Wearable technology has the potential to transform the life insurance industry by empowering insurers and insureds alike with valuable health knowledge.
By gaining a better understanding of consumers’ health and lifestyle habits, insurers are able to develop products and set mortality estimates that better reflect the health of policyholders, while consumers have the information they need to take control of their physical and financial well-being.
For life insurers, wearable devices can also increase the number of touchpoints with their policyholders. Insurers typically receive health data on a policyholder up to two times: at policy application and when a claim is filed. Similarly, life insurance policyholders often only think of their insurer when the premium comes due. Because wearables offer a steady stream of actionable data points that can be leveraged by insurers and their customers, they create opportunities for more interactions during the policy life cycle.
The knowledge gleaned from wearable data can also be applied to other insurance functions besides customer engagement. By analyzing lifestyle data along with currently used underwriting data, underwriters can better understand health conditions and lifestyle habits that may affect mortality. Wearable data may provide a more granular assessment of these mortality risks, potentially allowing insurers to rate applicants more accurately and offer more customized plans based on their daily behaviors. Furthermore, useful feedback from the insurer, such as reward programs that support or otherwise incentivize lifestyle changes, can engender trust from the policyholder.
Incorporating information from wearable technology into the insurance space presents a multitude of challenges, including data privacy and security concerns, but if more consumers and insurers continue to embrace advances in wearables, the future of this technology looks not just promising, but empowering.
Insurers: Understanding consumer health and product needs
Wearables allow insurers to collect a wide variety of data about individuals: heart rate, activity levels, sleep duration and quality, skin temperature, and blood oxygen levels. Insurers can use this wealth of detailed data to more accurately assess an individual’s mortality risk based on these characteristics, and to create more customized products that better meet consumer needs and encourage more consistent communication between insurers and insureds.
Life insurers can use wearables to expand their product offerings. An example of this is peer-to-peer (P2P) insurance programs, which are a growing phenomenon. In P2P insurance programs, individuals with similar interests or lifestyles form a group, pool their funds, and administer the insurance together.1 Unlike traditional insurance, the excess in premiums is refunded to the members of the program; members can either keep the refund or donate it to a charity of their choice, which extends the benefits of life insurance beyond the policyholders to other members of society. P2P groups often consist of family and friend groups, but insurers could use wearable data to group individuals based on similar lifestyle habits. For example, insurers could form an insurance pool of marathon runners with similar cardiovascular health and weekly mileages. Because the people within a P2P group may know one another and have a personal financial stake in the program, P2P groups encourage accountability, increase transparency, and reduce the likelihood of fraudulent claims, which are recurring issues in traditional insurance structures. However, as P2P programs gain traction, insurers will need to work with regulators and comply with all applicable government regulations. As this model gains popularity among consumers, P2P insurance has the potential to transform the industry.
- See also: Underwriting the Quantified Self
The ability to see the day-to-day snapshots of an individual’s health can also assist with dynamic underwriting. Coupling traditional underwriting practices with an applicant’s real-time wearable data may allow underwriters to more accurately evaluate a policyholder’s mortality risk and determine an appropriate premium. Insurers can also use this data as the foundation for an activity bonus that awards insureds who adopt healthier lifestyles with premium discounts and other benefits. Not only do these programs lead to better risk management, they also provide incentive for policyholders to remain active and healthy throughout the terms of their policies – a win-win for both insurers and insureds.
Wearable technology gives life insurers an enhanced ability to reach consumers and build stronger relationships with customers. The integration of wearable data into an insurance application can potentially expedite the lengthy underwriting process that often deters potential policyholders from applying for life insurance. If an insurer emphasizes a speedier application process when marketing its products, consumers might be more likely to apply for a life insurance policy. Once the applicant purchases a policy, incentivizing wearable usage through bonus programs encourages regular communication between the policyholder and the insurer, thereby potentially reducing policy lapse.
Consumers: Taking control of their personal health and finances
While insurers embrace wearable technology to better assess risks and create more relevant product offerings for policyholders, consumers also reap health and financial benefits when they incorporate wearable technology into their everyday lives.