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IoT: Looking Beyond the Usual Suspects

Ever wondered what the Internet of Things (IoT) looks like? Well it’s not like the world of Pokemon Go – where virtual things push their way into the real world. The world of IoT is where real things are pushing into the virtual world, and the data these connected things provide is a heck of a lot more useful than any Pokemon you may catch.

For all you hackers out there, this is your dream come true. For all you CIOs, I can hear you groan about yet another “attack surface” you need to police and lock-down. For those of us in the insurance industry, the IoT presents a very big opportunity.

But what does it all mean?

In our little Insurance world, we have been pretty happy (smug) with our sensors plugged into cars and smart watches spewing driving and exercise data. But we have barely scratched the surface of the available IoT data sources. If you go to thingful.net, you can drill down and look at the vast array of sensors. You’ll find personal weather stations, shopping center beacons, air quality sensors, river water level meters, building power supplies, ships, aircraft, radiation detectors — a mind-blowing list of sensors that people have put into the wild and hooked up to the internet.

See also: Insurance and the Internet of Things  

So now I’ve got your attention. Let’s do a little survey of some of the more unusual suspects of devices being pressed into the service of underwriters and claim adjusters — helping to reduce risk and improve lives. Let’s have some fun and do this in a “day in the life” style.

A Day in the Life of IoT

It’s Sunday evening. You’ve gone to bed, and you’re settling in for a good sleep. Part of the reason you are so relaxed is you have your new security system in place. Rather than having to wire up every door and window, this sentinel uses sound waves to determine if anything untoward is going on. If your spouse nudges you in the middle of the night and says, “Did you hear that? It must be a burglar! You go and check it out,” you can groggily reply, “The alarm didn’t hear anything, so go back to sleep!” Definitely worth its weight in gold. And what’s even better, insurers are giving premium discounts and incentives for the installation of such devices. So you blissfully snooze on, dreaming of all those savings.

Rise and shine

So there you are, enjoying your fantastic dream when gradually the light intensity increases and you wake. Groan; it’s Monday! The lamp next to your bed has been triggered by the sleep sensor strip under your mattress. This great night’s sleep has been fully recorded and automatically logged for your later analysis. Some insurers are now incorporating sleep into their premium discount models. According to the NHS, lack of sleep can lead to obesity, heart disease and diabetes, plus a range of other quality of life issues. You are a little smug – being paid to sleep – cool.

See also: Coverage Risks From the ‘Internet of Things’

So the morning run is next. However, before you hit the track, you must “clean out the cocky’s cage” – brush your teeth. No problem, your connected toothbrush logs every swirl and stroke and the duration of your brushing. You hear your phone buzz with the alert on how you’ve missed the right molar at the back – oops! There is an insurer that offers discounts on dental insurance for sharing brushing data and following their dental health advice. Interesting to note that, beyond making you better social company, good dental hygiene reduces risk for heart disease, stroke, dementia, respiratory problems, diabetes, cancer plus a range of other issues.

Running can be bad for business

So now you slip on your running shoes. Inside, there are smart insoles that will log your run (just like all those boring wrist-bound trackers). They can also coach you to improve your running style by analyzing the data from pressure points on your feet and overall gait. Many insurers reward customers for being active, but not many are concerned that the chosen activity may cause other problems – it’s only a matter of time. What insurer would want to give discounts for running only to be hit with claims related to knee, hip and back problems due to poor running style? Fortunately, you’re a good runner and ready to hit the road.

So you are just about to go out the door, when you remember you’d like to eat some hot soup for breakfast once you get back from your run. You head to the kitchen and put the soup on a slow simmer on the stove. Finally, you’re outside with your hot breath fogging in the brisk morning air – glorious. Your phone buzzes – what now! Your stove is warning you that you have left it on. Okay, no problem; you knew that. You reset the app alarm for 30 minutes – how long you expect to be running, so off you go. According to industry sources, the number one cause of household fires in the U.S. is from the stove being left on unintentionally. Some IoT sensors can automatically shut off the stove where the owner fails to respond. The cold air is invigorating as you jog down the road, but the thought of that hot soup waiting for you at home puts that little extra spring into your stride.

