Tag Archives: wearable

Disruption of Rate-Modeling Process

How emerging technologies may transform insurance rate modeling

Insurance rate modeling for mass-market consumer products such as P&C, health and life relies heavily on macro risk factors, the “law of large numbers” and building pools of risk. Broadly speaking, outside of specialized lines, relatively little customer-specific data is used in developing rates. Incentives, such as “safe behavior” discounts, are used primarily to encourage good behavior and to help ensure that low-risk prospects do not feel unfairly represented by their premiums. A practical reason for limiting the process to mostly high-level analysis is that large volumes of data are both hard to collect and to analyze on a discrete level. But emerging technologies are starting to remove some of these limitations, potentially creating ways to optimize risk portfolios in consumer-oriented insurance products.

I have written several articles now talking about the potential for the Internet of Things (IoT) in loss prevention and claims facilitation. While much of my focus has been on technologies related to smart homes, arguably more progress has been made in auto telematics and wearables. Data on driving behaviors and personal biometrics of an extraordinary number of people are now being tracked in real time. These data sets may be used to do more than determine the fastest route to work or calculate the remaining target steps you need to take in a day – the data may be a treasure trove of environmental and behavioral information for insurers. Similarly, smart home devices such as connected smoke alarms and leak sensors, along with home security systems, wireless door locks, etc. are beginning to paint a picture of the risk profile in the home at a level never seen before.

But the technology advancements do not stop at the increase in data availability; much of the emerging opportunity has to do with new computing models and “the cloud.” Not long ago, the resources needed to model to an individual rating outweighed the value. But we are now in a world where additional computing resources can be launched with the simple click of a button and disparate databases can easily be joined together for comparison. In other words, the discrete data now exists, and the computing power needed to analyze on an individual level is finally within reach.

See also: How Tech Is Eating the Insurance World  

Tiptoeing in

Recognizing that technology may enable improvement on both sides of the risk pool by potentially better identifying both low- and high-risk candidates, insurers are beginning to evaluate options to model risk on a more discrete level. This enhanced lens on data may be one of the most interesting opportunities in the insurance market to-date. The availability of this data, and the associated computing power to process it, is arguably one of the core pillars of the insurtech revolution – but this discussion is for another article. In the meantime, we are seeing early tests toward enhanced data sets in four key markets: health, life, auto and home.

1) Health and Life – Early tests around wearables conducted by major health and life players seemed more to be assessments around consumer comfort with insurers potentially getting a peak into your lifestyle. For example, there have been several examples of fitness trackers given away as affinity products to members of a plan. Initially, there was broad skepticism that consumers would have interest, recognizing that insurers were testing the waters around one-day having access to more detailed lifestyle data. However, early sentiment proved positive, and the market is now seeing the use of individual diagnostic data expanding in the role of premium calculations. Automated collection of this data is not hard to imagine.

2) Auto – Many auto insurers are exploring real-time driving data analysis along with innovative safe driver rates through OBD data collection – with some starting to require it for certain program participation. Consumers, eager to lower their insurance costs, seem to be more than willing to share how fast they drive or how hard they turn when less expensive rates are in play.

3) Home – It’s easy to see how early wins in health, life and auto may translate into the homeowners market. Already, new smart home rates are entering the market, and in these cases smart home products may “self-verify” their presence, removing doubt of whether a customer truly has safety devices installed in the home. As various IoT devices in the home begin to communicate with one another, the insurer has lots of new data that can be used to adjust risk down to a specific premise.

A Virtuous Circle?

In today’s world of rating, there is an imbalance of information that puts insurers at a disadvantage with insureds. Insureds must represent the value of their property, the current state of the property, the cause of loss when it happens, etc. Generally forced to assume that all statements are true, insurers must price uncertainty into the risk. But moving toward greater data transparency may very well be a win-win for both the insurer and the insured. Low-risk customers may be offered rates more in line with their risk profile. High-risk customers may receive higher premiums, but they may also have clear visibility into the factors affecting their rates and potential corrective actions. Insurers may have less volatility in their portfolio with a better understanding of where the losses may occur. Perhaps this increased data availability will result in lower rates for insureds at maintained or even improved margins for insurers.

But how does the overall market respond with more symmetrical information and greater transparency? More importantly, how do consumers respond when they realize the insurer now knows more specific details about them? What if the rating bar moved from basic personal information, like credit score and claims history, to allowing consumers to opt in for very granular inputs such as: how many steps you took today; whether you sped to work; whether you activated your alarm system before leaving your home? Putting aside the regulatory restrictions, the privacy concerns and the general creepiness of this concept, would consumers be willing to give insurers this very personal data in return for big discounts? If “yes,” would it further ensure good behavior of those that did opt in? Could a “positive self-selection” of sorts start to occur?

