Expect a huge increase in wearable technology over the next three years to have a dramatic effect on insurance markets.
Updated data from market research firm CCS Insight projects that 411 million smart wearable devices, worth $34 billion, will be sold in 2020—a 143% increase over wearables sales in 2016.
As it becomes ubiquitous, this technology will have an increasingly significant effect on the way property and casualty insurance is bought and sold, predicts Michael Macauley, CEO of Quadrant Information Services, a leading supplier of pricing analytics services to P&C insurance carriers.
“The insurance industry is based on data—an understanding, in the form of actuarial statistics, of the behaviors and risks inherent in the markets we serve,” says Macauley. “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, Macauley says, 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. Since then, numerous other insurance companies have adopted incentive programs to encourage their policyholders to wear—and use—monitoring devices.
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.”
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.
Looking further ahead, Macauley says, 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.
“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.
“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.”
• Thoughts or comments? Please visit this thread: Are consumers asking about telematics?
About Quadrant Information Services: Quadrant Information Services, headquartered in Pleasanton, Calif., provides pricing analytics solutions for property and casualty insurance companies. Quadrant gives actuary, product development, pricing, sales, and marketing personnel at its client companies — including all the major insurance carriers in the United States — the data they need to make accurate, data-driven decisions. For more information visit http://www.quadinfo.com.