Welcome home

On return, you find the house still standing. No surprise, as your smoke detector is working, and your insurance company is making certain of it. More insurance companies are offering premium discounts for sharing detector data. A shocking statistic is that 60% of civilian fire fatalities in the U.S. occurred in homes without a working smoke alarm and that 70% of smoke alarms fail to operate because of missing or dead batteries.

The soup and toast were wonderful. Now showered, dressed and energized you’re ready for work. Then the phone buzzes – “What did I have for breakfast?” You enter into a dialogue with your AI-powered diet coach. It inquires about your eating habits and discusses your personal weight and health targets. It closes out the conversation, encouraging you by letting you know what a good job you’ve been doing. Yay! BMI is already an entrenched factor for many insurance plans, so a personal dietary coach to help you eat healthy and achieve weight loss targets can assist to reduce premiums. Several companies are exploring the use of AI technology to effectively implement behavior change associated with dietary and exercise programs.

Off to work

Today, your car is in the workshop, so you take an Uber to work. As luck would have it, you get a Driverless Uber, so today has already turned out to be really geeky.

See also: How the ‘Internet of Things’ Affects Strategic Planning

Arriving at the construction site, you put on your work protection gear. Inside your gear, the wearable sensors plug you into the overall workforce management system for the site – your every move is now tracked. You know that safety always comes first. Since the new wearable system has been in place, accidents and injuries on the site have reduced significantly. Insurers are investing in and exploring the use of wearables and other related systems as a way of reducing workers’ compensation risk.

The bottom line

Had I had written this article five years ago, many would have scoffed at it as a work of pure fantasy. I am happy to say that all of the above cases are very real and do have insurance links. It goes to show that the range and depth of data available are rapidly expanding, and with it our ability to modify the risk equation. In our industry, that’s a big deal. So, next time someone says “IoT,” remember the big opportunity that goes beyond the usual suspects. You can be certain that someone out there is already thinking about how to exploit them.

This article first appeared at The Digital Insurer.

Matching Game for InsurTech, Insurers

What is it with InsurTech startups and insurance companies?

To any outsider, it’s very clear that InsurTechs and insurers make for very odd bedfellows. InsurTechs are quite ephemeral. They sprout up with the sweet rains of venture capital funding and die as their funding dries up. They are nimble and innovative. They aspire to be the next Google — ready to disrupt the establishment in the best “moon shot” tradition.

Insurers, on the other hand, tend to be corporate immortals, often measuring their tenure in centuries. Their processes appear fixed and hidebound, handed down from ages gone by. Their speed of innovation is positively glacial, and their customer proposition has “rock of Gibraltar” stability. Insurers are the very establishment that InsurTechs are seeking to disrupt.

Opposites attract — or so they say.

The fear of disruption

The insurance industry has seen an ever-growing demand for “creativity,” “disruption” and new digital technology since 2013. AXA was one of the first to declare its intent to become a digital insurer. In April 2014, the company established a lab in Silicon Valley and announced its tie-up with Facebook. At the time, everyone in the industry was waiting in trepidation for the market entry of the tech giants such as Amazon, Google, Facebook, Samsung and Apple. The fear was that those companies would sweep away the traditional insurers in an Uber-like tech tsunami.

Well, the tide came in, but it was no tsunami. Google breathlessly launched into the motor insurance compare market in March 2015. Just a year later, it unceremoniously departed. The industry heaved a collective sigh of relief because there was little or no impact. Yet the tech giants linger and remain the insurance industry’s boogie man.

See also: An Eruption in Disruptive InsurTech?  

Follow the money

The presence of the tech giants has created a created a rush to fund new InsurTech startups. Many of the leading insurance firms have set up VC funds focused on InsurTech. AXA is, again, one of the more notable in this area, providing funding to the tune of €230 million over the last 18 months. VC funding for InsurTech startups has increased 250% year-on-year, from $750 million in 2014 to $2.65 billion in 2015. For insurers, they get financial rewards and get to be at the forefront of any industry disruption if the technology takes off.

