Protection underwriting is undergoing a technological revolution that will make the sector unrecognisable within years.
Experts are predicting a future where policies become tailored to individuals’ needs as insurers use technology to keep closer tabs on their customers’ health.
Wearable devices such as Google Glass and wristbands which track blood pressure and the rate at which calories are burned are already increasingly being used by providers to spot health risks in real time. Google Glass is even testing a device which can track individuals’ emotions, with potential uses including employers establishing whether employees’ sick claims are all they are cracked up to be.
This shake-up is likely to see protection premiums reduce dramatically for some, but there are moral and practical obstacles – ranging from individual privacy to how these technologies are adopted into the underwriting process.
Protection Review chief executive Kevin Carr says: “Wearable technology already exists and so this is not Star Trek theory.
“These gadgets have the ability to measure a range of data including biometrics that could completely revolutionise the underwriting process for protection, and change the way insurance is bought and sold forever.”
Insurers say the main benefit of using wearable technology is the reduction in premiums for healthier individuals.
Underwriteme chief executive Martin Werth says: “The more insurers can track people the more discounts they can offer. If you are overweight and you lose weight then we can give you a discount because your health has improved.”
“If someone gets up every day to exercise and eats well then they should be credited for it. These wearable devices will help prove how healthy they are.”
PruProtect has geared its product range around this principle through its Vitality programme, which rewards policyholders for making healthy lifestyle choices.
The insurer tracks consumer behaviour through the use of devices including pedometers, heart rate monitors and mobile fitness apps, and awards consumers points which go towards discounts on their premiums.
Members start at the bronze level and move up to silver, gold and platinum based on their points. Anyone who achieves platinum status is given £100 cashback and sees their premiums fall every year.
PruProtect head of account development Phil Jeynes says: “We already see the use of technology at work in other areas of insurance. Car insurance is a good example of this, where black boxes are used to monitor driving skills. It is much more accurate than asking someone if they have been caught speeding because you can actually check. Insurers can also check how drivers are taking corners and generally whether someone is a safe driver or not.
“This is coming to protection. It is much better to assess members on a month by month basis, rather than looking at a snapshot in time and telling consumers that based on their health today this is the price they will pay for protection for the next 40 years.”
VSP Vision Care is a US vision insurance company that provides frame and lens coverage for Google Glass. It has a Californian laboratory dedicated to finding solutions to enhance eyecare and the quality of patient healthcare.
VSP Vision Care president Jim McGrann says: “Building wearable devices or sensors into your eyewear can keep track of lots of things.
“It can tell us how much we are moving in a day, our heart rate and it will eventually be able to track blood sugar through contact lenses.”
Apps already exist to check if moles are cancerous through a photograph alone. There are also devices which can check the pain thresholds of workers calling in sick.
Carr says in the next few years, blood pressure, heart rate, lung function, Body Mass Index, stress levels and much more will be automatically detected and recorded.
He says: “In the future we can forget health records – before long our health will be recorded for us, for those who want this, everywhere we go.”
McGrann says harnessing this data can create a much more dynamic underwriting process.
He says: “We want to get to the point where you have a ’quantifiable self’ and you can measure as much as possible. If someone gets up every day to exercise and eats well then they should be credited for it. These wearable devices will help prove how healthy they are.”
But some have raised concerns about the practical and moral issues associated with the growing use of wearable devices.
LV= head of protection Mark Jones says: “The difficulty we have with wearable equipment is who is actually wearing it? You could easily have a very lucrative secondary market from people abusing it.”
Axxis Financial Planning director Owen Wintersgill says: “The software I have seen so far has not impressed me. I do not think there is any substitute for a medical underwriter.”
While healthy individuals stand to gain from the benefits of wearable technology, Highclere Financial Services partner Alan Lakey says there are negative implications for those who do not meet the healthy norm.
Lakey says: “Technology is a double-edged sword that could be negative for many in poor health. We could have genetic testing that makes people uninsurable from birth because it is known they will get a certain illness. That is the natural path we are on, which will see the development of an insurance underclass. Using more technology will be divisive.”
