Rewarding change

    PMI’s venture into the life insurance business presents customers with new options and raises some interesting questions.

    By Stefanie Rossel

    In late April, Philip Morris International (PMI) announced a move that was remarkable in more than one respect: The company said that it had diversified into the life insurance business. With its newly established, wholly owned subsidiary Reviti, which is based in the United Kingdom, it targets smokers who use any combustible tobacco product, such as cigarettes or cigars, and who are willing to quit. To incentivize them, smokers who switch to any type of e-cigarette and/or a nicotine-replacement therapy (NRT) product will be given a 2.5 percent discount on premiums. People who change over to PMI’s heat-not-burn (HnB) product iQOS for three months will receive a 25 percent discount, whereas ex-smokers who quit smoking and quit nicotine altogether, including NRTs, for at least twelve months will get 50 percent off. All those who never smoked combustible tobacco and never used nicotine-containing products will be charged the lowest premiums.

    Premiums for a 20-year-old nonsmoker stand at around £5 ($6.50) per month for a life insurance policy that pays £150,000. The same premium would buy a £60,000 policy for a 40-year-old nonsmoker.

    Reviti believes firmly in the risk reduction potential of e-cigarettes and will determine how big a discount to offer people using alternative products based on scientific data. The potential of a product to reduce a person’s health risk will also play a role.

    “Traditional insurance companies set premiums based on how ‘risky’ a customer is to insure when they buy a policy—what Reviti brings to the market is different,” says Andrew Cave, PMI’s director of communications. “They recognize that people’s lives change over time and want to help them on this journey of positive change, so if customers make better choices through improving their lifestyle, Reviti will reward them.”

    The life insurance initiative underlines PMI’s ongoing commitment to creating a smoke-free future. Reviti, which acts on behalf of Scottish Friendly Assurance Society Limited, also plans to roll out a range of other insurance policies that reward better lifestyle choices, such as weight management, increased exercise or stress management. For smokers who want to quit tobacco and nicotine altogether, Reviti offers support from a leading pharmacy chain with a range of options including coaching, says Cave. “Every Reviti customer will be offered the chance to work through a program via the new Reviti life app, which provides them with 120 activities and programs designed to support lifestyle changes.”

    Rewarding self-optimization

    Offering health and wellness incentives to encourage their customers to adopt and maintain healthy lifestyles—which helps reduce the risk of developing chronic illnesses and dying prematurely—has become a trend among life and health insurance companies in recent years. Global management consulting and professional services firm Accenture predicts big benefits for life insurers that promote customer wellness. Termed “connected wellness,” the concept involves the use of digital technology, such as fitness trackers and apps, by insurance providers to build intimate, real-time relationships with their customers and thus encourage them to become healthier and safer to be able to enjoy greater rewards and incentives. In turn, insurers can generate additional value from these long-term relationships by increasing their offerings, capitalizing on new markets and improving efficiency. The approach, however, has also evoked debate because of privacy concerns and potential misuse of data.

    What makes Reviti’s insurance model novel is its explicit targeting of smokers. Until now, smokers seeking to get life insurance have had to pay significantly more for their premiums than nonsmokers. According to a U.K. survey taken by moneysupermarket.com between January and November 2018, the average nonsmoker will pay £9.96 per month for decreasing life term insurance while a smoker would pay £21.

    New in Reviti’s approach is that it also differentiates between smokers of combustible cigarettes and users of other nicotine delivery systems. Usually, insurance companies don’t distinguish between people smoking two packs of cigarettes a day and those smoking two packs a year. Neither does it make a difference to them whether customers use cigarettes, cigars, pipes or NRTs. Because e-cigarettes contain nicotine and their long-term health benefits have yet to be established, they are also categorized as tobacco products. To qualify as a nonsmoker, and hence for lower premiums, customers must refrain from using any nicotine and nicotine-replacement products for at least 12 months.

    Determining whether a policyholder has truly switched to reduced-risk products (RRPs) may present a challenge to Reviti. Although there are a variety of testing methods to determine the nicotine content in the body, a reliable method to verify whether that nicotine comes from combustible cigarettes, e-cigarettes or HnB products does not yet exist.

    “As with all questions, customers must answer and complete declarations honestly and truthfully,” explains Daniel Pender, CEO of Reviti. “There may be occasions, in line with the industry, where Reviti asks customers to undertake a test to validate their smoking declaration, and the offer of a discount from Reviti to lower their premium would require customers to consent to this test being a possibility. In line with industry standards, Reviti [is] clear to point out the obligation to answer questions honestly and provide warnings that a failure to do so could result in the insurance being canceled.”

    Focus on iQOS

    Working with Reviti, PMI fills a gap in the market for life insurance policies for people who smoke and wish to quit tobacco and nicotine altogether or who wish to switch to scientifically substantiated reduced-risk alternatives.

    “It was time the insurance business caught up with its customers,” said Pender at the launch of his company. “The life insurance product we offer is a win-win for Reviti and our customers. They get competitive premiums and, with a little help from us, a better lifestyle. We get to help millions of people who have never had access to life insurance before and who will benefit from positive lifestyle changes we’re helping them to make.”

    While this is a laudable goal, Reviti’s offer also contains a detail that is unusual in the insurance business: One of the highest discounts offered is tied explicitly to a PMI product. Already, U.K. anti-tobacco activists have criticized the move as a new PMI marketing tactic to promote iQOS in a market where advertising and promotion of tobacco products as well as sponsorship by tobacco companies has been completely banned.

