Wearable Technology and Life Insurance

‘Wearables’ seems to be the new buzzword within the life insurance industry. So if you are feeling like you are not quite up to speed with what all the fuss is about, here is a beginner’s guide to all things wearables, including the possible implications within the life insurance industry.

What are wearables?

The terms ‘wearable technology’, ‘wearable devices’, or simply ‘wearables’ all refer to electronic technologies or computers that are incorporated into items of clothing and accessories which can comfortably be worn on the body¹.  The term ‘wearables’ is an extension of another tech term, the ‘Internet of Things’ (IoT) ².

In very basic terms, IoT refers to everyday objects that have been given the ability (through technology) to collect and exchange data. In practical terms, the IoT is what allows you to control your home’s air conditioning from your office, or your fridge that tells you the weather forecast for the rest of the week. IoT will allow our lives to become completely automated.

As the name suggest, a ‘wearable’ is simply an IoT device that can be comfortably worn on the body. Examples of wearable devices include watches, glasses, contact lenses, e-textiles and smart fabrics. Despite the endless possibilities of wearable products about to hit the market, insurers currently use the term ‘wearables’ to refer to fitness monitoring devices worn on the wrist such as the FitBit, Jawbone, and smart watches.

What can wearables measure?

Depending on the specs of the wearable hardware to which the device interfaces, you potentially have access to a myriad of sensors:

• Accelerometer: measures movement and orientation. In a smart phone it is used to detect the orientation of the phone (so the display can be adjusted accordingly). In fitness trackers, accelerometers are most often used with a number of other sensors to determine your step count and sleep quality. By measuring how quickly you’re moving, it enables the wearable to tell whether you’re taking a step or just shaking your wrist. It can also determine when you’ve stopped moving completely for a lengthy period of time, so it knows when you’re asleep.
• Altimeter: senses height changes using atmospheric pressure, so the total flights of stairs you’ve been climbing will be added up and calculated as a factor in your total step count, making your calorie output much more accurate.
• Barometer: tells you whether it’s going to rain, hail or shine.
• Gyroscope: tracks your movement over a number of different axes, allowing wearables to detect different kinds of movements. For example differentiating between running and cycling.
• GPS: The Global Positioning System provides location and time information. Basically allowing you to accurately track how far (and fast) you’ve exercised.
• Optical Heart Rate Monitor: sits within your wrist wearable and shines a tiny light, usually red or green, against your skin to detect your heart rate. Avoids the need for a chest strap which featured in earlier wearables.

The benefits of wearables

The purpose of wearable technology is to create constant, convenient, seamless, portable, and mostly hands-free access to electronics and computers. Wearables incorporate computers and electronics into people’s everyday lives, allowing the wearer access to information in real time (such as heart rate or step count for the day so far).

Wearables and Life Insurance

The IoT (including wearables), when coupled with data analytics, enhances risk-assessment power. By combining the data received from the wearable’s sensors with other existing data about the applicant, it may be possible in the future to be able to accurately determine the risk of certain illnesses.

An analysis by Capgemini in 2015 reports the following potential impacts on wearable devices on all parts of the life insurance consumer journey: ³

• Front Office: with non-intrusive data-collection, it will be easier to identify the needs of existing customers. The data can also be used to define new customer segments and design products based on the understanding of individual risks. Ultimately, products will be designed based on the needs of customers, and pitched to the right customer group.
• Policy Administration and Underwriting: new data inputs from wearables will result in new pricing models. Real-time data will be used to calculate premiums, with periodic reviews resulting in an increase or decrease in the upcoming premium cycle based on the current activities and up-to-date biometrics of the customer.

In addition, by constantly analysing the real-time data received, policyholder services will be able to engage with the customer to indicate health patterns (predictive analytics) that are either harmful or beneficial to the insured.

• Claims management: data received from wearables may be able to help check for potential frauds, reduce claim costs and provide a better turn-around time for claims issuance. The claims process could fundamentally change from a reacting-to-risk model to a preventing-the-risk model.³

Examples of how Life Insurers are using wearable technology

• Prudential’s Vitality in the UK offers its customers “points” earned through the data collected by wearable devices. These points can be spent on rewards such as cinema tickets and free coffees, alongside reduced premiums. A survey demonstrated that its users are more likely to use the wearable device after one year, compared with non-members.
• Oscar New York supplies customers with a Misfit Flash and offered users $1 credit every time they hit their step goal, with rewards in Amazon vouchers of up to $250 a year.
• John Hancock offers its users Fitbits and the potential to earn 15% off their premiums for hitting targets.
• United Healthcare offers an app for health management that can be synced with Fitbit devices.

The challenges

Insurers face a number of challenges when integrating wearable technology into their business offerings. Some of these challenges include:

• Privacy: what happens to the data, where is it stored, who can access it? The customer will also be less willing to use the device if there are penalties for telling the insurer negative things about their health.
• Cheating: how do you stop customers strapping their fitness trackers to their pets to rack up their daily step count?
• Cost: the Insurer will need to invest in robust data and network infrastructure to receive, store and manage all the information received. As wearable technology advances and modifies, it will be important for insurers to ensure flexibility and scalability of systems to adapt to the changes³.

Conclusion

The ability to collect real-time biometric data is likely to revolutionise the Life Insurance industry across the entire consumer journey. Despite wearable technology only being in its infancy, many insurers have already adopted wearable devices within their business models. Not to mention the public health benefits; feedback from the wearable device is able to positively modify lifestyle behaviour, resulting in reduced health risks and improving the quality of life of the customer.

References

1. Tehrani, Kiana, and Andrew Michael. “Wearable Technology and Wearable Devices: Everything You Need to Know.” Wearable Devices Magazine, WearableDevices.com, March 2014. Web.

2. Wikipaedia. Internet of Things. 2nd Feb 2016. Accessed at: https://en.wikipedia.org/wiki/Internet_of_Things

3. Capagemini. Wearable Devices and their Applicability in the Life Insurance Industry. 2015.

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Unified Healthcare Group serves Australia’s financial services industry by providing a one-stop solution for all medical requirements associated with life insurance claims and underwriting.

This article was written by Unified Healthcare Group National Medical Advisor, Dr Stephen Simonds

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