Fitness trackers, monitors and a host of other internet-enabled devices have become a part of our everyday lives. And while we enjoy the convenience and safety they provide, no one may be happier about their acceptance and use than insurance companies. As more connected gadgets come to market, insurers see more opportunity than ever to tap into these new sources of data — for everyone’s benefit.
Insurers are using the data they generate to create usage-based insurance policies and new services that help customers identify and avoid risks that might result in a loss. To do this, they’ve been making major investments in digital insurance platforms, advanced analytics, artificial intelligence and more.
As a start, many insurers are educating customers about smart devices and how to use them to avoid problems. Some companies are subsidizing the cost of smart home products or offering policy discounts to encourage consumers to buy them. For example, American Family Insurance offers policy discounts to customers who install Ring’s video doorbell. If a customer’s home is burglarized after its product is installed, Ring will reimburse any American Family policyholder for the deductible. Looking ahead, insurers are likely to offer many more services that use these devices. For example, an insurer might help reduce the risk of burglary by randomizing lights in an empty home.
More and more, smart devices are helping auto insurers manage risk. Vehicles equipped with data-gathering devices and telematics can help discern bad driving habits that can lead to an accident, providing insurers with crucial information to advise clients and reinforce safe driving. We all know that speeding is risky, but data can reveal other potential issues as well. Hard braking, for example, might indicate a driver who routinely follows other cars too closely, raising the risk of an accident. Telematics also can be used to help insurers more accurately determine premiums or inform pay-per-use insurance models. Startups such as Metromile use factors like location, age and driving history to calculate a low monthly base rate. Telematics then track a driver’s usage, adding a few cents for every mile a vehicle is driven.
Health and life insurance are poised to change radically. Insurers are combining technologies like smartphones and artificial intelligence to enable customers to skip lengthy questionnaires and buy life insurance online in just a few minutes. For example, Lapetus Solutions incorporates facial analytics from selfies to help determine life insurance rates. Insurers are leveraging data from wearable devices, too. Life insurer John Hancock announced recently that it would exit the traditional life insurance business, offering policyholders coverage tied to behavior-based wellness programs that track progress with fitness monitors.
Before they go too far, questions need to be settled about the ways insurers will access and use all this information. Many customers have legitimate concerns about the privacy of their actions and the security of data they share. No one wants to think they’re being watched in their home, especially by their insurer. Over time, though, these issues will likely sort themselves out, either through the action of free markets or, perhaps, regulation.
There is little doubt, however, that smart devices are here to stay. And as long as an acceptable balance is struck between a policyholder’s privacy and the benefits received, heading off problems before they happen and paying less in the process seems like a worthwhile trade.