John Hancock's bargain: Give us more data, you pay less in rates

Pay less, share more
Pay less, share more   

Have you hit your 10,000 steps today?

That milestone could earn you some reward points and major savings on your life insurance premiums, based on a new program from John Hancock and wellness company The Vitality Group. Thanks to wearable devices like Fitbit, the company can track their policyholders' activity, using the information to provide what they say is more accurate pricing on their universal and term life insurance policies.

"We've been trying as an industry I'd say to get people to be more engaged with life insurance products. The program basically works by saying if you stay healthy, you're going to live a longer, healthier life," said John Hancock Insurance President Michael Doughty. (Tweet this)

"That's good for us as an insurance company, and it's also good for you," the executive told CNBC in an interview.

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The program is set up similarly to frequent flier mile programs, with participants who exhibit healthy behaviors earning more points.

To get started, policyholders who opt into the program receive a free Fitbit that begins tracking their physical activity. The program also tracks other activities such as doctor visits, biometric results and flu shots.

The points then convert to a certain amount in savings on premiums and rewards from retail partners such as Hyatt Hotels, Apple and Starbucks.

Specifically, policyholders who reach 3,500 points are considered silver status and receive roughly 5 percent off their premiums. Gold is 7,000 points earned, with 10 percent off and platinum is 10,000 points, equalling a 15 percent discount.

This type of dynamic pricing could lead to lower costs for customers, but it raises the question of whether consumers are willing to relinquish more of their privacy to life insurers.

No sharing of data, Hancock promises

The Fitbit Flex
Fitbit | Facebook
The Fitbit Flex

Doughty explained that the additional information is actually a small sum compared to the amount of information the company already requires to underwrite policies. He insists customers shouldn't fear providing more.

"We do not share that information with anyone that isn't required to help us administer the program," Doughty explained. "The data is designed to provide a good customer service experience to the end customer and to make sure that we can continually provide a program that is priced accurately."

Meanwhile, privacy concerns and the fear of data breaches—the likes that banks, retailers and technology providers have seen recently—may not have the same resonance in the insurance sector.

A 2015 survey by New York State Department of Financial Services found that nearly 60 percent of life insurers experienced no cybersecurity breaches over the last three years, while 35 percent saw between one and five intrusions. However, a slim 2 percent saw more than six and 5 percent reported more than 10.

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Once you start, you can't stop

What about the savings? Doughty claimed that they can really add up for those who try the program.

For example, he estimates that a 45-year-old couple who buys $500,000 in universal life insurance can save $25,000 by age 85 if they maintain gold status. If they reach platinum, the savings are higher, at $36,000.

However, he admitted if you don't maintain one of the tiers year after year, your premiums will go up.

"Let's say you reach gold status, you need to achieve that every year. You can't do it one year and be gold for life because we obviously want you to be healthy continually," Doughty says. "So if you stop doing it, then you'll go back up to where you started."

Doughty did promise that reaching these levels isn't difficult and that the program can really influence healthy behavior.

Vitality has already implemented a similar program with other life insurers in countries like South Africa, Australia and Singapore. It found in a 2014 study that members not previously engaged in fitness activities reduced their health risk factors by 13 percent after three years. Plus, members who were already active in fitness reduced their health risk factors by 22 percent.

If John Hancock's health tracking program becomes popular, it could be huge for the life insurance industry. According to LIMRA, only 44 percent of U.S. households have individual life insurance, which is a 50-year low.

Doughty attributes the slump in sales to a lack of immediate gratification with life policies, which he believes this program can help fix.

Currently, his program is offered in more than 30 states for universal life insurance and over 20 states for term life insurance. However, John Hancock expects it to be available in all 50 states by the end of the year.

On the Money airs on CNBC Sundays at 7:30 pm, or check listings for airtimes in local markets.