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The Actuary The magazine of the Institute & Faculty of Actuaries

Insurance fad or health fix?

Wearable tech has the potential to provide a long-term health fix that reduces society’s disease burden, but with low rates of engagement this technology is at risk of becoming a fleeting fad, says Lisa Altmann-Richer 



The current use of wearable tech is arguably faddish, with marketing-focused incentives less likely to encourage long-lasting changes in behaviour

Over the past few years, health and life insurers have been encouraging the adoption of wearable health tech by promoting the use of physical activity trackers among their customers. With the World Health Organization recognising insufficient physical activity as a key cause of chronic disease, using activity trackers to encourage increases in exercise could help to improve health. However, surveys show that between a third and a half of consumers stop using their activity trackers within the first six months of purchase. If insurers are to succeed in using wearables to boost the health of their customers, then strategies that enable longer-term engagement with wearable devices will be needed. 

At present, the way in which life and health insurers encourage their customers to engage with activity trackers could be considered faddish. Customers are offered discounted premiums or other rewards, such as smart watches or cinema tickets if they meet certain activity goals, the most common of which is walking 10,000 steps a day. These techniques appear very marketing-focused, since the value of the discount or reward can be small, relative to the cost of insurance premiums. In addition to positive brand publicity, the insurer also benefits by being able to collect real-time data from customers’ wearable devices. In the case of activity trackers, insurers can collect insurance-pool specific data on the relationship between physical activity and the risk of developing disease. This is important because current peer-reviewed research on this is based overwhelmingly on self-reported measures of physical activity. Collecting objectively measured data on physical activity from wearable devices will allow insurers to improve their understanding of customers’ activity levels and the associated risk of developing chronic illness. 

Nevertheless, for insurers to be able to make robust advances in better understanding the relationship between physical activity and risk of developing disease, the reliability of data from wearable devices will need to be refined. The accuracy of data from activity trackers is presently insufficient, with research showing that measurements from different brands of physical activity tracker differ by up to 20%. Moreover, the validity of the data from these devices is also questionable. Fraudulent device use to inflate physical activity levels – for example, by lending an activity tracker to a friend or even a household pet – is a risk. Fortunately, medical-grade wearables are beginning to be developed for the consumer market. These devices provide much more accurate measurements, which could also be used by insurers to set up biometric data validation systems that prevent fraudulent use of wearable devices. Adoption of medical-grade wearables by insurers will therefore be important in improving reliability of data from wearables and deepening the understanding of activity-associated disease risk factors.

Tracking progress

Once insurers have implemented reliable data analysis, insights from the data could be used to help insurers move away from the current, arguably more faddish approach to wearable-tech. Armed with a better understanding of the relationship between physical activity and risk of developing chronic disease, insurers could charge more accurate differential risk-rated premiums to their customers. Based on the current understanding of the relationship between physical activity and risk of developing a chronic disease, this would mean insurers would have a more reliable framework on which to charge cheaper premiums to more physically active customers and more expensive premiums to less physically active customers. In addition to physical activity trackers, medical-grade wearables that can record a wide range of health and lifestyle factors such as ECG, body temperature and respiration rate are already being developed for the consumer market. Insurers can undertake data analysis from these devices to identify associated disease risk factors, and so more sophisticated wearable tech can be used to set differential risk-rated premiums based on numerous risk factors.

However, although insurers may be keen to class policyholders according to their health risks, policymakers may look to limit this classing action through the introduction of risk-smoothing policies. Insurers’ use of wearable tech to charge differential risk-rated premiums could lead to many being priced out of the insurance market. This could include those with less favourable lifestyle characteristics as measured by wearable tech, those who cannot afford a wearable device or those who choose not to share the data wearables with their insurer. Policies that restrict insurers from using wearables data for classing customers may therefore be a limiting factor in the long-term use of wearable tech by the insurance industry.

Beyond classing, a more societally beneficial application of wearable tech could still be implemented by insurers over the long term. Rather than using data from wearables to discriminate against less healthy customers, insurers can use wearables to try to ‘fix’ the unhealthy behaviours of their customers. 

Encouraging and sustaining behavioural change is difficult. Currently, the most popular techniques insurers are using, in conjunction with physical activity trackers to help customers to increase their activity levels, are unlikely to bring about long-term improvements in health. 

Present modes of consumer engagement with wearable devices include rewarding customers who achieve a specified step goal with discounted insurance premiums or other tangible rewards, providing customers with platforms to compete in daily step challenges and using points-based mechanisms to reward the more physically active. These techniques appeal to an individual’s extrinsic motivation to undertake physical activity. ‘Self-determination theory’, a well regarded theory of motivation, explains that extrinsic motivation is less likely to bring about long-lasting changes in behaviour as when the motivator is removed, or users get bored and disengage with the device, they will lapse back into their original patterns of behaviour. Existing techniques used by insurers to encourage increased levels of physical activity are therefore less likely to be habit forming.

Forming good habits

Fortunately, self-determination theory also emphasises the importance of intrinsic motivation in encouraging habit formation. Intrinsic motivation explains to individuals the underlying benefits of behavioural change. Insurers should therefore look to centre their wearables strategy around intrinsic motivation. This can be achieved by collaborating with healthcare professionals and software developers to digitally communicate to customers the health benefits that increased physical activity can bring them. 

It will also be important to recognise that each person will need a different target level of physical activity. Drawing on the expertise of health professionals, systems can be put in place that identify each customer’s optimal activity goal and help it to be achieved incrementally in a structured fashion. As part of this approach, data-driven analytics can be used to identify which motivational techniques are most effective in which subgroups of individuals since different engagement strategies are likely to be preferred by different demographic and personality types. 

Policymakers may also have a significant role to play in long-term strategies that use wearable devices to reduce society’s disease burden through sustaining changes in positive health-related behaviours. If customers can readily switch insurance providers then the incentive for private insurers to undertake long-term investment in the health of their customers will be diminished. Chronic diseases are long-term, so most health savings from a reduced chronic disease burden will occur many years into the future. By this time, customers may be insured by a different insurance provider, and so a rival insurer would capture the claims savings from reduced ill-health costs. It may therefore be necessary to develop policies that motivate insurers to invest in the long-term health of customers. Moreover, for those who are unable to access private insurance, policy initiatives that encourage these individuals to use wearables in a way that will reduce their risk of developing disease will also be important. Without this, social inequity will worsen as those who can afford private insurance and wearable devices are motivated to undertake positive health-related behavioural change, while those in lower socioeconomic groups miss out on the associated health benefits. 

Good health long term

The potential for wearable devices to become embedded in the insurance industry in a way that can bring about sustained behavioural change and thus improvements in health is manifest. Data-driven analytics can be used to identify the most effective ways of motivating the formation of healthier behavioural habits and thus reduce the incidence of disease-related claims. However, the current use of wearable tech by the insurance industry is arguably faddish, with marketing-focused incentives that are less likely to encourage long-lasting changes in behaviour. For short-term insurance policies, it is unclear whether insurers would be willing to use wearable tech for long-term investment in the health of their customers.

Policymakers may therefore need to work with insurers to develop a system that uses wearable tech in conjunction with intrinsically motivating strategies that bring about behavioural change. 

In this way, long-term and sustained improvements in health-related behaviours and a reduction in society’s disease burden can be achieved.

Lisa Altmann-Richer works for Bupa. The opinions expressed in this article are the author’s own views