Wearable devices and other sensor-based technologies are poised to shake up the way business is done in the life insurance industry, affecting everything from products and underwriting to the role of insurance agents.
However, the prospect of insurance companies using fitness trackers and other technology to track information about policyholders’ health and lifestyles is raising concerns about privacy, data security and implications for clients’ future insurability.
“How will [the data] be used? Where will it be stored? What about privacy?” asks Michael Lampel, president of Toronto-based InsuranceForChildren.ca. “[This concept] raises a whole plethora of questions.”
Despite these concerns, the potentially game-changing implications of these technologies are becoming increasingly clear. A recent report from Ernst & Young LLP (E&Y) suggests that sensor-based technologies – devices that detect and respond to input from the physical environment, such as smartwatches and telematics devices that track driving habits – will have an “extensive, profound and lasting” impact on the insurance industry.
“[Insurance companies] can get a better understanding of the customer, and the risk profile associated with that customer, based on how they live and how they behave,” says Walter Rondina, senior manager, insurance, with E&Y in Montreal. “That can translate into assessing risks more precisely and empowering underwriting teams.”
Although property and casualty insurers have embraced these technologies in large numbers, adoption by life insurers has been limited.
Toronto-based Manulife Financial Corp. is set to be the trailblazer. The insurer announced in February that it’s launching Vitality, a life insurance program that tracks policyholders’ health and lifestyle using, among other methods, fitness-tracking devices. Vitality rewards policyholders for healthy living with discounted premiums and other incentives. Manulife’s U.S. subsidiary, Boston-based John Hancock Life Insurance Co., launched a similar program in the U.S. last year.
From an insurance company’s perspective, programs such as these serve the dual purpose of motivating policyholders to improve their health, which can have a positive impact on the insurer’s claims experience, and generating a far more detailed picture of the insurer’s clients.
That client data ultimately could enable insurers to develop products that are customized to individual client preferences and priced in a way that more closely reflects that individual’s risk profile.
“Once you have a better understanding of customers and risks,” Rondina says, “you can optimize pricing, and there’s a long-term profitability improvement that’s expected with time.”
More client information can also create more cross-selling opportunities, says Wilson Raj, global director, customer intelligence, with the Cary, N.C.-based SAS Institute: “You get to do more business with [clients], you get to interact with them more and provide more value, which, in turn, leads to more revenue.”
Closer relationships
Sensor-based technology also paves the way for closer relationships between insurers and policyholders. Whereas insurance agents traditionally have mediated most of the interaction between insurers and clients, the E&Y report suggests that as clients provide information directly to insurers, companies won’t rely as heavily on agents to broker access to policyholders.
“There [will be] more direct dialogue between the insurance company and the client,” says Rondina. “So, there’s no need for an intermediary to facilitate that dialogue.”
Although programs such as Vitality can provide clients with premium discounts and other rewards, Sean Long, an insurance consultant in Kitchener, Ont., says advisors should warn clients to be leery of handing over data.
“I’m very nervous about data being shared,” Long says. “Once you’ve opened Pandora’s box, it’s very difficult to take it back.”
Once insurers have clients’ data, what they might be used for in the future is unclear, Long says.
Lampel suspects that insurers eventually could incorporate sensor-based technology into the underwriting process, relying on behavioural and lifestyle information extracted from wearables and mobile devices to determine insurability rather than using medical files or questionnaires: “For the children of today who will be applying for life insurance 20 years from now, this technology could be front and centre as part of that application process.”
Data security risks
Privacy and data security also are key concerns in the use of wearable technology. “Insurance companies have tons of personally identifiable data, and very sensitive data,” says Raj. “The more you expand your digital footprint across more devices and channels, the more you’re opening up yourself to privacy issues.”
These risks became clear in recent months, when hackers gained access to the accounts of some Fitbit fitness-tracking device users in an attempt to engage in warranty fraud.
A statement from Manulife reassured its clients that personal information is treated confidentially, and respect for client privacy – especially with regard to medical information – is “paramount.”
Despite privacy risks, research shows that there’s appetite for these types of programs in Canada. A recent SAS survey of 4,400 consumers globally revealed that although data security is a concern in all jurisdictions, Canadians are more inclined than consumers in other countries to hand over personal data in exchange for discounts or special offers.
The survey also found that Canadians expect companies to use this information to customize services to their personal preferences – to a much higher degree than others around the world.
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