In consideration of these potential impacts, there are three economic phenomena that insurers model into rates that may be affected:

1) Adverse selection – People who most need insurance are most likely to buy it, and people less likely to have loss will opt out – e.g., older folks may opt for more health insurance, or safer drivers may choose less coverage than their daredevil counterparts. The bias of high-risk consumers to buy coverage over low-risk consumers results in higher loss ratios and raises premiums of those who participate. But if rates were lowered by removing the risk padding, would lower-risk customers be motivated to participate? Would the risk/reward ratio reach a point where self-insurers feel like the better bet is to participate with the marketplace?

2) Morale hazard – There is risk that insurers bear that insureds, knowing that they have insurance, will be lazy about protecting their belongings. Why lock your doors if insurance would cover a theft? But when behaviors can be monitored, do consumers act differently? Would “safe” people open up data on their personal lives in return for discounts? Perhaps let the insurer know how many nights a week the alarm is armed or the doors are locked for a lowest-rate option?

3) Moral hazard – This phenomena is when insureds take on riskier behavior when coverage is obtained. In other words, a driver who chooses to increase coverage then goes on to take greater driving risks, again, rationalizing the change in behavior as they are “paying for coverage.” Again it’s worth contemplating if behaviors would change by exposing behavioral data.

See also: Embrace Tech Before It Replaces You  

Arguably, through increased transparency, a virtuous circle may be created where better information leads to lower rates. Lower rates drive lower-risk candidates into the market; as more lower-risk candidate participate, losses are lessened, which further drives down rates. Additionally, the lowest-risk candidates are the most likely to participate in high-transparency markets, compounding the loss reduction and further driving down rates. Even better, bad actors who know they may not be able to change their behaviors may opt out.

I recognize I am ignoring huge hurdles for this type of transparency: regulatory constraints, privacy issues, consumer interest, etc., but I do feel strongly that early entrants into these types of products may see very interesting results. Basically, better information becomes the great equalizer…

Conclusion

New, high-resolution data sets along with the computing power needed to make them useful are finally here. While having this added information doesn’t necessarily serve as the silver bullet to perfect rate modeling, it certainly offers insurers an opportunity to refine their analysis and reduce the guesswork. Obviously, the effort to operationalize these new data sets may be significant, and, as noted above, there are certainly consumer and regulatory concerns as this highly personal data is used, but the potential is certainly compelling to consider. At the least, now is the time to start considering where these data sets would be useful as the industry contemplates a move toward highly individualized risk opportunities.

How Many Steps Mean Longer Life?

Fitness trackers can be a convenient way to monitor the number of steps taken every day. Some insurers have even started using them as a proxy for good health, selling life cover to people who are already fit and who track their steps. Insurers may even reward policyholders’ physical activity with lower premiums and other incentives.

The assumption is that regular exercise, especially the number of steps taken, is a predictor of lower mortality. Exercise is known to confer health benefit by improving mental health, reducing cardiovascular risk and lowering cancer mortality. The question is, how many steps might lead to a longer life?

Adult walking cadence is 100 steps per minute, a rate that demarks the lower end of moderate-intensity exercise. The World Health Organization suggests an ambitious minimum of 150 minutes of “moderate-intensity” aerobic physical exercise throughout the week, or 75 minutes of vigorous-intensity or a combination (setting aside recommendations for muscle strengthening). Public health authorities across the world have adopted these guidelines to help people improve health, build stamina and burn excess calories.

See also: Wearables: Game Changer or a Fad?  

Manufacturers of fitness trackers and wearable technology, ever since the Japanese pedometer that came out for the 1964 Olympics, have commonly set the goal at 10,000 steps a day, a marketing ploy not rooted in science or WHO guidelines. Although this “10,000 steps” goal varies greatly by leg length and gait, it translates into roughly five miles a day for the average person and remains a considerable distance, especially considering that the average British adult walks 3,000 to 4,000 steps daily. The figure encourages sedentary people to move but isn’t a magic number on a doorway to health nirvana. Even 5,000 steps a day could be too high for some older adults or people with chronic illness, but small increases will confer health benefits.

It’s also important to distinguish between incidental and session-based physical exercise. Incidental exercise is the result of steps taken during the course of the day to get us from A to B, but it neither accounts for the pace nor intensity of the exercise or the true level of fitness. A three-hour workout “session” requires a much higher level of fitness than just walking, not to mention a significant level of motivation.

Insurance products that discount for steps walked each day are likely to have broader appeal than those that mandate “session-based” exercise. Asking additionally for, say, three hours per week of sweat-inducing exercise could literally be a step too far. Those unaccustomed to such levels of exercise are likely to conclude that this insurance product is not designed with them in mind.