But many insurers see the need not only to fund innovation but also to “do” innovation. Hence, we’ve seen a steady stream of insurers around the world establishing innovation labs, collaborative spaces, digital garages and centers for digital disruption. Time will tell if these are fundamental drivers of strategic change or are unmasked as simply “window dressing” for the market.

Widening the net

The InsurTech “boot camp” is another recent phenomenon that has opened up a wider range of innovative startups to the insurance industry. These camps are a cross between an accelerator program, a beauty pageant and a reality TV talent show. For the small price of some equity and the added incentive of some up-front “pocket money,” the InsurTechs get to rub shoulders and gain insights from industry mentors and leading insurers. These boot camps are quite grueling, as they extend over several months. Competition can be fierce, with the best of the best InsurTech teams pitted against each other. The participants get to hone their solution pitches, demos and financial plans for the gathered insurance brotherhood and their fellow InsurTechs. Yet some InsurTech teams are frustrated by the insurers’ lack of urgency and their naïve view of how much effort is really required to make an innovation alliance work.

See also: InsurTech Start-Ups: Friends or Foes? 

A new hope

All of this activity has not been lost on governments wanting to push a “clever economy” strategy, creating sovereign incubators for the development of new or exotic financial services products and business models. The Singapore and U.K. governments are leading exponents of this new way of thinking and have spawned a wave of innovation emulators from Australia to Germany. These innovation-friendly government policies generally encompass a mix of:

  • Seed funding for startups;
  • Provision of “collaborative” spaces;
  • Incentives for the establishment of innovation labs; and
  • Regulations fostering the flexibility/tolerance to try new things in public that may fail.

Breaking new ground, the Monetary Authority of Singapore (MAS) has launched its own innovative boot camp: the Singapore FinTech Festival. It’s a coordinated way to accelerate innovation for the whole financial services industry, drawing on FinTech and InsurTech talent from around the world. Singapore is putting its money where its mouth is, funding a “Hackcelerator” competition as part of the festival. This competition will run 10 weeks, starting in September 2016, and it has more than $500,000 of funding and prizes to be shared — no equity required! All the teams need to do is be in the top-20 at solving at least one of 100 problem statements set by the organizers.

In a similar vein, Singapore insurer NTUC Income has announced its own InsurTech accelerator program. It’s offering funding of S$28,000 apiece for 12 top InsurTech startups. Again, no equity required. The program runs from January to March 2017.

If this trend continues, boot camps will be out of business — at least in their current, equity-gobbling format.

But where are the traditional insurance tech vendors?

In all this activity, where are the insurance legacy tech suppliers (LegTechs)? Many of the traditional consulting firms are doing quite well, tying up with some of the boot camps. But those vendors that were selling mainframe systems, software development services and the like, where are they? The answer for the most part is nowhere — the land of digital transformation. Perhaps it’s indicative of the level of mistrust between insurers and their LegTechs that insurers “go direct” to the innovation source. Perhaps it’s the fear that the innovation will too quickly be commoditized by these vendors and spread to insurers’ competitors. Whatever the case, LegTechs are being cut out of the conversation.

This is a big mistake.

LegTechs are better at partnering. They typically understand the innovation process and have a product mentality, which would really help package what InsurTechs have to offer. There is also an alignment on maximizing profit on technology with a common view of pervasively selling into the market. As a consequence, the LegTechs have a large, well-established, tech-savvy salesforce ready to carry the InsurTechs’ message to the market. This is one of the most decisive reasons why InsurTechs should partner with LegTechs. The final reason is that LegTechs are a goldmine of useful resources. They have an army of developers, lab space, sandpit environments, technology centers of excellence and distinguished engineers/architects with decades of experience — all of which would rapidly bring robust InsurTech products to market.

