Given their consumer appeal, life and health insurers are likely to use wearable technology data for underwriting within the next 2-3 years. The challenge for insurers, however, will be able to deliver tangible consumer benefits from the data without being perceived to discriminate against consumers and infringe privacy rights

Wearable technology appears set to boom among consumers in 2015 and beyond -presenting both huge commercial opportunities, but also reputational and anti-selection challenges for life and health insurers globally.
Wearable technology includes items, such as jewellery, glasses and clothing — worn on, in and around the body — incorporating sensors and other electronic technologies.

Examples of recent devices include the Pebble smartwatch and Fitbit, Nike and Jawbone fitness tracking bands. Google already offers the Glass headgear wearable. Meanwhile, Apple’s much anticipated Apple Watch – with health and fitness functions that will include an activity tracker and number of calories burnt – will reportedly go on sale by the end of March.

Ross Campbell, life/health chief underwriter international, R&D, at Gen Re, defines wearable systems as quite wide in their definition. Campbell says: "It is when micro-sensors are embedded in textiles, clothing, applied to the skin; or they are integrated into consumer electronics."

When we think of wearable technology, we tend to think about the devices advertised on TV, for example, the fitness monitors, but actually that is only the tip of the iceberg.

As an example of wearable technology in clinical treatment, Campbell says there are sensors that can track patients remotely, and that are important for helping to rehabilitate people.

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There are also devices that can help doctors monitor the movement of individual muscles and this data can be used to deliver doses of medication through the skin and track the therapeutic response.
All the indications are that the demand for wearable technology will grow as the idea of technology tracking and monitoring health appeals to people.

The ownership of wearable fitness devices, for example, tripled between 2012 and 2013 and the US market for fitness and activity tracking devices alone is worth $1bn a year, says Campbell.

According to a PwC report published in 2014 titled The Wearable Future approximately one in five American adults already owns some type of wearable device — on par with tablets in 2012, when the adoption rate sat at 20% after just two years in the market. Today, PwC says more than 40% of Americans own a tablet.

According to the report:
– As of March 2014, 3.3 million fitness trackers had been sold in the US in the past 12 months.
– By mid-2014, digital health startups had raised $2.3bn, more than they raised in all of 2013. More than $200m went to digital medical devices such as wearables.
– A total of 70% of consumers say they would wear employer-provided wearables streaming anonymous data to a pool in exchange for a break on their insurance

 

Insurance opportunities

Peter Hamilton, head of retail propositions at Zurich, says there is little doubt that the analysis and use of data is one of the biggest opportunities the business community has to serve its customers and grow its business, and this clearly includes protection insurance.

Ben Whatling, underwriting relationship manager at Aviva, says the global market in wearable technology is predicted to at least quadruple over the next 10 years and one of the largest sectors in this space will be health and fitness, so there are clear links with, and opportunities for, underwriting life and health policies.

Asked when life and health insurers are likely to use data from wearable technology data for underwriting, Hamilton expects to see plenty of trials over the next 18 months. And over the next 5 years, "it is likely to be widespread in one format or other".

In Hamilton’s view, insurers may encourage consumers to wear devices that track their daily activities, for example steps taken, exercise done, time sleeping, in the belief that ultimately some will change behaviours.
However, he cautions that it remains to be seen how many consumers will change their behaviour.

"Broader medical insights from wearable devices will provide plenty of challenges to underwriters in terms of just how meaningful changes are over time from an insurance perspective," says Hamilton.

Looking ahead, as Campbell says: "I suppose the question is if we do use this technology, how it will shape [insurance] products and pricing in future. I think wearable technology definitely has a role in attracting better risks and can be a proxy for someone who is very healthy."

While wearable technology presents life and health insurers globally with significant opportunities, the industry must reconcile this with the reputational, anti-selection and privacy risks associated with the technology.

From a client viewpoint, Dougy Grant, protection director at Aegon UK, says with all the technology available to assess health, customers are more aware of their health issues and risks of them suffering certain illnesses, which might prompt them to take out insurance prior to seeking any medical advice.

As an insurer Grant says this will have an impact on our experience as there will be nothing in customers’ medical records to indicate these health issues to enable us to underwrite their policy according to the risk.

