just deal with losses when you can prevent claims, goes the narrative. Yet one regulatory move means insurers will soon have to design and sell their cover / wellness combination with great care.

pet insurance
Pet insurance is exciting regulators as well as pets 

The National Association of Insurance Commissions (NAIC) has issued a model act for the US pet insurance market. The model act explicitly requires insurers and their producers to differentiate pet wellness programmes from insurance policies, to avoid  consumer confusion between the two.

Model acts are used by the NAIC as templates for state insurance regulators to adopt, tweak or reject as they wish. What they signal is an issue that needs attention, usually as a result of consumer feedback. This makes them a useful tool for tracking both the direction of an ethical concern and the regulatory response to it.

Even if an insurer isn’t active in the pet insurance market, this move by the NAIC  is still something they need to pay attention to. That’s because pet insurance isn’t the only market looking to ‘move beyond insurance’. Most personal and commercial lines have such ambitions, as well as life and health markets. So most insurers will be in the process of designing or implementing some form of prevention / wellness programme to complement their insurance offering.

Consumers have clearly been having problems differentiating between the cover component and the prevention component of what insurers are selling. Some will have thought they were insured for something, when their policy was only providing a service. So for example, in pet insurance, access to a vet (the service) is not the same as the vet fees being covered (the insurance).

Selling Prevention

A significant part of the model act addresses marketing and sales practices for pet insurance. I’m going to quote Section 6 in its entirely, for it covers a lot of key points in a succinct fashion…

“A pet insurer and/or producer shall not do the following... i) market a wellness program as pet insurance; ii) market a wellness program during the sale, solicitation, or negotiation of pet insurance
If a wellness program is sold by a pet insurer and/or producer... a) the purchase of the wellness program shall not be a requirement to the purchase of pet insurance; b) the costs of the wellness program shall be separate and identifiable from any pet insurance policy sold by a pet insurer and/or producer; c) the terms and conditions for the wellness program shall be separate from any pet insurance policy sold by a pet insurer and/or producer; d) the products or coverages available through the wellness program shall not duplicate products or coverages available through the pet insurance policy; e) the advertising of the wellness program shall not be misleading and shall be in accordance with Subsection 6B of this Model; f) a pet insurer and/or producer shall clearly disclose the following to consumers, printed in 12-point boldface type, that wellness programs are not insurance...
Coverages included in the pet insurance policy contract described as “wellness” benefits are insurance.”

The Key Theme

The key theme in these clauses is the separation of the wellness component from the insurance component, both in the design and marketing of what it is being sold. What’s more, as per that last clause, if any wellness strays across into the insurance side, it has to be treated as insurance.

Insurers will feel that a large part of the tractability of what they’re wanting to sell as prevention / wellness will be lost by what the model act is requiring. That clause about “the purchase of the wellness program shall not be a requirement to the purchase of pet insurance” turns the wellness component into an optional add-on. Take up will therefore drop.

For all the validity of that concern, I didn’t get any impression when researching this article that the NAIC were anti-wellness. They were just judging problems with product design and sales/marketing to be greater. Transparency is what is underpinning their response.

How Insurers can Use the Model Act Now

So what might an insurer, even if not in the US, even if not in the pet market, do with this model act? I would recommend that any insurer contemplating or implementing a prevention / wellness component to their product use the sales practices part of the model act as a transparency benchmark for their own plans/offering. How well are they distinguished? How clear is that in the advertising? And so on.

And in doing so, it will be important to introduce either some consumer testing or some independent thinking / challenge into that process, to avoid conflicts of interest undermining the results.

The Bigger Picture

There are four ‘bigger picture’ points that are worth mentioning here.

Firstly, loss prevention in any form is good, be it in terms of people’s health or a machine not catching fire. It is, in my opinion, a complement to insurance, not a replacement. Life still goes on, so losses still happen, and while loss prevention reduces those losses, it rarely eliminates them. It’s important therefore that the ‘beyond insurance’ movement doesn’t result in insurance being dropped from the equation.

Secondly, the core rationale behind loss prevention needs to be what it is ‘saying on the tin’ – the prevention of losses. In this earlier piece of analysis, I examined how some loss prevention acts more like a trojan horse for data harvesting. So if you give your health data to an insurer’s wellness programme, it should be used for wellness and that’s it. It should not drive the repricing of your other covers, or the marketing of new covers.

Thirdly, the ‘beyond insurance’ movement is part of the wider interest of the insurance community in behavioural fairness. In this piece of analysis, I cautioned insurers against over-interpreting the tools and tactics being used around behavioural fairness. It is not as powerful or all encompassing as insurers may think.

Finally, beyond insurance and behavioural fairness fit within a wider movement that is moving insurance from personalisation to hyper-personalisation. While it has been described as creating a ‘dynamic understanding of the customer’, at its heart, it is about moving the insurance and wellness components of the insurer’s product from past to near time assessments, to real time and future assessments. This may look like a small step, but it radically changes the dynamic of the product and the dynamic of the relationship you have with customers (more here). It needs to be thought through very carefully.

Duncan Minty
Duncan Minty
Duncan has been researching and writing about ethics in insurance for over 20 years. As a Chartered Insurance Practitioner, he combines market knowledge with a strong and independent radar on ethics.
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