Fitness trackers may soon play a key role in insurance product design, pricing

Runners competing in the Comrades Marathon pass through Kloof, June 4, 2017. REUTERS/Rogan Ward - RTX38XS1

Insurance companies may soon require you to buy a fitness tracker to capture your health status in an accurate manner. A committee set up by the Insurance Regulatory and Development Authority of India (IRDAI) has recommended that insurance companies make use of activity data monitored by fitness trackers in pricing their products.

Although it is currently not clear if the cost of these trackers will be borne by the customer or the insurance company, if the recommendations are taken on board, it will mean lower premiums for people adhering to a fitter lifestyle.

The working group to examine innovations in insurance involving wearable/portable devices that was set up in January 2018 has submitted its report. In its report, the working group said wearable device-linked products should be first tested on a pilot basis before being launched in the market.

“The consent of the customer to share data is a must for participation in such products,” said the report. The insurance product, when being filed with IRDAI for approval, will have to mention that data from fitness bands will be measured.

The report said insurance companies could tie up with multiple fitness brand manufacturers and give customers the chance to choose.

Use in life insurance

The report said insurers can develop models using wearable data throughout the life cycle of the insured and help in building attractive product propositions. It said these models could also be used to improve the health and fitness of individuals

In the longer run, this will help in significantly improving the mortality experience over a period of time. Insurance companies could build their own infrastructure for storing and analysing the wearables data or can tie-up with service providers. Wearable devices are continuously evolving and will become increasingly accurate. Customers may migrate to another device or to a superior device.

“There is no common way of assessing the health scores across the spectrum of various technologies. Hence, a framework based on minimal available data to cater to the constant changes in this space has to be devised,” said the report.

Health insurance and fitness levels

The usage of wearables data in health insurance will have a critical role in risk assessment and improvement. Currently, insurers merely have access to a point-in-time data through medical tests or self-disclosures, which are often not adequate for risk assessment on an ongoing basis.

The report said wearables can provide a regular stream of health data to the insurer. “With increasing sedentary lifestyles and rising incidence of lifestyle diseases, the data captured by wearables (e.g., daily active steps, sleep hours, quality of sleep etc.) is expected to have a significant bearing on diseases incidence rates and thereby claim costs,” the report added.

The data captured by wearables will be a good indicator of a customer’s health and can also help the insurers to price the risk better. Once adequate data is collected, financial incentives can be passed on to healthier customers.

For instance, the pricing of the renewal premium can be altered on the basis of the levels of control maintained in blood sugar levels for a diabetic customer. However, the product design would have to ensure that the parameters for discount/ loading are well defined and the claim status has no bearing on the premium.

Use of technological devices to capture data

In the non-life insurance segment, underwriting and pricing were based on analytics and mathematical models using limited data points such as previous policy details, a declaration by a customer of previous health history. The report said that insurers can use data mining to improve pricing and segment customers. Further, mobile devices can also be used to process claims quicker.

For instance, faster claim settlement can be offered using the Internet of Things (IoT) and artificial intelligence.

In motor insurance, for instance, claims can be settled by asking the customer to fill details about the accident using a chatbot/voicebot, upload photographs of the damaged vehicle and of the essential documents to verify the claim. By doing this, the claim amount could be directly credited to the customer’s account.

Further, by installing smart data collection devices in vehicles, it would be possible for insurers to collect data on the driving habits of customers. To increase the adoption rate, insurers could incentivise the customers on the basis of their driving behaviour and give discounts on the next retail product that he/she buys.