Grant warns: "If we don’t embrace wearable technology in the years ahead, people self-diagnosing rather than going to their GPs could impact premium prices, as all our underwriting is currently based on what is contained in GP reports."

Hamilton stresses it will be important for the consumer to understand how the data from wearable technology will be used – to deliver a kind of informed consent.

He says: "One question is whether we can do so in a way that offers tangible consumer benefits without being seen to infringe privacy rights."

Anti-selection risk

There is also the danger that as more information is made available, the really healthy pay less and less, and the less healthy either pay more or ultimately find they cannot get cover.

In response, Hamilton says to an extent of course different factors have long been taken into account – smoking for example, as well as avocations or hobbies.

"Any underwriting is necessarily a form of risk based discrimination, diluting the pooling impact and the inherent cross subsidies. Insurance is a social good though, and we need to find a way to maintain a balance.
"In practice, wearable technology is, in the short term at least, unlikely to rule out anyone who wouldn’t have been declined through normal underwriting processes."

Another challenge for insurers will be infrastructure system needed to harness and analyse the data from wearable technology devices.

Hamilton says: "We may in time have access to plenty more data but the challenge will be in sifting the information cost effectively which makes a material difference. The technology will play a part, but it’s the experience and skill to interpret the many variables that is likely to matter more.

"There may be new insights on how to measure and assess mortality, but the lack of industry standards could conceivably lead to adverse selection."

Another major challenge confronting wearable technology today is the consistency of data, according to the PwC report.
It explains that at its simplest level, the data that wearable tech provides can be very basic and a closed experience between a device and supporting app or mobile web experience.

But for wearables to be most valuable to the user, PwC says the data from the wearables experience will need to be integrated more broadly in an interoperable ecosystem, rather than acting standalone.
PwC adds that while fitness bands, smart watches and other wearables are already established in the market, many of them have under-delivered on expectations.

It notes that 33 percent of surveyed consumers who purchased a wearable technology device more than a year ago now say they no longer use the device at all or use it infrequently.

Price, privacy, security, and the lack of "actionable" and inconsistent information from such devices are among consumers’ main apprehensions with the bourgeoning category.

In fact, PwC said 82 percent of respondents were worried that wearable technology would invade their privacy and 86 percent expressed concern that wearables would make them more vulnerable to security breaches.

Mike Pegler, Principal, PwC US technology practice, says: "Inconsistency of data remains one of the top challenges for wearable technologies today. For wearables to be effective across both primary and secondary devices, there needs to be an established frequency of measurement.

"Enterprises must forge partnerships and develop IT and platform alliances to deliver seamless experiences on both the front end and back end of wearable implementations."

Tom Benton, a principal in the insurance practice at US research company Novarica, concurs with other commentators that life and health insurers are concerned about privacy and regulatory issues with wearables data.

However, he says these issues should be resolved in the next year or two, and early innovators will likely soon after develop products specifically for wearables users.

He adds that with general privacy and security concerns, consumers are also wary of providing too much information, but consistently are willing to provide data in return for a clear benefit.

Winning trust

Benton advises: "Insurers can win wearable users’ trust by limiting use of the data to providing incentives and not as a disqualifying criteria, [but instead] being very transparent about how the data will be used, and providing protection against misuse of the data."

As for concern over insurers having too much health information on consumers Kevin Carr, chief executive of Protection Review in the UK, says the opt-in/out question is crucial. He says it must be voluntary and not compulsory.

Carr says: "While there are many benefits one possible downside is that we create a two-tier system which goes against the core principle of insurance because the more we know on an individual level the higher the number of people who could become uninsurable."

Ian McKenna, director of UK-based Finance & Technology Research Centre, notes that the advent of wearable technology comes as several other technologies emerge, such as biometric, big data and genome testing.

McKenna says: "You have a vast range of technology changes all broadly happening at the same time, which have phenomenal potential to spur changes in life insurance."

In McKenna’s view, the challenge for the life insurance industry will be to try and adapt to these changes.

He says: "It is an industry that is good at saying we will ignore that change until it really begins to hurt us.
"If the industry ignores this, it will probably be decimated. In my view, the major insurance groups of 2030 probably do not exist today."