Recent evidence suggests activity tracking brings no immediate measurable health benefit but this misses the point. Regular exercise has benefits that are not necessarily related to easily measurable variables such as weight and blood pressure. It’s important to understand that long-term outcomes are what are important for insurers.

See also: Wearable Tech Raises Privacy Concerns  

Although the WHO recommends 150 minutes of moderate-intensity exercise a week for ages 18 to 64, a critical review of the literature indicates that just half this level still brings marked health benefits. This suggests insurers could lower the bar and design life insurance programs that would also appeal to older people or those with chronic disease or restricted mobility, who may otherwise rule out buying a policy explicitly linked to fitness.

Wearable Technology: Benefits for Insurers

Over 50 years ago, Edward Thorp, considered the “father of the wearable computer,” discovered a tiny computerized timing device that could effortlessly beat opponents in a game of roulette. Since then, the popularity of wearable technology has always been on the rise. Today, we have smart devices like Apple smartwatches, Fitbit fitness bands, Google Glass and Nike Fuelbands that could do some pretty cool things to help improve the quality of our life.

Wearable technology refers to tiny electronic gadgets that are worn on the body or clothing. They are capable of monitoring our physical and mental activities and generating stats to help us understand our health and fitness condition better. Whether it’s keeping track of your eating, exercising, or sleeping habits, there is always a smart device to provide you the right data.

Insurance companies are taking wearable device reports seriously. You can get up to a 15% discount on your insurance plan by presenting your wearable report to your insurance agent.

See also: The Case for Connected Wearables

According to The Wearable Future, 20 percent of Americans are using wearables to monitor their day-to-day activities, and the number is expected to grow over the next couple of years. The study suggested that millennials are the biggest users of wearables. It’s estimated that 50 percent of millennials in America will own fitness bands by 2017.

Why is the insurance industry paying attention to wearable technology? Here’s an Infographic that presents some interesting stats and information on how wearable technology is influencing the insurance industry.

Credit: LifeInsurancePost.com

Credit: LifeInsurancePost.com

1 Myth, 2 Truths, 5 Hot Trends in Health IT

There is a myth out there that healthcare providers are unwilling to adopt new technology. It’s just not true. In the last few months, I have spoken to dozens of healthcare leaders at hospitals both small and large, and I am amazed at their willingness to understand and adopt technology.

Pretty much every hospital CEO, COO, CMIO or CIO I talk to believes two things:

With growing demand, rising costs and constrained supply, healthcare is facing a crisis unless providers figure out how to “do more with less.”

Technology is a key enabler. There is technology out there to help save more lives, deliver better care, reduce costs and achieve a healthier America. If a technology solution solves a real problem and has a clearly articulated return on investment (ROI), healthcare isn’t that different from any other industry, and the healthcare industry is willing to adopt that technology.

Given my conversations, here are the five biggest IT trends I see in healthcare:

1. Consumerization of the electronic health record (EHR). Love it or hate it, the EHR sits at the center of innovation. Since the passage of the HITECH Act in 2009—a $30 billion effort to transform healthcare delivery through the widespread use of EHRs—the “next generation” EHR is becoming a reality driven by three factors:

  • Providers feeling the pressure to find innovative ways to cut costs and bring more efficiency to healthcare delivery
  • The explosion of “machine-generated” healthcare data from mobile apps, wearables and sensors
  • The “operating terminal” shifting from a desktop to a smartphone/tablet, forcing providers to reimagine how patient care data is produced and consumed

The “next generation” EHR will be built around physicians’ workflows and will make it easier for them to produce and consume data. It will, of course, need to have proper controls in place to make sure data can only be accessed by the right people to ensure privacy and safety. I expect more organizations will adopt the “app store” model Kaiser pioneered so that developers can innovate on their open platform.

2. Interoperability— Lack of system interoperability has made it very hard for providers to adopt new technologies such as data mining, machine learning, image recognition, the Internet of Things and mobile. This is changing fast because:

  • HHS’s mandate for interoperability in all EHRs by 2024 means patient data can be shared across systems to enable better care at lower cost.
  • HITECH incentives and the mandate to move 50% of Medicare payments from fee-for-service to value-based alternatives by 2018 imply care coordination. Interoperability will become imperative.
  • Project Argonaut, an industry-wide effort to create a modern API and data/services sharing between the EHR and other systems using HL7 FHIR, has already made impressive progress.
  • More than 60% of the proposed Stage 3 meaningful use rules require interoperability, up from 33% in Stage 2.

3. Mobile— With more than 50% of patients using their smartphone to monitor health and more than 50% of physicians using (or wanting to use) their smartphone to monitor patient health, and with seamless data sharing on its way, the way care is delivered will truly change.

