Insurance Solutions | Georgina | 9 June 2015

It’s no longer really fair to say that wearable devices aren’t yet part of the mainstream tech landscape – not when it’ll be possible later in the month to step into an Apple Store and step out again with a shiny new Apple Watch on your wrist. No – wearables are here to stay, and it won’t be long before they’re integral to the way we live and work.

Last October, a survey by PwC found that 20 per cent of US adults own some form of wearable device, putting the adoption rate to date on par with that on tablets a few years previously. 73 per cent of respondents were excited about the potential of wearables to make media and entertainment more immersive and fun; 72 per cent felt the devices could be used to improve customer service in retail; and 80 per cent saw them as the means to live a healthier lifestyle.

This brings us on to the use of wearable devices in the health insurance market. It’s often been remarked in the past that the health and fitness data so commonly tracked by smart watches and wristbands could be harnessed by insurers in inventive ways: to reward customers with lower premiums when they minimise their lifestyle risks, for example. This is far from the norm yet, but judging from the way things are going, it’s not far away, either.

In fact, a recent report from Accenture attempted to put a timeframe to the adoption of underwriting based on wearable device data in mainstream insurance. Published on May 5th and comprising a global survey of over 2,000 business and IT executives, it found that almost two-thirds (63 per cent) of stakeholders believe that wearables “will be adopted broadly by the insurance industry within the next two years”.

The advantages of wearables…

Why should insurers implement wearable device-based policies? Well, for one thing, the use case described above – rewarding customers for healthy living – speaks to one of the industry’s key development priorities today: the ability to offer digitally-empowered, tech-savvy consumers a personalised and transparent service.

This was highlighted as an important competitive differentiator by almost three-quarters (73 per cent) of the respondents in the Accenture survey. And, of the handful of insurers already using wearables, half (50 per cent) said they’d seen a positive return on investment as a result of their efforts.

Beyond that, the use of more sophisticated data analytics in insurance can also help to cut costs: it reduces claims leakage as a result of undercharging and overpayment, can be used to combat fraudulent claims, and generally makes life simpler for underwriters.

… And the challenges

There are, of course, still challenges standing in the way of widespread adoption of wearables-based insurance products. Most of these involve managing and drawing value from the vast amounts of data created by smart watches and wristbands, which insurers’ existing infrastructure is usually ill-equipped to facilitate. Over half (56 per cent) of the respondents in the Accenture survey described managing their data as either a “very” or “extremely” challenging task, for example.

A common problem is lack of integration. Insurers’ legacy tech is often made up of discrete IT systems that require data be rekeyed by hand when it passes from one department to another, making joined-up policy and claims management, analytics and customer service an impossibility.

Elsewhere, issues like the data science skills gap and concerns over security may hold some insurers back from throwing themselves into the wearables space. Making decisions based on an unprecedented volume and variety of data isn’t easy, and nor is storing and processing that data in a secure and compliant way.

However, Accenture’s report revealed that few believe these barriers will prevent adoption in the medium term engineering exam results. Three-quarters (75 per cent) of the survey respondents said they ultimately expected insurers to embrace a new generation of tech platforms that “reshape industries into interconnected ecosystems”. And nearly two-thirds (65 per cent) planned to engage with new digital partners in the insurance industry themselves.

“Insurers have traditionally based their underwriting and pricing processes on a limited view of certain customer variables,” said John Cusano, senior managing director of the firm’s global insurance practice.

“Emerging technologies such as wearables and other connected devices can help insurers break from their traditional business models and provide outcome-based services for their customers.”