The tech industry loves its buzzwords. Yesterday it was all “big data” and “cloud” and today we’re talking “wearables” and “Internet of Things”…and tomorrow, the “Internet of Everywhere”?
For the world of insurance, these buzz words are more than superficial. They are more than fashionable consulting speak to hoodwink the industry and keep everyone guessing about what this really means.
For life and health insurers, they mean the ability to improve risk ratings, to personalize the price of the cover and to apply and adjust policy conditions on an ongoing basis. The traditional approach of a single, point in time questionnaire is being replaced by an ongoing adjustment, assessment and review approach enabled by these new technologies.
Through the use of wearables and smart phone apps, the accuracy of evidence-based underwriting is significantly improved (see latest publication from Raconteur).
These new technologies enable insurers to radically shift from being the provider of an enforced product to a provider of a value added service.
And this is not a fad or a short-term trend! A decade ago, there were (only) about 500 million devices connected to the Internet. Today, with a global population of over 7 billion, we have more Internet connected devices than people. Today’s estimates range from 10 to 20 billion connected devices and this is predicted in the next five years to rise to 40 to 50 billion Internet connected devices!
IDC predict that 72 million wearable devices will be shipped this year, up from 26 million last year and forecast to exceed 150 million devices by 2019. The vast majority of wearables will be wristwear such as the Apple Watch or Microsoft’s HoloLens.
With this massive growth in devices that collect data, it is no surprise that, according to the Norwegian research organization, SINTEF, 90% of the world’s data has been generated in the past two years. Every second, over 250,000 new gigabytes of data are created, which is the equivalent of 150 million new books…I repeat, every second!
It is, therefore, no surprise that I am seeing a new group of tech startups from the data aggregation space focusing on life and health in InsuranceTech.
This week I caught up with CEO and co-founder Jan-Phillip Kruip from Singapore based startup, FitSense. Their data aggregation technology was developed at and subsequently licensed from the National University of Singapore. JP explained to me how their aspiration is to take the approach of telematics for motor and apply it to health insurance.
The idea behind FitSense is to develop a tech platform that will aggregate data from the wide variety of wearable inputs in the market. These inputs come from activity trackers such as a Fitbit or Jawbone or a smartphone. Today, a smartphone is equipped with a range of sensors that track all manner of things such as proximity, ambient light and sound, barometer, temperature, motion, acceleration, gyroscope, magnetometer. And all for less than $5 of the total price of the smartphone!
This mass of real time and individualized data in all of its glorious forms is consolidated on the FitSense aggregation platform and normalized. It is organized and processed to create a composite view of the individual, which is updated and adjusted in real time.
The benefit to the insurer falls into two camps. First is that the data aggregation platform takes care of the pain of integrating with lots of different wearable technologies. Second is that the FitSense platform gives out a risk rating, much like an Experian credit score.
As a trusted, evidence based source of risk rating, services such as Moody’s or S&P have become institutionalized in the bond markets. Using Moody’s to illustrate how FitSense works in the world of insurance, imagine a similar system for setting health premiums.
Instead of a single point in time questionnaire to determine your premium and any policy conditions, you had a health insurance rating of AAA based on actual and current data. Like a credit score, this would lead to highly competitively priced premiums and generous policy conditions. However, in the same way as back to back disappointing quarterly corporate results leads to a downgrade and worsening credit rating, this same model would be applied to the health insurance policy.
Insurers could, should they chose to do so, apply increases to monthly premiums to reflect the worsening score from the data aggregator.
At this point, I am going to defer the subject of how insurers would or could handle “bad behavior”. Today, those insurers in this space are only rewarding policyholders for better behavior and they are staying silent on worsening behavior. Where bad behavior is subsidized by the good in the traditional model, this now creates a moral and ethical debate to be had amongst insurers about how to benefit from this new technology. The issue is about segregating customers into good ones and bad ones (based on the evidence from wearables data) thereby potentially creating a class of “the uninsurable”.
Coming back to the subject, research from Salesforce.com found that 79% of those companies adopting wearable technology agree that wearable tech is or will be strategic to their future business.
And 23% of companies said that data collection and aggregation was their biggest challenge!
Unlike banking, where the Fintech movement is about radical shifts and disruption, in
InsuranceTech the theme is more subtle and evolutionary. This is what we are seeing here and there is no question that wearables and the Internet of Things plays right into the executive agenda about how to apply new technology to traditional insurance.