Wearable Technology Is Impacting Insurance Markets
June 6, 2017
As fitness monitors and other telematic devices grow in consumer use and acceptance, they are bringing with them major changes in the ways insurance— including property and casualty insurance—is bought and sold. Quadrant Information Services discusses the revolution this technology is bringing to the industry.
(Pleasanton, CA) June 6, 2017—The market research firm CCS Insight has updated its outlook on the future of wearable technology, projecting that 411 million smart wearable devices, worth $34 billion, will be sold in 2020—a 143% increase over wearables sales in 2016.1 As it becomes ubiquitous, says Michael Macauley, CEO of Quadrant Information Services, a leading supplier of pricing analytics services to property and casualty insurance carriers, this technology will have an increasingly significant effect on insurance markets.
“The insurance industry,” says Macauley, “is based on data—an understanding, in the form of actuarial statistics, of the behaviors and risks inherent in the markets we serve. The field of remote sensing and control devices, generally known as telematics, represents a new way to collect and amass data about the people we insure. By giving direct feedback to the user, it also offers the possibility of reduced risk and improved outcomes for our customers, both as individuals and as populations.”
The first insurance market to be affected by wearables, notes Macauley, was health coverage. In 2013, oil company BP Plc made headlines by offering the overweight husband of a BP employee an opportunity to reduce his annual insurance bill by agreeing to wear a fitness-tracking bracelet to monitor his new exercise program. Over the course of a year, by using the device to log his new walking regime—and with the aid of an improved diet—he dropped 70 pounds and moved his once-high cholesterol and blood pressure into a normal range. He also lowered his annual insurance bill by $1,200.2 Since then, numerous other insurance companies have adopted incentive programs to encourage their policyholders to wear—and use—monitoring devices.3
Another rapidly growing application for telematics is auto insurance coverage. This involves not wearables but recording devices plugged directly into the car’s electronics that monitor speed, braking patterns, and other aspects of the driver’s behavior. As reported by the BBC, Mike Fitzgerald, a senior analyst for research firm Celent, said, “The way we’ve done insurance compared to what we can do is sloppy. We’re taking tens of thousands of people and saying they all have the same risk profile—when in fact they don’t. Most people are actually overpaying.” His comment was echoed by A.T. Kearney consultant Joe Reifel: “If I’m a driver that doesn’t drive that frequently, and I have a pattern that would indicate that I drive more carefully than an average person with my profile, I may be able to save 30% to 40% on my car insurance.”4
More recently, smartphone apps have been developed that make it possible for insurance companies to monitor driving behaviors without having to install an onboard telematics device. The technology captures data from the sensors and GPS in the driver’s phone, analyzes the information, and produces a driving score that—depending on the insurer— could affect the driver’s insurance rate.5
Looking further ahead, notes Macauley, the P&C industry will see a technological convergence of what are now discrete insurance categories—home insurance, car insurance, maybe even flood and fire insurance—as both cars and houses become more fully integrated into the Internet of Things. Even now, Amazon’s voice-operated home assistant, Alexa, can find out how much gas is in a car’s tank while the driver is still in the house. BMW announced last fall that its connected services would enable Alexa owners to lock the car doors and check battery levels from the comfort of their sofas.6
“How all this will work, much less how it will all work together, is anybody’s guess,” says Macauley. “There are no data standards at the moment, and a lot of these devices can’t communicate with each other. In addition to the technical hurdles, there are also privacy issues to be dealt with. Recently, for example, Admiral Insurance had to jettison a plan to base auto insurance rates on people’s Facebook posts.7
“The insurance industry needs to be sensitive to these concerns, and be vigilant in guarding against data leaks and hacking. That said, it is clear—and must be made clear by the industry—that the qualitative and quantitative data obtained by wearables will produce significant benefits for consumers. It will help give them the best individual policy possible and, as in the examples cited above, in most cases will lower their rates. For insurers, it will provide a degree of understanding of their markets that they can now only dream about. It’s a win-win.”
About Quadrant Information Services:
Quadrant Information Services, headquartered in Pleasanton, CA, provides pricing analytics solutions for property and casualty insurance companies. Quadrant gives actuary, product development, pricing, sales, and marketing personnel at its client companies—who include all the major insurance carriers in the United States— the data they need to make accurate, data-driven decisions. An industry innovator since its founding in 1991, Quadrant has provided the P&C insurance field with a long series of technological advances, most recently InsureWatch, the industry’s first cloud-based pricing tool, which allows the user to produce unlimited combinations of reports with the click of a mouse. For more information, and to learn why Quadrant is for insurance companies that are tired of losing the right customers and winning the wrong ones, please visit www.quadinfo.com.
Satariano, Adam, “Wear This Device So the Boss Knows You’re Losing Weight,” Bloomberg Business News, August 21, 2014
Stone, Jeff, “Insurance Industry Turns to Surveillance, Offering Fitness Trackers, Driving Monitors for Lower Rates,” International Business Times, January 11, 2015.
Gittleson, Kim, “How big data is changing the cost of insurance,” BBC News, November 15, 2013.
Marquand, Barbara, “Your Smartphone Can Tell How Well You’re Driving,” Forbes, January 29, 2016.
Quain, John R., “One Day, Cars Will Connect With Your Fridge and Your Heartbeat,” New York Times, October 13, 2016.
Mezzofiore, Gianluca, “Facebook prevents insurer from setting rates based on your posts,” Mashable, November 2, 2016.
Karla Jo Helms