See also: InsurTech Boom Is Reshaping Market  

For LegTechs, there are also many attractions. Systematic partnering in this way would inject innovation and an entrepreneurial spirit they badly need. InsurTechs would provide an outlet for some of the LegTechs’ brilliant engineers, giving them an opportunity to dabble with the heady challenges of a startup while maintaining their security. This would definitely boost retention and attraction of this scarce talent pool. Finally, the LegTechs could get into new growth areas rather than stagnate on a declining commodity technology business.

The bottom line

Change is the only constant in an industry fiercely trying to catch lightning in a bottle. The lyrics from the Pokémon song are really quite apt for this current stage: “You teach me, and I teach you,” as I doubt we can “catch ‘em all.” We have a vision but have yet to stumble on the magic formula for repeatable innovative disruption. We hope we’ll find it in InsurTech’s perfect match. Or, perhaps, it has already happened but we just don’t know it. In any case, with boot camps, hackcelerators, insurers, VCs, governments and LegTechs all at hand, our visionary InsurTechs will soon deliver further breakthroughs. Let’s hope their beauty and passion rub off on an old industry.

This article originally appeared in InsurTech News.

Time to Rethink Usage-Based Insurance

“Do no harm.” That’s part of the doctor’s oath, and it was the underlying thinking behind Progressive’s launch of usage-based insurance (UBI) into the U.S. insurance market back in 2010. The message was straightforward – try our Snapshot device, and your insurance premium can only go down; how far down depends on how well you drive.

Fast forward five years of “Flo” hammering way at the virtues of UBI: Progressive claims $2.5 billion in annual premium emanates from UBI, and nearly every tier 1 carrier emulates Progressive’s format…and Progressive has announced, in March 2015, that it is going to charge higher premiums for the worst-behaving drivers, effectively dumping the concept of “Do no harm.”

suck

And why not? As the pioneer of UBI in the U.S., Progressive has accumulated the trip data of millions and millions of customers over a number of years – tens of billions of miles of journey data coupled with hundreds of thousands of claims – giving the company unique insights into the behaviors that cause accidents. Based on listening to customers, the marketing program has now shifted from “Plug it in. Drive. Save.” to the concept of “Rate suckers” – bad drivers getting a free ride on the premium that safe drivers pay.

Progressive’s research showed that 89% of drivers would be upset to find out that their premiums were subsidizing bad drivers. So loading the premiums of bad drivers backs up the marketing message and should further fuel the positive selection of good drivers moving to Progressive, while chasing away the bad drivers to cheaper, less-data-savvy carriers. This adverse selection for Progressive’s competitors will eventually move the market to fully data-driven underwriting over the medium term.

All this goes to show is that UBI is not your typical Insurance product. Key to success for Progressive has been:

  1. the ability to accurately model the risk and develop a compelling pricing model based on the new data made available from the telematics device
  2. creating an attractive customer proposition and educating the market in the benefits of the proposition with a targeted campaign
  3. implementing the operational processes that deliver on the promise of the marketing message

Many insurers get dazzled by the telematics gadget and technology and lose sight of the fact that success really turns on delivering a compelling customer proposition fueled by deep customer insight. I find it intriguing that many UBI programs are still being run by IT departments, as the proposition will only be truly successful when the strategy, marketing, product development and operations teams become involved.

I have run a number of telematics engagements, and the technology is quite straightforward. Arguably, the hardest part is finding where to plug in the telematics sensor on the vehicle. Usually, data starts to flow almost immediately, and drivers start getting scores the following day.

However, that UBI plugging-in and data flow marks a “moon landing,” as your relationship with the insurance customer will be forever changed.

prop

Let’s face it, in the past a customer usually shopped for the cheapest price of motor insurance, bought it and then tucked the policy away in the glove compartment of the vehicle with little or no contact with the insurer until it came time to claim or renew. With UBI, the insurer provides customers with a companion mobile app (and website) that gives daily feedback on their driving skills and opens up a range of value-added services like:

