Manulife Financial Corp. is relying on new technology to snuff out its top source of life-insurance fraud: smokers who say they're tobacco-free.
The Toronto-based insurer is eliminating nicotine testing for many life-insurance customers, saying its data-analysis capabilities have advanced to the point where it can identify when smokers have lied on their application forms.
The move is part of the sweeping changes Manulife is making to the way it uses Canadian government and internal data in an effort to scale back invasive testing for new insurance policies.
The company will also no longer collect other blood or urine samples for most individual life-insurance applicants up to 40 years of age who are seeking policies of up to $1-million. It's a move Manulife said will make underwriting polices more efficient for both the company and its younger customers.
Life insurers are in a race to slash testing requirements for applicants, offering increasing amounts of coverage with less poking and prodding. One year ago, Canadians living with HIV or casually smoking marijuana might not have been able to get coverage at an affordable price.
Now, insurance companies are rolling out the welcome mat for these potential customers and doing away with the biometric data they used to deem essential to the underwriting process.
Manulife is confident that it can spot tobacco-using fraudsters through improvements in its predictive-analytics system, which uses a combination of Statistics Canada and other proprietary data to assess risk. This process cross-checks factors such as age, sex, occupation and geographical location and calculates a person's likelihood of being a smoker.
The public data show that men working in the construction trades in the northern Territories would be far more likely to smoke than women working in management jobs in British Columbia, where smoking rates are lowest. Manulife uses its own historical findings and other information to drill down further, and says that high-risk applicants may be subject to additional testing.
"Previously we tested 100 per cent of applicants," said Karen Cutler, Manulife's chief underwriter. "We're currently testing about 20 per cent in total right now because they have an existing chronic condition, but when we focus solely on the tobacco issue, it's less than 2 per cent of the overall business."
The most recent data from Statistics Canada's 2014 Canadian Community Health Survey show that smoking rates have been falling. At the same time, other health risks such as obesity are on the rise.
"You start to recognize that the value of all of that testing is not as significant as it once was," Ms. Cutler said.
Cutting back such testing reduces the cost of nurses who used to make the trek to homes and offices to draw blood, and the expense of other assessments done through clinics across the country.
"Obviously there's efficiencies, but … we just believe that the testing was an impediment to people wanting to buy insurance, or getting to that stage, and that our process has just been way too invasive and time consuming," Ms. Cutler said.
That's especially a problem for younger customers used to the immediacy of online shopping, apps and other technology. For the insurance industry, where sales agents and brokers largely sell policies face-to-face, the digital revolution has been slow to take hold.
Life insurers are feeling the pressure to improve customer service and speed up the application process, which would have taken at least a week at most companies a year ago. Manulife began rolling out its effort to reduce blood and urine testing in May, 2016. Last fall, Sun Life Financial Inc. stepped up the competition by streamlining its written-application process and making major cuts to intrusive testing.
This shift also highlights recent improvements in treatments for heart disease, cancer and chronic illness, as well as changing consumer behaviours.
"The usefulness of some of the testing that we've been doing has really fallen off simply because medical advances are making our population healthier," Ms. Cutler said.
Manulife isn't yet comfortable enough with its analytics to forgo testing for people with some pre-existing conditions, for policies beyond $1-million or for people over 40 years of age. Still, testing has been cut back for the older demographic, too – the company stripped out electrocardiograms for those under 70, for instance.
Ms. Cutler says there's much more to be done – "we're early in the game," she said.