Telemedicine is showing significant gains in delivering primary care. We will continue to see more adoption of mobile-enabled services for ambulatory and specialty care in 2016 and beyond for three reasons:

  • Mobile provides “situational awareness” to all stakeholders so they can know what’s going on with a patient in an instant and can move the right resources quickly with the push of a button.
  • Mobile-enabled services radically reduce communication overhead, especially when you’re dealing with multiple situations at the same time with urgency and communication is key.
  • The services can significantly improve the patient experience and reduce operating costs. Studies have shown that remote monitoring and mobile post-discharge care can significantly reduce readmissions and unnecessary admissions.

The key hurdle here is regulatory compliance. For example, auto-dialing 9-1-1 if a phone detects a heart attack can be dangerous if not properly done. As with the EHR, mobile services have to be designed around physician workflows and must comply with regulations.

4. Big data— Healthcare has been slower than verticals such as retail to adopt big data technologies, mainly because the ROI has not been very clear to date. With more wins on both the clinical and operational sides, that’s clearly changing. Of all the technology capabilities, big data can have the greatest near-term impact on the clinical and operational sides for providers, and it will be one of the biggest trends in 2016 and beyond. Successful companies providing big data solutions will do three things right:

  • Clean up data as needed: There’s lots of data, but it’s not easy to access it, and isn’t not quite primed “or clean” for analysis. There’s only so much you can see, and you spend a lot of time cleansing before you can do any meaningful analysis.
  • Meaningful results: It’s not always hard to build predictive analytic models, but they have to translate to results that enable evidence-based decision-making.
  • Deliver ROI: There are a lot of products out there that produce 1% to 2% gains; that doesn’t necessarily justify the investment.

5. Internet of Things— While hospitals have been a bit slow in adopting IoT, three key trends will shape faster adoption:

  • Innovation in hardware components (smaller, faster CPUs at lower cost) will create cheaper, more advanced medical devices, such as a WiFi-enabled blood pressure monitor connected to the EHR for smoother patient care coordination.
  • General-purpose sensors are maturing and becoming more reliable for enterprise use.
  • Devices are becoming smart, but making them all work together is painful. It’s good to have bed sensors that talk to the nursing station, and they will become part of a top level “platform” within the hospital. More sensors also mean more data, and providers will create a “back-end platform” to collect, process and route it to the right place at the right time to can create “holistic” value propositions.

With increased regulatory and financial support, we’re on our way to making healthcare what it should be: smarter, cheaper and more effective. Providers want to do whatever it takes to cut costs and improve patient access and experience, so there are no real barriers.

Innovate and prosper!

Wearable Tech Raises Privacy Concerns

Workers’ comp insurers are applauding wearable tech initiatives as a potential way to monitor and reduce workplace accidents and injuries. But some observers are asking at what cost to privacy.

AIG recently announced its strategic investment in tech startup Human Condition Safety (HCS). The start-up, a spin-out of Human Condition Labs, develops wearable technology that incorporates artificial intelligence, building information modeling and cloud computing to try to prevent workplace injuries. The company is targeting industries that hold the highest risk for workers, including heavy manufacturing, energy, warehousing and distribution, mining, transportation and construction.

Because state laws require businesses to provide medical coverage, rehabilitation services and lost wages to injured employees through workers’ compensation programs, coverage in this area is one of the insurance industry’s largest product lines. By decreasing employee injuries and deaths through wearables, the industry believes it may be able to lower costs and increase profits for itself and its clients. Employers have many incentives to test these products in their work environments.

But before concussion-detecting sensors in hard hats or fatigue-monitoring wristbands become widespread for workers, the tipping point may be that issue of privacy. Experts in workers’ comp say companies must first investigate employment legalities and may need to negotiate with labor unions.

As a result, insurance defense law firms that defend workers’ comp claims will want to pay close attention to emerging technology trends such as wearable tech and other similar innovations for the following reasons:

  • Any safety initiatives that may reduce the number and severity of claims will reduce the number of claims that need to be litigated.
  • There will be privacy implications for both employees and employers. When it comes to granting access to individuals’ behavior and health information, law firms need to familiarize themselves with the type and purpose of data being collected, as well as the protection of that data.
  • Insurance carriers will continue to evaluate how new technologies might eliminate claims and reduce claims costs.

Wearable tech is still in its infancy because employees need to be convinced that the information collected for the safety of the greater good is worth it. Pilot programs underway may take a year or more before they are actually put into practice in workers’ compensation insurance programs, but insurance defense law firms will want to demonstrate an understanding of these technology trends to better serve the needs of insurers and their insureds.

Read more news about the insurance defense market at www.insurancedefensemarketing.com.