  • Real-time vehicle location viewing
  • Teen safety monitoring (geo-fencing)
  • Driver feedback (rating, score) — continuing tips to improve driving style and reduce accident risk
  • Trip replay capability, with mapping
  • Driver behavior indicators (harsh braking, reckless driving, acceleration) within trip
  • Logbook – trip information – tax and fuel log expense claims
  • Parking meter reminder
  • Vehicle fault notifications
  • eCall (emergency/panic button) and bCall (breakdown)

You may have noticed I have skirted the issue of “push” marketing offers, which this connectedness will certainly open up. If handled with the mindset of truly benefiting the customer, then this could be a good thing, but it’s a fine line between good and “spam.” I have advocated elsewhere that dynamic affinity offers, when coupled with a high degree of personalization, will present much greater value to the customer rather than the scatter-gun coupon books that typically prevail today.

In China, over the last 18 months, quite a few insurers have piloted UBI propositions in advance of the deregulation, and affinity offers – value-added services – have figured prominently. Most have offered a flat 10% insurance discount for simply trying out UBI.

PICC, in partnership with Tencent and Shell, launched the “Lubao” box in early 2014. It’s a plug-in device that connects to a mobile App that displays the current status of the car, runs routine diagnostics, offers advice on fuel-saving driving techniques, provides discounts on Shell products, provides road-side assistance and funnels all that data back to the insurance company and its partners. Seems like a dress rehearsal for rolling out a full “Progressive-style” pay-how-you-drive insurance program when regulations allow.

Other insurers have offered time-saving features like streamlining the payment of traffic violations, which I am told can be quite inconvenient in China.

In some Asian markets, women’s safety while driving has been seen as a good landing place for the UBI proposition, with a “panic” button being built into the app. In other markets, where organized fraud is rampant, UBI provides the data to effectively be a silent witness to what really happened and protect the interest of the customer and the insurer. In Ireland, a fraud ring was systematically targeting drivers on country-side round-abouts and making phony whiplash claims at more than $20,000 per person. The data from the UBI device would help stamp out those kinds of claims, sparing the customer from the resulting increased premiums and months and months of mental anguish during the claim settlement process.

In several markets, the advent of UBI has been the key to making insurance affordable for young drivers and families with young drivers. And in Europe, where discrimination based on gender was banned several years ago, a new insurer, Drive-like-a-Girl, launched a telematics proposition quite similar to Progressive’s, where anyone with good driving habits (driving like a girl) earns a discount, eliminating the need for proxy rating factors such as age and gender.

The UBI proposition winds up being quite beneficial all around. Firstly, the community wins with improved road safety and easier-to-understand motor insurance contracts – pay for what you use. Secondly, customers win with cheaper insurance, with the ability to control the cost by improving their skills, plus they get a whole range of new features from vehicle fault monitoring through to faster claims settlement. Finally the insurer wins, as it accurately monitors risk and uses data to find new ways to engage customers – moving the conversation from price to value and establishing life-time brand associations with customers.

Do no harm. It’s certainly a good starting place as it gets you thinking from the customer’s perspective, but UBI presents a whole lot of value simply waiting to be unleashed for everyone. Just find what’s most important for your customers, and you should have a success when you launch your own UBI proposition.

See you in the parking lot. 🙂

Telematics, Big Data in Car Policies

Once upon a time, an insurance COO was walking along a beach, deep in thought. His CEO had just asked him to increase the motor business. The COO was in a sweat, knowing that he could quickly increase sales by dropping premium rates and excesses, but that claims would also follow. The loss ratio was already 103 – a marketing push like that would certainly throw them further over the edge! On he walked.

As he strolled, deep in thought, he came across a strange glowing bottle, rolling back and forth in the surf as waves gently lapped on the beach. He picked up the bottle and marveled at its exquisite beauty, yet simple design. Wondering what on earth could be inside such a work of art, he pulled off the cap. Suddenly, purple smoke erupted from the opening, which gradually took the form of a smiling genie.

“Who the heck are you?” the stunned COO asked.

“I am the career genie. I grant three wishes that help people along with their jobs,” the genie replied.

