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The Actuary The magazine of the Institute & Faculty of Actuaries

Left to their own devices

Richard Purcell advises on how to make use of the essential information available from wearable technology, without ending up as a ‘Big Brother’ industry



The launch of the Apple Watch this year is expected to herald a new boom in wearable devices. But wearables – including fitness trackers and glasses – have been quietly growing in popularity for some time. In fact, approximately three million of them sold in the UK in 2014 – that’s roughly one for every new life insurance policy taken out each year.

Wearables have grown in popularity thanks to improved technology and people taking a greater interest in their own health, with devices providing information about steps walked, calories burned, heart rate and more. It’s this very information that is also relevant to life and health insurers of course. Many insurers around the world are already embracing wearables – and those that haven’t are watching very closely. 

However, collecting more data about people fuels the idea that insurers are becoming more like ‘Big Brother’. Understandably, this creates some questions among potential customers. So perhaps there are two burning questions; what information should insurers be capturing, and how should they be using that information?

Approximately three million wearable devices were sold in the UK in 2014 – that’s roughly one for every new life insurance policy taken out each year

What data should be used?

Of course, it goes without saying that insurers should only collect information customers want to share. That aside, what else do customers expect when it comes to sharing data? 

As consumers, every day we share data with other organisations. We’re used to supermarkets knowing everything about what we have bought and what we’re likely to buy, in turn using this information to give us discounts and offers relevant to us. For many, this is the norm, and even expected – provided that data is used responsibly and to our benefit.

In the world of employee benefits, we know that people are also happy to share data, particularly the young. A recent survey by PwC shows that 60% of millennial workers would be happy to use a wearable, rising to 70% if it meant they got something back in return. This all points to collecting data provided it is used to ultimately benefit the customer.

We should also view this question in terms of the information insurers already capture. At the point of underwriting, life insurers typically capture information on health metrics like BMI, and cholesterol, alongside age and medical history, to assess the health risk of a customer. But they only capture these health metrics once. Yet for a long-term contract like life insurance, these metrics (and so the morbidity and mortality risk), are unlikely to remain constant. So it is useful for insurers to understand the changes in these metrics, ensuring they better understand the underlying risk. One argument is, if insurers are already measuring a health metric at the start of a policy, why shouldn’t they measure the same metrics during the term of the policy with the aid of a wearable device?

How should insurers use it?

There are many potential uses for data collected from wearable devices. We’ve already mentioned using it to measure the ongoing riskiness of a customer. This in turn could be used to dynamically alter the premiums of a policy. However, the idea of premiums going up if a wearable showed unhealthy behaviour could prevent people from engaging to start with. So, instead of punishing them, we should offer a reward in the form of lower premiums if they showed wholesome lifestyle choices – ensuring there is only a benefit to the customer if they use a wearable device.

So far, the focus has been about the dynamic underwriting of existing customers. But some expect that wearables could also be used to help underwrite new customers. This would, however, require a large amount of historical data. With devices being relatively new, the idea could be some time off yet.

Wearables are already being used by the health industry to help monitor and manage people with ongoing conditions. So they could be used by health insurers in the same way, to help customers recover more quickly, and ultimately help manage claims. They could also be used, along with incentives, to help encourage more healthy behaviour, and so reduce the risk of illness in the first place. 

Wearables create all sorts of challenges for insurers in terms of data protection and integrity. But, if the data is used in a positive way to the benefit of customers, they offer insurers a means of understanding and managing risk in a way that has never been possible before – plus the potential to transform the market.

Richard Purcell is head of technical marketing at Vitality