Even before this year’s Budget which grants new pension freedoms from next April, technological trends were already moving towards tailored underwriting with enhanced annuities picking up a greater market share.
At a Treasury select committee hearing on the Budget earlier this month, Association of British Insurers director general Otto Thoresen said more sales of enhanced annuities was increasing the health profile of normal annuities. The Institute for Fiscal Studies says less annuity risk pooling inevitably means higher prices.
As well as radically changing underwriting and premiums for millions, a greater use of technology as part of protection underwriting also gives insurers an opportunity to improve their service.
Werth says: “Protection could end up resembling medical insurance because if insurers can track people’s health and see risks increasing then they can prompt the consumer to take action.
“For example, an insurer which is able to track a customer’s blood pressure and see it rising can contact customers to alert them to a risk they may not be aware of.”
Werth argues instead of insurers paying out £150,000 in the event of a critical illness claim, they may be prepared to send customers to a cardiologist to identify the cause of the increase in blood pressure.
He envisages insurers being much more proactive and encouraging members to take preventative action.
He says: “This kind of development would be good for insurers as they pay out less but, even more importantly, it is good for customers because it could avoid a serious health event.”
Using technology to spot future health risks could also see more public-private partnerships.
In the UK, the Government has already paved the way for insurers to play a greater role in nudging consumers to take out financial products, through the rollout of auto-enrolment and the creation of a private market for long-term care products through the Care Bill.
Meanwhile the US is relying heavily on technology and tracking devices to cut costs for insurers and the state as part of its long-running healthcare reforms.
McGrann says: “Even when a country has a national health service there is still a lot of money to be saved. One example of this is eyecare – we have an awful lot of data showing money invested in eye exams saves money downstream in comprehensive medical costs.”
The protection technology already here: (McGrann pictured wearing Google Glasses)
An electrocardiogram can be fitted into smartphone cases which can track vital statistics such as heart rate and lung capacity
Google Glass is testing a device to track individuals’ emotions. Uses include employers testing if employees are really sick
Bedditt devices placed under a person’s bed can track heart rate, breathing, snoring, movements, their environment and their sleep patterns
Jawbone wristbands can track calorie burning, heart rate and blood pressure
Google Glass is developing lenses that will be able to track blood sugar levels in real time
Mobile phone apps can now check whether moles are cancerous simply by taking a photograph
ADVISER VIEW: Roy McLoughlin
Underwriting is still a slow and painful process and currently takes too long. The main bugbear for advisers is delays from doctors. If technology can be
used to bypass doctors then it has to be welcomed.
Roy McLoughlin is senior partner at Master Adviser
ADVISER VIEW: Michael Aldridge
Technology is really exciting can help make protection become more interactive for the younger generation. Using apps to track heart beats and future illness is great.
Michael Aldridge is sales director at London & Country
EXPERT VIEW: Ian McKenna
There is little doubt the way protection is underwritten and managed
will be revolutionised over the next decade.
An academic study at Oxford University last year identified insurance underwriters as the fifth most likely occupation out of over 700 most at risk of being replaced by technology. Claims and policy administrators were 14th most at risk. By comparison insurance sales ranked 137th most susceptible and financial advisers a comparatively safe 378th.
The personal lines insurance market already uses biometric measurement. If you call an insurer to make a travel or household claim the chances are your voice is being measured for stress to test the accuracy of the statements made.
Imagine if the same technology were deployed as part of a call centre underwriting process to clarify the transparency of underwriting disclosures and identify where there may be a need for more investigation.
Similarly vast strides are being made in the area of facial biometrics where it is possible to measure human emotion from the measurement of micro movements in facial expressions.
Such services can also be used passively to measure the extent to which an individual understands information given to them. This may have great application in the future.
One of the main conclusions of the above research is the ability to work with technology will be a key factor in individuals’ employability in the years ahead.
Ian McKenna is director at the Finance & Technology and Research Centre