    They may have a case. The popularity of HnB products in the British market is still comparatively low. While heated-tobacco products were introduced into the U.K. in late 2016, awareness and ever-use remain rare, as noted by Public Health England (PHE) in its 2018 evidence review of e-cigarettes and heated-tobacco products.

    While smoking prevalence among adults in the country decreased to 14.9 percent in 2017, vapor products became the preferred reduced-risk products category. Today, the U.K. is the world’s third-largest vapor market, although the PHE review also found that e-cigarette use had recently plateaued at 6 percent of the adult population.

    PHE’s 2015 statement that vaping is 95 percent less harmful than traditional tobacco and the agency’s recommendation of e-cigarettes as smoking cessation tools has contributed to the popularity of vaping in the U.K.

    In its most recent report, PHE upholds its view on e-cigarettes, declaring, “The available evidence suggests that heated-tobacco products may be considerably less harmful than tobacco cigarettes and more harmful than e-cigarettes. With a diverse and mature e-cigarette market in the U.K., it is currently not clear whether heated-tobacco products provide any advantage as an additional potential harm reduction product.”

    The agency recommends that, depending on emerging evidence on their relative risk compared with combustible tobacco and e-cigarettes, regulatory levers such as taxation and accessibility restrictions should be applied to favor the least harmful options alongside continued efforts to encourage and support complete cessation of tobacco use. Its assessment is in line with the theory of the continuum of risk, which puts e-cigarettes at the lower end of the scale.

    Lower risk of relapse

    Reviti, however, says it has its reasons for emphasizing iQOS in its insurance concept. “There are hundreds of e-cigarette brands on the market in the U.K.,” says Pender. “Assessing all of those as the same would be the equivalent of a home contents insurer treating all post codes, house sizes and building types the same. The scientific data for each product needs to be assessed together with the potential of a product to reduce risk over the medium to long term. We have data to demonstrate that smokers who switch to iQOS are unlikely to relapse—on average, 70 to 80 percent of iQOS users have quit cigarettes—which makes iQOS a compelling smoke-free alternative for people who would otherwise continue smoking.”

    According to Pender, Reviti’s next step will be to cover more smoke-free products, but each one would have to be considered on its own merits rather than taking a category approach. “It is important to keep in mind that both the qualitative and the quantitative composition of e-cigarette aerosols is greatly variable,” he says. “E-cigarette emissions can be very different from one manufacturer to another, from one device to another and even from one puff to another. This leads to a situation where, despite the presence of many high-quality e-cigarettes on the market which are safe for intended use and deliver substantially lower levels of harmful and potentially harmful compounds compared to cigarettes, there are many e-cigarettes which are not manufactured to high standards of quality and safety and therefore present undue risks to consumers. This is why the risk profile of e-cigarettes and other noncombustible products must be assessed on a product specific basis.”

    Pushing iQOS sales

    PMI has pumped billions of dollars into research and development as well as into the marketing of its next-generation products in recent years. While the company offers a wide range of reduced-risk products, among them many leading e-cigarette brands, its main focus remains on iQOS. During its annual shareholder meeting on May 1, 2019, the company said that its heated-tobacco unit (HTU) shipment volume increased by 14.2 percent to 41.4 billion units in 2018, whereas its in-market sales volume for HTUs nearly doubled, reaching 44.3 billion units, a development driven by all iQOS launch markets. Without distinguishing between individual product categories, the company said that in 2018, all RRPs including HnB products accounted for more than 5 percent of PMI’s total shipment volume and nearly 14 percent of its total net revenues, or over $4 billion. However, the growth was less than expected as volumes saw a decline of 22.6 percent in the fourth quarter of 2018, mainly due to negative distributor inventory movements in Japan. Although margins for the product are currently very low due to discounts and offers as the company is trying to promote the product, analysts expect iQOS to drive the company’s future growth and create value for the company as the discounts are gradually withdrawn.

    PMI said it targeted shipping 90 billion to 100 billion heated-tobacco units a year by 2021. On April 30, 2019, the U.S. Food and Drug Administration (FDA) authorized iQOS for sale in the United States. The approval follows a two-year science-based review period through the premarket tobacco product application (PMTA). The FDA was quick to add that while this action permits the tobacco products to be sold in the U.S., it does not mean these products were safe or “FDA approved.” The agency still has not acted upon PMI’s modified risk application for iQOS, which the company had submitted alongside its PMTA application in March 2017.

    Where next?

    With the U.K., PMI has chosen Europe’s biggest life insurance market for its introduction of Reviti. The company says it has plans to become a global brand with a broad suite of products and to expand overseas in the future, but it hasn’t named any concrete markets yet. If countries such as Germany, for instance, were on Reviti’s list, a launch of its current discount concept could become difficult: In Germany, life insurances are regulated by the principle of equal treatment as stipulated by the insurance supervision law. This principle generally prohibits discounts for individual groups of policy holders if no underlying factual reason for the differentiation can be found in the premium calculation.

    Discount premiums especially for users of a certain product of a brand, a spokesperson of the German Insurance Association told Tobacco Reporter, would be permissible if only there were such serious differences between the use of this product compared with the use of a competitive manufacturer’s product with regard to premium calculation that they would justify unequal treatment. The advantage of the product promoted by the insurance policy would have to be statistically proven. In the case of iQOS, this would require independent long-term studies, which for the novel product category don’t exist yet.