“OK,” the COO thought, “let’s test this guy out.” He said, “Genie, for my first wish, I would like safe drivers to buy my motor insurance product.”

The genie crossed his arms and blinked. “It’s done,” he said with a smile. “Safe drivers will actively choose your insurance product over those of your competitors.”

“Amazing!” the COO thought. “OK, genie, for my next wish, I want to find a way to charge more premium for dangerous drivers before they have an accident.”

Again, the genie crossed his arms and blinked. “Your wish is my command. Poor drivers will automatically get smaller discounts. You will know how well your policy holders drive as they drive. In fact, you will be able to coach them to be better drivers as they go. Bad drivers won’t like the net premium you charge and will move to your competitors.”

“Awesome!!” the COO thought. “OK, genie, for my last wish, I want you to reduce claims and fraud — make my motor line of business really profitable.” Once again, the genie crossed his arms and blinked. “Your wish is granted. Claims will drop by at least 20%, and fraudsters will find my magic accident reconstruction technology difficult to overcome and will move to easier pickings with your competitors.”

The insurance COO was dumbfounded. He stammered: “Oh great career genie, what is your name?” The genie replied, “Some know me as UBI the Amazing; others know me as Telematics the Fantastic. I am a magical creature who simply likes to help mortals such as you to find better ways to do business. I hope your wishes work out for you.”

In a flash, the genie disappeared, and the COO was left alone, with his loss ratio sitting at 80, his customer renewal rate at 96% and his customer satisfaction going through the roof. Happily, he headed back to the office, ready to recommend a brisk beach walk to all the other senior executives.

Yes, this story is a fiction, but the results are very real.

Usage-based insurance (UBI) is fast becoming a mainstream game-changing offering for general insurers in the U.S., Europe and elsewhere directly because of the outstanding results it delivers for insurers and customers.

The first truly successful UBI program was Progressive in the U.S. with its patented Snapshot technology that was introduced in 2010. As of the end of 2013, the program has achieved more than US$1.5 billion in annual premiums, with nearly 35% of motor customers having signed up.

Customers are given discounts of as much as 30% by opting into the program. Snapshot works through a device linked to the vehicle’s On Board Diagnostic Interface (OBDI), which captures the distance driven, braking force and the time of journey and transmits the journey data back to the insurer, enabling the calculation of premium discount. Progressive continues to enhance Snapshot and is currently planning to add GPS location data.

A number of other large U.S. P&C insurers have become fast followers, most notably Allstate with Drivewise, State Farm with Drive Safe and Save, plus another 10 carriers with similar programs.

In Europe, some legislation has stepped in to help drive UBI adoption. In the past, some premium rating factors discriminated based on gender, with young males paying more premium than young females.

This practice is now banned under EU regulations and has spurred one UBI program called “Drive like a girl,” which combines a clever social media pitch to promote safe driving habits in young drivers while premium discounts are calculated in a gender-neutral fashion, based purely on how the insured drives.

A recent study shows UBI programs in the UK, Ireland, France, Germany, Spain, Italy, Belgium, Netherlands, Denmark, Finland and Sweden involving considerably more than 50 insurers. It also estimates the global policy count to be more than 5 million as of mid-2013.

Here in Asia, I am aware of established UBI programs in Japan, China and Australia.

The UBI genie is out of the bottle, and more and more markets are catching on. The value proposition is really game-changing:

• Safe drivers will tend to opt in to UBI programs as they believe they will get a better deal and be rewarded for their superior driving skills;
• Poor drivers will migrate away simply based on price, if they can get a cheaper base deal;
• Overall, the UBI approach appeals to people’s common sense – you drive less, you pay less; you drive more, you pay more – you pay for what you use;
• Driver behavior/style is monitored, and, where UBI provides feed-back, drivers tend to drive more safely;
• UBI programs are statistically proven to reduce claims, and in some instances have achieved 30% reductions – this has the biggest impact on insurers’ bottom lines where typically motor makes up 65% of the portfolio and claims make up 70% of expenses;
• Claims are much more difficult to stage, because the UBI device records much of the vehicle’s performance data and geo-location data. When UBI is coupled with dashcams, accidents are easy to reconstruct, thereby chasing away fraudsters to competitors;
• Because UBI provides rich data and customer engagement, claims can be settled faster, thereby improving customer satisfaction; and
• Because the pricing is dynamic based on how you drive, it becomes more difficult for customers to do an apples-to-apples comparison between different insurance providers policies when shopping around.