By as soon as 2018, McKenna adds that he expects to see "a major disturbance" in the industry from new entrants.
Commenting on the impact of wearable technology on life insurance, McKenna says customer pricing could become vastly more complex depending on the amount of information available to insurers.

McKenna says: "You might even see a situation where insurers may say to employees / employers if you are unable to supply certain information, can we give you cover at all?"

Concurring with the other experts, McKenna agrees wearable technology brings reputational risks for the life insurance industry associated with anti-selection, but stresses there are many positives too.

McKenna says: "There are lots of opportunities, but only for those insurers that have a vision and are prepared to look forward and are prepared to recognise that we live in a world that is rapidly changing."

 

What insurers are doing with wearable technology

Dougy Grant, protection director at Aegon UK, says Aegon does not currently use any wearable technology to help with the underwriting process.

However, as things progress and wearable technology becomes the norm more and reliable, Grant day says Aegon will have to look at this as a way of assessing risk.

Aviva’s Whatling says the insurer feels there are real opportunities arising from the growth of the wearable technology industry and is "currently exploring" how to make use of it for the benefit of Aviva’s customers.

Asked how can life and health insurers deal with concerns that wearable technology means insurers will have too much customer information available could refuse to underwrite people in future, Whatling says: "At Aviva we believe that data from wearable technology can only be used to the benefit of our customers and to further improve the customer experience. We will continue with our philosophy of offering full cover to applicants wherever possible."

Hamilton says Zurich is not currently changing premiums or terms based on wearable data, although it is running some attitudinal trials to the collection and use of wearable data with our own staff.

Novarica’s Benton says it is already seeing some health insurers looking at the use of wearables to collect data.
He cites insurer Oscar in New York and AXA France as having programmes to provide wearable devices to policyholders, and AXA France also provides incentives for providing data.

Benton says: "I expect to see life insurers experimenting with wearables in 2015, mainly to collect data for underwriting analysis but probably not for use on actual policy issuance."

US practice

A spokesman for global health and life insurer Cigna says it does offer some customers the use of wearable technology so they can monitor their health and fitness regimen and the information may be shared with a health coach, a service Cigna offers, or a physician if the customer chooses to do so. The information is explicitly not used for underwriting, says the Cigna spokesman.

The Cigna spokesman says: "We offer programmes where customers measure progress on their health and fitness regimens using wearables, such as Jawbone, BodyMedia and FitBit, and share it with their Cigna health coach. If they reach their health goals, they often receive rewards, which can be cash, discounts, or even movie tickets."

According to the spokesman, Cigna has witnessed positive results from its wearable technology programmes.
In 2013, the insurer conducted a randomized control study with about 600 pre-diabetic, morbidly obese participants. Of that group 300 received BodyMedia activity trackers along with health coaching support and the other 300 received coaching alone, without the device.

The spokesman said: "We found the activity trackers provided extra motivation for users to improve their health, more likely to engage in healthy behaviors, and, perhaps, more importantly adapt healthy behaviours for the long term."

Among the key findings from the study, the spokesman said 80% said they were more motivated to manage their health at the end of the study than at the beginning.

In addition, Cigna said the average device-wearing participant burned 2,500 calories a day and walked 3 miles a day.

A spokesman from US health insurer Aetna says it neither underwrites based on medical history and nor uses data from wearable devices. Wearable devices are, however, part of some Aetna wellness programmes and/or discounted for purchase by members.

The Aetna spokesman says more employers are showing an interest in having their employees use wearable devices or share information that they are already gathering using these devices.

Aetna offers employers the Get Active wellness programme, and these options are all available through this program if an employer chooses to implement them.

Like Aetna, the spokesman says several employers are also allowing their employees to use the information they gather in their wearable devices to track their activity for the employer-specific wellness programme.

"We are seeing this trend across all of our employer customers, but most significantly in mid to large sized national employers. Not surprisingly, technology-based companies also show a higher level of interest than other companies."

 

Fast fact

– Millennials are twice more likely than adults aged 35+ to be very willing to adopt a smart watch, fitness band or smart glasses if a retail, entertainment and media or health insurance company pays for it.

Source: PwC