How Blockchain Technology and Marijuana Decriminalization Are Changing Life Insurance
Last week we looked at how the emergence and evolution of biometric technology is changing the face of the life insurance industry. Through wearable devices, facial recognition software, and other biometric-based developments, many carriers are embracing the future. However, biometric tech is only ONE of the many game changers that agents and advisors should keep on their radar. This week, we look at two other factors—one technological, the other social—that could impact your business.
Blockchain and Life Insurance
Where the Internet was the portal that brought the industry from paper-based to automated processing, Blockchain technology (if we are to believe the hype) looks to be the next “big thing” in the world of finance and life insurance.
In a nutshell, Blockchain is a virtual series (or chain) of blocks containing data. It was initially developed as a way to keep track of Bitcoin transactions. Whenever a transaction is made, a new block containing a timestamped and encrypted record of that transaction is added to the chain. Anyone involved in the chain can view the data in each block, but no single party can alter, or otherwise tamper with, records contained within the ledger. This combination of transparency and security is why so many see Blockchain as the solution to many of the problems (lengthy turnaround times, fraudulent claims, etc.) that bog down the life insurance and finance industries.
Instead of going too deep into these woods, we’ll briefly examine just one area that could potentially be better served by using Blockchain—the death claims process. When a person dies, the hospital enters all relevant information about the deceased into the chain. That information is then immediately available to all involved parties (state health department, funeral home, insurance carries, etc.). The death claims process, currently a long, drawn-out and cumbersome procedure, can be streamlined into a unified system that drastically reduces the burden for the beneficiary. What takes anywhere from two weeks to six months could be done in a matter of days using Blockchain.
Blockchain technology can benefit carriers by significantly reducing fraud risk. An estimated 10% of claim costs are attributed to fraudulent claims. As a shared, yet secure ledger, everyone involved in the chain can view and audit any updates in real time, making it much more difficult to falsify information or otherwise commit fraud within the network.
Like the innovations in biometric tech we explored last week, Blockchain is still in its infancy. However, as more and more carriers continue to adopt a beneficiary/consumer-focused approach to their business, this sort of streamlined and modernized system—one with the potential for improved user experience, on-time disbursements, minimized touchpoints, and enhanced fraud protection—could easily become the next industry standard.
Marijuana and Life Insurance
Another real-world revolution that is already leaving an imprint on the life insurance industry is not tech-based but rooted in social change.
As of this year, more than half of the United States has passed legislation allowing for the medicinal and/or recreational use of marijuana. Legal reforms at the state level (as varied as they may be) have resulted in widespread changes for multiple industries—especially in life insurance.
The way in which life insurance companies handle the changing landscape of marijuana laws is just as varied as the states that enacted these reforms. While many carriers have yet to budge from the tradition of raising premiums or outright declining coverage for applicants who test positive for THC, others are responding with more lenient policies of their own. Some major carriers have come out as more “marijuana friendly” than others, but nearly all still require applicants to undergo a medical exam that includes a blood and/or urine test.
For the independent agent, these changes mean more options for clients who use marijuana. Regardless of why they use (for medicinal or recreational purposes), you should encourage your client to be forthcoming about usage when applying for coverage. This has less to do with the legal issues surrounding marijuana—which is still classified by the feds as a Schedule 1 drug—and more to do with health factors. According to a 2016 survey by Munich Re, only 29% of underwriters who responded said their company classifies marijuana users as non-smokers. This means that the majority of carriers out there do not differentiate between marijuana use and tobacco use when pricing policies. And despite the growing popularity of alternate forms of use (edibles, vaping), there is little consideration given by carriers as to how the applicant uses marijuana.
What is making a difference for some companies is the frequency and reason for use. How often does the applicant smoke? Is there a legitimate medical reason for their use? By and large, if an applicant admits to using for medicinal purposes, or carries a prescription for medicinal cannabis, the carrier is going to price the policy based more on their medical condition than preferred method of treatment. For the recreational user, someone who uses a few times a month is going to get a much better rate than a heavy user. But going back to the health factors associated with smoking marijuana (mainly the carcinogens contained within cannabis that have been linked to the same illnesses as those found in cigarettes), it’s likely that an applicant who admits to or tests positive for any use, no matter the frequency, will be subject to the same rates as a tobacco user.
Overall, life insurance carriers are individualistic in their reaction to the changing tide of marijuana regulations. Some are adjusting, while others still adhere to longstanding policies regarding coverage for marijuana users. Will the rapidly-growing group of pro-legalization lobbyists and changing perspective of state and federal lawmakers see more carriers taking a relaxed stance on applicants who use marijuana? That is a question only time can answer. However, this is one issue that independent agents and advisors should keep a close eye on as more applicants—especially those in pro-legalization states—bring it to your table.