The insurance industry has always been at the forefront of using data to measure risk and apportion a value to it. However, the past decade has seen a massive increase in the amount of data potentially available to insurers. Health and well-being information from wearable devices and telematics data in cars have created a rich vein of data that can help insurers better formulate how they will create and deliver new products to their customers.
The increased amount of available data will let insurers better understand their customers. Currently, in the area of health, assessment models are based on questionnaires and large data sets from population studies. For example, a common measure is the Body Mass Index (BMI) — the body mass divided by the square of the body height — which determines whether individuals are at a healthy weight for their height. If the resulting value is higher than the defined healthy range for the individual’s height, an insurer may judge that person as being in a higher-risk category. However, by using other data from a wearable, such as activity levels and resting heart rate, and from digital scales that determine a person’s body composition, insurers can get a more accurate picture of their customers’ health.
Rather than basing risk assessment on point-in-time information, wearables provide longitudinal data. This allows insurers to create a premium structure that is better suited to customers while better understanding the risk profile to reduce payouts. As a result, the makers of personal health wearables and insurers have teamed up. For example, UnitedHealthcare partnered with chip maker Qualcomm when creating a staff wellness program. Employees were given a free fitness-tracking device and can earn almost US$1,500 a year by meeting certain fitness goals. The same benefits that allow a business to help reduce absenteeism can be achieved by insurers trying to reduce payouts.
One of the challenges insurers face is that to reduce risks taken by customers there has to be behavioural change. By constantly monitoring key parameters of a person’s health, it is possible to provide real-time cues to do simple things. For example, a wearable can prompt somebody to stand up and take a short walk when they have been stationary for too long. And if a person’s pulse rate becomes too high or too low, it can prompt the wearer to contact a heath professional. In some trials, this has been done pre-emptively with analytic services collecting and analysing the data and calling customers when their risk of a major health issue elevates.
The sophistication and accuracy of such monitoring is evolving at a rapid rate. For example, the newly released Apple Watch Series 4 has an electrocardiogram tool to help wearers monitor their cardiovascular health. By using such a device to detect early warning signs, it may be possible to stop the problem from occurring. In effect, then, insurers could provide information that protects customers — rather than just helping them recover after the fact. This would benefit both the individual and the insurer.
For insurers, this new era of rich, personal data is a significant opportunity. Rather than relying on population studies to create broad products that offer coverage for services people might never need, products can be tailored to the individual needs of each client. Although this may lead to a reduction in premiums, the resultant reduction in payouts through a richer understanding of risk can help insurers increase their margins.
At the same time, insurers can move away from helping customers after a problem strikes and become a part of the customer’s proactive healthcare.