Building policyholder trust and navigating data privacy concerns and regulations have emerged as and significant hurdles for life and health insurers working to add wearables and the data they generate to their underwriting processes.
Both insurtechs and (re)insurers have worked hard to navigate these twin challenges, aware that large potential rewards in terms of improved risk assessment, increased customer engagement and reduced claims costs that may be derived from promoting healthier lifestyles.
Daisy Qi Dong
Group Head of Product Proposition and Head of Product and Pricing for Europe at bolttechBut it will take time to establish reliable data. These efforts are more straightforward for short-term policies, for which adjustments can be made at renewals, but a more forward-thinking actuarial approach is necessary to leverage emerging risk factors in long-term products.
“Like any introduction of new risk factors, establishing credible data takes time, which is crucial for accurate frequency predictions from an actuarial perspective,” says Daisy Qi Dong, Group Head of Product Proposition and Head of Product and Pricing for Europe at bolttech. “The key to overcoming these challenges lies in building a robust framework for collecting and analysing wearable data over time, complemented by credible medical and scientific research.”
“As with anything new, you have to make some assumptions, and you have to measure the performance of those assumptions against the reality and continue to refine the model on an ongoing basis,” adds Jeff Cook, Head of Life at Verisk. “If you’re an insurer who wants to wait for perfect data, you’re probably going to be waiting for a long time.”
While data from wearables like smartwatches or smart rings are not likely to replace traditional underwriting, it is quickly supplementing and augmenting existing processes, Cook says.
Jeff Cook
Head of Life at VeriskThe data that wearables produce is not yet capable of replacing traditional life and health underwriting, but it is rapidly improving and has already shown its potential to look into the future.
“Depending on the biometric risk being investigated, we see wearable data having some predictive power, especially around cardiovascular health,” says Natalie Kelly, Head of Global Underwriting, Claims and R&D at Swiss Re.
For instance, insurers may take pains to encourage policyholders to remain active, but physical activity can’t predict a person’s body mass index (BMI) given that the typical correlation between BMI and physical activity is only about 20%. Nor can they easily detect if a person has an existing disease or has been hospitalised recently.
Still, wearables are solving some pain points for insurers. They already allow them to engage with policyholders throughout the lifetime of policies while facilitating the development of more dynamic and personalized risk assessments. They can also encourage more healthy behaviour.
“Wearables also help drive engagement and track positive changes to modifiable risk factors,” adds Kelly.
Data problems
Still, wearables present significant challenges in terms of data management, standardisation and privacy.
The wide variety of wearable devices on the market, each with its own data format and algorithms, poses a major challenge: standardising health data across different devices and formats, and aggregating that data in a way that derives meaningful insights. Insurers also must validate the data to check for consistency and assess how individual metrics change over time.
Natalie Kelly
Head of Global Underwriting, Claims and R&D at Swiss Re.“Each manufacturer has its own device and algorithms around how they determine their outputs,” says Kelly. “While data on more innovative metrics like a heart activity monitor or vO2max (the maximum amount of oxygen a person can use in exercise) are now available. How they fit into the picture of health and how insurers can use them still needs to be investigated in more depth.”
As such, regulators have taken an interest in these algorithms that often lack transparency.
“Many wearable devices give a score or reading, but the details of how this score is calculated are often not disclosed,” she adds. “That adds a layer of complexity in comparing data between devices or manufacturers.”
Still, insurers can potentially trigger positive behavioural changes among policyholders, says Dong of bolttech. “This enables insurers to achieve more granular and personalised risk pricing, akin to the principles of telematics in car insurance,” she says.
But equity and fairness will also be an issue, says Kelly. All customers should have access to the same device for them to obtain rewards equally and for insurers to treat them fairly, Kelly says.
“Challenges occur when a certain group of people are disadvantaged due to their circumstances,” she adds.
Adding to the challenges is the practical reality that wearables can be expensive. While there are affordable types of fitness trackers, people who are most willing to share data are probably healthy, Cook points out.
“I think it’s still relatively early days, but a lot of industry commentators expect that the people most willing to share data are probably healthy lives, and the industry is generally quite good at pricing those people accurately,” says Cook.
The era of personalisation
With wearables, insurers can now tailor product benefits and pricing with greater granularity and personalisation based on customers’ specific lifestyles and exercise habits, says Dong. “It acknowledges the dynamic nature of underlying mortality and morbidity risks, providing more accurate risk assessments,” she adds.
These strategies have been cost-effective. For every dollar that insurers spend on wellness initiatives, they save US$3 on claims, says David Maman, CEO of Binah.ai, a health data platform insurtech.
With effective implementation, health and wellness programs can reduce aggregate mortality and lapse experience by up to 3.8% for a fully underwritten term life product with 40% policyholder engagement, according to a Swiss Re report. Even at 25% engagement, these programs can have a positive return on investment.
Says Maman: “Through getting this information continuously, you can easily reward, you can maintain lower prices, because (insurers) will save money on claims, and that’s what we see as one of the highest priorities for insurers.”
Insurers have created effective health programs and platforms that complement traditional insurance offerings. Take the UK and South African insurer Discovery’s program, which rewards policyholders for getting active.
David Maman
CEO at Binah.aiHong Kong insurer AIA partnered with Discovery to set up AIA Vitality in 2013, and it has since been a core part of the insurer’s customer ecosystem.
The insurer also ran a separate wearable-assisted underwriting project involving more than 10,000 lives.
“We ran a successful proof of concept with more than 10,000 lives, where we mapped the original underwriting outcome of traditionally underwritten cases, versus a ‘wearable-assisted underwriting system’,” says Stuart Spencer, Chief Marketing Officer at AIA.
The outcome resulted in an 85% match rate between the algorithmic system output and the original underwritten decision, Spencer adds.
Stuart Spencer
Chief Marketing Officer at AIAA dynamic pricing approach not only reflects real-time risk mitigation, but will also incentivise policyholders to adopt healthier lifestyles, says Dong. “The introduction of rewards and engagement programs represents a transformative shift,” she adds. “These programs not only encourage proactive health management among policyholders but also foster a positive value exchange.”
It’s an approach that aligns insurance with a more mutually beneficial relationship and moves the industry away from traditional notions of purely financial transactions.
“It shifts the focus towards prevention, proactive health management and value-added services, ultimately leading to more sustainable and rewarding insurance experiences for both insurers and policyholders,” Dong says.
