How will the rapid growth of the consumer wearable market affect the insurance industry?
Wearable devices are an innovation widely adopted by consumers across all demographics, especially millennials. The technology offers a reward-based system in which behavior and activity are tracked and monitored in exchange for valuable health data and optimized access to online information.
Consumers benefit from these devices: They get real-time information on the steps they’ve walked and calories they’ve eaten from their handy FitBit. Products like Google Glass take high-quality video of everyday adventures and provide user-friendly internet access. Similar products are embedded in automobiles to monitor driving behavior. As this happens, devices are amassing huge amounts of data.
Insurers have the opportunity to harness the information from wearable devices to better assess risk and tailor their business approaches across all segments. Instead of relying on large-scale, aggregate data, companies can focus on individuals to create a tailored risk assessment and provide incentives and rewards for low-risk behavior.
Since the market value of the global wearable device market is predicted to double in two years, indicating increased consumer adoption, insurance companies that fail to use this “big data” will be left in the dust by competitors that do. Although consumers may be concerned about privacy issues from wearable devices, they will nonetheless use them. They just expect to get something in return. That return could equate to money in their pockets through reduced premiums.
Wearables Increase Insurer Relationship With Policyholders
Currently, consumers have limited contact with their insurers. With the exception of policy purchase, premium payment and claims processing, the relationship is nonexistent. Like players in any market-driven industry, insurance companies must tailor their product offerings to appeal to an increasingly savvy customer group. Insurers are using wearables to enhance customer relationships and to promote behavior that should decrease the frequency and size of claims. By doing so, they are showing themselves to be innovative, customer-focused organizations.
Even as the data from wearables assists insurers in developing targeted risk assessments of both individuals and populations, it is a valuable source that companies can use to provide meaningful consumer benefits. These benefits help the company stand out as a good option for price-sensitive consumers looking for insurance coverage. Consumers shop around for a good policy and may favor the one that rewards them for risk-averse behavior.
Some insurers provide complimentary fitness bands to policyholders and reduce premiums in exchange for evidence of healthier lifestyles. These wearables go beyond broad demographic information that insurance companies have relied upon in the past to assess risk, providing more detailed information on exercise, sleep, calorie consumption and heart rate as well as age, gender and past health history.
Corporations See Wearable Device Data as an Advantage
Companies that provide health coverage have a motivation to advance employee wellness. Better overall health means fewer insurance claims and lower premiums. In-house wellness programs using wearable fitness devices are increasingly being used to identify those employees who need extra incentive on the road to better health. Companies can integrate wearable device options with a broader wellness strategy that promotes a culture of health.
FitBit has built-in analytics specifically designed for workplace health and sells its product in bulk to corporate clients. As FitBit floods this market, it will increasingly empower companies to encourage health among staff and to choose insurance policies that provide relevant group benefits.
Widespread Implications for All Types of Insurance
Wearable device data includes not only numbers but location tracking, images and video. This provides invaluable information in areas like auto, property, personal injury and workplace injury insurance. Google Glass can capture images that provide evidence of damage at the scene. When field adjusters assess a loss, Google Glass assists with the collection of relevant information.
Auto insurance companies already use data about consumers’ driving behavior to provide risk assessment and consumer benefit. These include premium discounts for safe driving, automatic claims processing and enhanced risk management. A wearable device has a similar function and provides real-time, accurate information about driving behavior on a regular basis or in an accident situation.
On-scene witnesses and medical reports will always have a place in insurance claims, but wearable devices will also have a wealth of data that is highly relevant to these circumstances.
Promoting Wearable Devices Means Striking a Deal With Consumers
Despite the pervasive nature of wearable technology, widespread consumer adoption comes with challenges. Individuals will not use the technology unless they receive a tangible benefit: health information, driving aids or insurance premium reduction. Consumers told a PwC survey that they would be motivated to wear a device if they received some kind of monetary benefit for engaging in certain behavior.
Nonetheless, concerns over privacy must be assuaged before the implementation of any large-scale efforts to use wearable device data. The same PwC survey found a heightened concern among consumers about privacy breaches. Technology companies have expressed a commitment to keeping ownership and release authorization of consumer data in the hands of those consumers, but the potential for security breaches and third-party access must be addressed to protect consumers and to support the program of any insurer to increase consumer engagement.