Guest blog by Mark Farrell, Ph.D., FIA
"The times they are a changin". I don't think Bob Dylan was thinking of insurance when he penned this lyric in 1964, but he could well have been prophetically describing the insurance industry in 2018.
Insurance is currently seeing a strong emergence of technology-based solutions offering new, faster, economical and more convenient customer-focused services and solutions which are challenging many of the traditional insurance business models.
InsurTech, deriving its name from the more established Fintech term, is gaining momentum as start-ups receive large funding investments and the more established incumbents set up incubators and are seeking partnerships with many InsurTech start-ups. Technology is obviously the driving force behind this and, more specifically, the disruption is coming in the form of things such as big data, artificial intelligence, blockchain, the internet of things (IoT) and telematics to name a few.
Take Lemonade for example. The New York-based home and renters insurance start-up has been leading the InsurTech way over the last few years. They are challenging conventional approaches by relying (and marketing!) heavily on artificial intelligence, particularly in the form of chatbots which promise “instant everything.” Their website boasts of “90-seconds to get insured” and “Three-minutes to get paid.” Easy and fast is the order of the day in Lemonade-land, supplemented with supposedly greater trust between the insurer and the insured, (they have a flat fee and a separate pool of risk capital).
Wearables is one particular area of InsurTech that has been receiving a lot of press in the news recently. In the UK, Prince Harry was seen sporting an Oura ring, Theresa May was spotted wearing a continuous blood glucose monitor and in the US, John Hancock, announced in September this year that they will now only offer data-driven, interactive policies. It’s a big move by John Hancock. Since 2015, they have partnered with Vitality, who have been selling wearable linked policies in the insurance market for some time. It’s clear to see that wearables have great potential to be used to monitor and improve health. As we shift toward more deaths being attributable to non-communicable diseases, we should note that these are largely linked to behaviors. These are behaviors which the likes of Vitality believe they can help change through behavioral science influenced incentivized insurance programs.
For an industry currently suffering from issues of trust where purchases are often “grudge purchases,” wearables have the potential to tick a lot of boxes when it comes to enhancing the value proposition. The customer relationship could move from one of very little interaction to a new, more customer-centric relationship. A wearable focused health policy could involve the insurer linking in with policyholders on a regular basis and providing premium discounts or other perks. The insurer could also take a role in guiding and incentivizing the policyholder toward healthier behaviors. The insurer stands to potentially gain from lower customer attrition, a reduction in claims and reduced adverse-selection. They also benefit from access to real-time data about the insured individual which may inform more personalized products based on the individual customer’s lifestyle and risk exposures.
Currently, much of the focus is on activity levels, typically measured by number of steps, the everyday devices of the future will have enhanced capabilities to measure a much wider range of health metrics. For example, the recently released Apple Watch 4 has the ability to take an instant electrocardiogram (ECG) reading to provide a check on heart health. It has been cleared by both the American Heart Association and the FDA -- signaling that these devices are now approaching medical grade accuracy! With each new iteration, the accuracy of these devices are continually improving, and this in turn is negating some of the many criticisms being lobbed at the concept of using wearables to change the insurance paradigm.
There is no denying the potential upsides -- but there are many challenges to overcome as well as a host of key considerations to take into consideration. With great power comes great responsibility! Let’s not forget what insurance is all about: protecting those in need. For example, if a new development leads to those more in need being priced out of a market, are we using data in a responsible, ethical fashion?
Regardless of your thoughts on InsurTech and wearables, it’s clear that we do live in exciting times. The future, in many regards, is data and technology. Actuaries will have a huge role in responsibly bringing these emerging trends into the insurance world.
Join me on May 1 from 12:00 - 1:30 PM ET as we discuss this topic in the ACTEX webinar, Wearables and InsurTech: Implications for Insurance Professionals.