Wearables and Fitness Devices Offer New Opportunities and Challenges for the Insurance Industry

The Automated Insurer | Employee Benefits

By Mike de Waal | 7 February 2019

Key Points

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Wearables and fitness-tracking technology have witnessed rapid growth recently. CCS Insights reports that the smartwatches and fitness trackers market grew to almost $24 billion in 2020. Furthermore, the same report indicates this trend will continue as there are expected to be over 1.2 billion fitness devices in use by the end of 2025. 

The wearables revolution continues to spark interest in the insurance industry as such devices can provide essential health and fitness data. 

Physical activity data is vital to developing interactive life and health insurance policies. Hence, the technology holds the key between insurance firms and technology-savvy clients.

Thankfully, insurance customers are open to sharing their data to get a more personalized policy and customer experience. One study shows 80% of new insurance customers are willing to share personal information for personalized insurance policies that include incentives and reduced premiums.

Obtaining such consumer data enables insurers to increase their revenues by selling more personalized products, improving risk-assessment accuracy, and accelerating underwriting processes. Insureds will, in turn, enjoy discounted premiums and other benefits.

Encouraging and Rewarding Healthy Habits

Wearables encourage insureds to become accountable for their health and fitness, and insurance companies stand to gain healthy clients with longer lifespans.

Most life insurance policyholders pay their premiums for an average of 20 years. With the adoption and use of trackers, consumers will be able to live healthier and longer lives. Lower mortality means higher insurer profits.

Customers are eager to share their data to obtain these benefits. 7 out of 10 consumers would share data on their health, exercise, and driving habits for lower prices from their insurers. Additionally, 66% of consumers would also share important data for personalized services to prevent injury and loss. 

In addition to discounts on premiums, clients are also given the tools to boost their quality of life and well-being. For example, wearable devices can help detect heart disease and high blood pressure and help insureds get treatment before things worsen. The technology can also detect a client’s unhealthy lifestyle habits, such as smoking and excessive drinking. 

With lifestyle conditions becoming more prevalent, wearable devices will go a long way in promoting a healthy lifestyle.

Accelerated Underwriting and Improved Profitability

Obtaining physical activity data from customers reduces reliance on traditional lengthy medical tests and examinations. As a result, life and health insurers can accelerate their underwriting processes and reduce policy wait times. 

Fitness activity data, alongside additional sources and predictive models, can enable straight-through processing and help insurers gain better visibility into a customer’s mortality risk. 

Customers with optimal health metrics, as collected from wearables, can be accelerated to better risk classes. In contrast, others with less favorable data would require additional risk assessments or may only qualify for standard premium rates.

Carriers can reduce wait times from weeks to minutes when the data is combined with predictive models and underwriting rules engines.

Data Security and Reliability Challenges

While more insureds are open to sharing personal data, many consumers are not comfortable giving their insurers access to private data streams.  For instance, only 32% of consumers say they significantly trust carriers to look after their data, down 40% from Accenture’s 2019 report. 

The rapid growth of wearables and fitness devices comes with the risk of infringing on consumer privacy. For example, because carriers have access to private information whenever the customer wears a device, the ever-present threat of information leaking to other parties is high. 

Another challenge is the reliability of the data collected, as the devices may not always report accurate information to the insurer. For example, devices may be tailored to indicate the motion patterns like walking or running and may not be able to record other activities such as cycling. The elderly may also be victimized by errors, as their exercise regimes may be less demanding. 

As wearable devices become more sophisticated, these technical challenges will be less important. However, carriers should always be intimately aware of the quality of their data and its potential flaws.

Wearables and Fitness Devices Are A Force to be Reckoned With

While there are various data safety and accuracy concerns with wearables, they can be overcome with proper protocols. Insurers have always dealt with sensitive information and will need to continue to handle such data with care. 

As for inaccurate heart rate and other readings, studies show that fitness data is evened out over time. For example, a wearable device may not accurately read the user’s heart rate during fast-paced or high-intensity exercises. Still, it can offer a comparable average throughout the workout.

The use of wearables and fitness devices as data collection tools, combined with predictive models and underwriting rules engines, can help insurers enable accelerated underwriting, sell more personalized products, and provide more accurate risk assessments. 

As a result, their role in shaping industry trends can no longer be understated. Moreover, as software and device reliability keep improving, insurance companies will further embrace wearables in the future.

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Mike de Waal

Mike de Waal is president and founder of Global IQX, an Ottawa-based software provider of AI-driven sales and service solutions to employee benefits insurers.  He has deep experience in both software development and business management skills. Early in his career, he worked as a computer programmer and then went on to become a financial planner and a benefits consultant with giant Manulife Financial before becoming a tech entrepreneur.  He can be reached at [email protected].

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