In the past, you bought your policy, tucked the schedule in the glove compartment and forgot about it until you had a claim, at which time your insurer became your adversary. With the UBI model, your insurer is right there in the vehicle with you on every journey, telling you when you brake too hard, alerting you when you accelerate too quickly, letting you know when you are swerving and swapping lanes too much. Your insurer is engaging with you – partnering with you to avoid accidents, and to be a better, more efficient driver.

This is a perfect platform for introducing value-added services. The UBI program is serving up a great data set from which the insurer can potentially craft personalized services with relevance to each individual driver.

Ideally, the value created will entice the insured to share even more data from which further services can be fashioned. With UBI customers focused on value, it becomes much more difficult for other insurers to compete simply on price. Policy retention rates and customer satisfaction will naturally increase.

It is clear that insurers in the region are starting to look at UBI. The rewards are immense for those that adopt this game-changing approach. Do not wait to stumble over your own genie on the beach. Do your career and your customers a big favor by checking out this new approach to motor insurance. After all, if you don’t, your competitors certainly will.

The Case for Connected Wearables

It was an event maybe even more anticipated than Neil Armstrong’s Moon shot in 1969. I had never tuned into one before, yet there I was, sitting in my pajamas at 1 a.m., frantically trying to get back onto the streaming podcast that my iPad had just dropped, as millions of other nerds the world over were trying to do the same thing.

Apple’s product announcement event on Sept. 9, 2014, had drawn unprecedented interest. I certainly was expecting Apple to “do it again” – you know, change the world in a subtle yet pervasive way, as I am sure many others struggling to get onto the live webcast also believed would happen. After all, the company that Steve built had done it with iTunes, with the iPhone and with the iPad. And now we all wanted to see if Apple’s first wearable device – the Apple Watch, was going to change our lives in the same way.
apple

Well, we definitely saw something that early morning in September, but the realization of the promise still lies ahead, with the first retail delivery of Apple Watches not until late April 2015. What is certain is that Apple has successfully moved the idea of a connected wrist health and fitness tracker from the niche arena of health-conscious individuals to the mainstream “Joe Public.”

Interestingly, even if Apple falls short this time, it has set in motion a great race with Microsoft, Google, Samsung, Fitbit and many others to fulfill and surpass the vision that we all saw in September. In 2014, world-wide revenue from the sale of wearables was roughly $4.5 billion, but, in 2015, expectations are sky-high. Some experts predict sales will increase as much as three times, fueled in the most part by the Apple Watch.

So why are wearables a good thing for insurance?

watch

The rise of wearable fitness trackers as part of corporate wellness programs has been an emerging trend over the last 10 years. In the past, enlightened companies were giving out Fitbits to help employees track their own fitness. More recently, companies have been trading program participation and fitness data captured from such programs for discounts on their corporate health insurance. For example, Appirio, a San Francisco-based cloud computing consultancy, was able to get a 5% discount ($300,000) off its insurance bill in 2014, while BP America distributed around 16,000 Fitbits to employees as part of an integrated wellness program and claim to have put a brake on corporate healthcare cost increases by slowing them to below the U.S. national growth rate in 2013.

A key ingredient to the success of these programs is the engagement of the members, so that healthy behaviors are encouraged and rewarded. In the BP example, the Fitbit data was easy to “gamify” because of the connected nature of the device. Members competed on a number of challenges, including the “1 million step” challenge, simply by wirelessly “syncing” their devices. Cory Slagle, the spouse of a BP employee, was able to trim $1,200 off his insurance bill through participation in this program — dropping nearly 32 kilograms and 10 pants sizes and reducing his high blood pressure and cholesterol back to normal range in just 12 months.

