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For the Intro & Index to Wearables Week, please click here.

Buying Health & Life Insurance today is like filling in a form to tell Netflix what movies we say we like at that moment in time – versus what movies we actually watched recently. You fill in a snapshot report of your health, with blood samples and other tests run by a doctor and the premium is set. The fact that you later put on 40lbs and developed diabetes – or gave up smoking and alcohol and ran a marathon and reduced your blood pressure – impacts Insurance risk but is ignored by Insurance companies.

 Wearables could change all of that and revolutionize health and life insurance by a) personalizing insurance and risk and b) changing the delivery of healthcare. But first, there are three big hurdles to overcome.

 First we describe how wearables could change the world of health and life insurance with two visions – personalized insurance and augmented intelligence for healthcare workers. Then we look at the three big obstacles.

Vision # 1: Personalized Insurance.

Like Netflix or Amazon recommendations, Insurance could be based on a dynamic rather than a static view of health, fed by data signals from our wearables. Our premiums would go down as we became healthier and vice versa. Becoming healthier would not only make us feel better, it would also save us money.

Imagine an investor basing a decision on a 10-year-old financial statement. That is how Insurance companies work today, with a one-time snapshot of our health. Wearables could give Insurance companies the equivalent of real time financial reporting. That is a big deal.

Vision # 2: Augmented Intelligence for healthcare workers

Health Insurance cannot change the game. It is the delivery of healthcare that matters. Wearables could give healthcare workers augmented intelligence that enable them to deliver healthcare that is better, faster, cheaper.

That improved healthcare delivery could be packaged by next generation health insurance companies into genuinely affordable healthcare.

That is an even bigger deal. Of course, with this much money at stake, politics could get in the way and lobbyists could stop it happening. The obstacles – which we will come to – are real and could be dressed up to kill any progress in this area.

Sensors that track your sports achievements are fun, good for bragging and high fives. For people with medical issues, sensors that monitor vital signs such as heart rate, pulse, blood pressure could be the equivalent of data feeds for financial traders. They give glimpses into a complex system (global financial markets, human body) that can be used by highly trained workers. With the addition of cognitive computing/AI to parse all that data flow, imagine an exchange like this over chat bot:

Patient: I am not feeling well.

Healthcare worker: I can see why; your xxx vital sign does not look good. I suggest you do yyy right now and let’s schedule some time so I can run some more tests.

I am deliberately using “healthcare worker” rather than “doctor” as the latter is a regulated, controlled definition and many tasks could be performed by nurses or health aides of various types. The key is that all the healthcare workers are empowered by data and AI processes. Their intelligence is augmented just like a Hedge Fund trader’s intelligence is augmented by data and AI processes.

Corporations that self-insure could drive this.

Corporations that self-insure have aligned motivations – healthy employees cost less for healthcare and are more productive. The company to watch in this space is Accolade (which recently raised $70m).

Big VC Money going into Next Gen Health Insurance

The reasons why VCs love investing in Health Insurance is pretty obvious – it is a massive market and very broken i.e. customers urgently need something better (ask any consumer what they think of Health Insurance or look at Net Promoter Scores). However, it is very hard to fix. You can say that curing cancer is a big market and customers want something better but that does not mean it is easy to find a cure for cancer.

You cannot change Health Insurance in any significant way unless you can also change the Provider side. That is where VCs have an advantage. They can see that the innovation in digital health is for real. Funding for digital health is on a tear. So that will make innovation on the Health Insurance side more likely. This is where data from Wearables will intersect with Next Gen Health Insurance such as:

Oscar Health which we profiled here.

Bright Health is interesting because this was an $80m Series A ( a lot of money for a first institutional round). There are two VCs (NEA and Bessemer) and both are top tier and have deep pockets; one assumes big follow on rounds will be needed for them to have an impact on such a massive market with big entrenched incumbents. This is not a garage startup with some young techies with a Minimum Viable Product. The CEO, Bob Sheehy, is the the former CEO of United Healthcare. The best analysis is in Modern Healthcare magazine. This is a full stack regulated venture aiming to be an alternative to existing insurance companies.

Clover Health is also a full stack regulated insurance startup. Consumers can buy Health insurance today (as long as you are in New Jersey, Health insurance has to grow state by state). Their round was Series C, so they are more developed than Bright Health, but this is a market where a top team with plenty of capital can do well by learning from those who were early in the market – it is not necessarily a game with first mover’s advantage. Clover Health has an interesting focus on the doctor. The idea seems to be that if doctors have an easier time on the paperwork front the best doctors will want to work with Clover, which will benefit consumers.

Outside the US, VitalityHealth, originally from South Africa, is an early pioneer of wearables before they were called that. They have expanded globally through partnerships; they moved into the UK, with Pru Health and China with Ping An. In the US they have the novel strategy of partnering with 6,000 gyms; they can track actual attendance from a swipe of their membership card.

Atidot and Life Insurance

Atidot is an Israeli startup (classic ex military where they were in the Technological Unit of the Intelligence Corp). They use predictive analytics that can help Insurance with the basic but difficult to answer question – when will this person die? Classic Insurance Actuarial process looks at static data such as age, sex, job and location. Wearables data can give a dynamic view of Health. The world is non-linear and data science for predictive analytics does not follow a linear model. Data is modeled to show different correlations of risk to key variables.

Reality Check # 1: devices not ready for prime time.

A 2014 survey by Strategy Meets Action (SMA), a Boston-based research firm found that 22% of insurers are developing a strategy for wearables. Ironically, the same survey also reported that only 3% of these insurers actually wore a wearable device themselves.

In other words, the theory is good but wearables are not yet ready for prime time (as we covered in our opening post in this theme week).

Reality Check # 2: PreExisting Conditions

One lasting legacy of the Affordable Care Act (aka Obamacare) is that consumers cannot be denied coverage based on a pre-existing condition. That is a problem if the wearables data shows we have a new condition such as Diabetes. We want our Insurance to go down when our health improves, but we don’t want it to go up when our health declines.

Reality Check # 3: Data Privacy

Privacy regulation varies by jurisdiction, with Europe tending to tougher than USA; but even in USA in some States you must communicate to consumers if you use factors such as gender, age, zip code in pricing.

For Wearables to impact Insurance premiums, policyholders must be willing to share data with the Insurer. This maybe an area where Millennial attitudes to privacy (it’s done, put a fork in it) may rule. Or there maybe consumer and regulatory backlash as the data is so sensitive. The companies will need to prove that their aggregated anonymous data cannot be reverse engineered to create Personally Identifiable Information (PII); any hacker that breaches that will create a reputation crisis, so it has to be really secure.

These are real obstacles, but entrepreneurs treat obstacles as something that defines their action list. They find a way to solve those problems. Given the scale of the opportunity, somebody will surely solve them.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.