Legal & General should be applauded for its recent announcement that it is piloting, in association with Hargreaves Lansdown, an annuity underwriting process that takes into account where a client lives.
The sheer amount of information that commercial enterprises hold about us means it was only a matter of time before insurers did something more than underwrite annuities on the basis of gender.
Yes, there is underwriting on the basis of medical conditions but the majority that can do so do not take advantage of it. The current system of underwriting for the majority purely on the grounds of gender amounts to an unfair transfer of cash from the poorest groups in society to the wealthiest.
Anna Diamantopoulou, the European Commissioner who tried to impose unisex annuities on the UK, was fought off after a vociferous campaign in which she was accused of failing to understand the way insurance works. Rightly, insurers argued it would be wrong not to underwrite on the basis of gender if they had the data to prove women lived longer than men, which they do.
All the same, that was of little comfort to the women of Glasgow. Insurers know they have a shorter life expectancy than the men of North Dorset, the area with the longest life expectancy, yet they receive less pension.
While it is not sexist to offer annuities, and other insurance products for that matter, underwritten on grounds of gender, it is sexist to do so solely on the grounds of gender but not on any of the other grounds for which there is clear evidence of differences in longevity. Take education. Graduates will live longer than non-graduates, so why should they not get worse annuity rates?
The argument against postcode underwriting has always been that people could move to take advantage of better annuity rates. But are people living in beautiful homes in the country really going to up sticks and move to a tower block in an inner city to get a better rate?
Furthermore, I am sure that L&G is not going to give better rates to everybody “up north”, given that the data available today profiles individuals right down to their postcode – not just the first three characters of it but all six or seven.
The reality is that there is now so much information available, from virtually every transaction we make, that marketeers, insurance companies and other commercial enterprises know so much about us that they have an incredibly detailed picture of our lifestyle and how that is expected to affect our life expectancy.
If everyone in your street drinks lager but those in the next road drink Pouilly Fume, the chances are you will be getting a lower longevity rating. I doubt L&G is planning to differentiate rates to quite this degree yet, but in five years’ time I would not be surprised if providers were using such information as one of a myriad of factors to profile our longevity.
Professor Roger Burrows, an expert in business information from the University of York, told a recent conference on the potential for infringement of privacy that this sea of data brings that organisations can now profile individuals with “frightening accuracy”.
The information available to commercial enterprises comes from the thousands of computerised transactions we all make and the pages of data held on us all in the servers of shops, banks and other businesses. This information brings with it a ghettoisation by class that the poorer groups suffer – call centres will respond less quickly to less valued callers from poorer areas.
The extent to which postcode profiling is becoming mainstream is highlighted by the recent news that the Pensions Protection Fund is adopting the approach for assessing the liabilities of those schemes under its charge. It has signed a deal to adopt software provided by Longevitas that goes through defined-benefit schemes and processes the details of every postcode of every member, to give as accurate a picture as possible of the longevity risk, and thus the financial risk, that particular scheme poses.
Postcode profiling entered the mainstream years ago for marketing companies. It should be welcomed for annuity business too.