Vitality of South Africa has recognized the importance of a holistic health and wellness program for well over a decade and has built up an impressive array of statistics, including:

–Participation in health and fitness programs reduces health claims by 16%
–Logging fitness activities reduces risk by 22% for the unhealthiest category of participants
–Participating members are as much as 64% less likely to lapse on their insurance as non-participants are
–Participating members have as much as a 53% lower mortality rate than non-participants

The only trouble is that participation in such programs remains minuscule, with opt-in rates in some cases of just 5% for those eligible to join. Despite the programs’ value propositions being augmented with an affinity network of providers supplying goods and services at a discount for participating members, opt-in rates and persistency remain problematic.

A recent survey by PWC found that, if the connected wearable device was free to the member, then about two-thirds said they would wear a smart watch or fitness band provided by their employer or insurer. Cigna completed a connected wearable pilot in 2013 involving 600 subjects, which indicated 80% of the participants were “more motivated to manage their health at the end of the study than at the beginning.” In the U.S., United Health, Cigna and Humana have already created programs to integrate connected wearables into their policies, to create reward systems based on data sharing. In one innovative program, a “wager” penalty system was found to be three times more effective in motivating healthy behavior than the typical rewards these programs offer. The “wager” involved the member’s signing up to achieve and then maintain reasonable fitness targets over the course of the year to avoid having the cost of the health screening be deducted from their salary.

A key hurdle to overcome with the data generated from connected wearables is privacy and security. Individuals want to know what insights are being generated from the data being collected and want to selectively share with the program based on the perceived value they get back. They also need to know that the data continues to be secure and private once shared. Apple is working this angle through its HealthKit, which is positioned as the data control room for consolidating and securely sharing health- and fitness-related data to selected parties. There are already in-the-field health trials in progress with Stanford and Duke universities that are being powered by HealthKit. Google, Samsung and several others have also launched similar competing frameworks, so the data privacy issue is understood and being addressed by the technology companies offering products in this space.

I want to mention an innovative, data-driven, life insurance program that currently doesn’t use any wearables but easily could. AllLife of South Africa provides affordable life and disability insurance to policyholders who suffer from manageable chronic diseases, such as HIV and diabetes, and who sign up to a strict medical program. Patients get monthly health checks and receive personalized advice on managing their conditions. Data driving the program is pulled directly from medical providers, based on client permission. If a client fails to follow or stops the treatment, then the benefits will be lowered or the policy will be canceled after a warning. The company assesses its risk continuously during the policy period, contrasting with the approach of other companies, which typically only assess risk once, in the beginning. This approach allows AllLife to profitably serve an overlooked market segment and improve the health and outlook for its customers. It plans to cover more than 300,000 HIV patients by 2016.

The video of AllLife’s CEO, Ross Beerman, on YouTube is quite inspirational, and I recommend you see it. He says, “Our clients get healthier just by being our clients.” He also mentions the challenges of building an administration system to support AllLife’s customer-engagement model.

In summary, several intersecting trends have conspired to make this the perfect time to consider the launch of insurance programs and products powered by the new insights from the data being made available through wearable fitness and health trackers:

The whole fitness and healthy lifestyle perspective has entered into the mainstream culture
Devices like the Apple Watch have become fashionable, objects of desire
The data from these devices is easy to capture and share – no forms to fill in
–The data is of clinical quality, in at least some cases, and therefore useful for actuarial models
–Insurers have already started to jump on the idea of “telematics” for humans for risk pricing
–Feedback from this data is able to positively modify behavior to reduce health risks and improve the quality of life for those participating

I am still undecided if I’m going to be up at 1am again, this time outside the Apple Store, waiting for the Apple Watch to go on sale. However, the line outside the Apple Store that night could be very fertile ground for agents selling polices driven by the data these new devices will provide, if only companies act now and get their programs in place.

Thanks for reading, and see you in the gym 🙂

This article originally appeared in the January 2015 edition of Asia Insurance Review.