Wearable technologies won't wash!
This article was originally commissioned for the January 2018 edition of the Actuarial Post.
The key to developing good protection products is to have a strong underlying base of data from which to deduce what the correct rates should be. This allows the life assurers to provide the maximum protection for the consumer without bankrupting themselves. Traditionally, this comes from large data sets assembled by experts giving broad categories into which the consumer was placed. The resulting calculations enabled accurate estimates to be made, assuming the sales to each broad category were sufficiently strong.
The advent of new technology, in the form of wearable technology such as watches and wristbands that measure exercise and vital signs, was supposed to bring about a new era of personal life assurance.
This was because it would be far easier to work out the details of just how much risk the company was taking on an individual basis rather than on the much larger cohorts used before. The result was supposed to be a cost to the consumer that could be kept at the absolute minimum by constant monitoring of the data. Some even foresaw that the amount charged for the sum assured could be varied as the risk level rose and fell.
However, the resulting mass of data coming from the wearable gadgets is not easily verifiable. More than one person has discovered how to cheat their gadget, not necessarily to fool an insurer but in fact more focused on fooling themselves into thinking they are living a healthier lifestyle than they actually are. The linking of amounts of exercise and the bodies vital statistics to the actual risk being carried by the life assurer is not necessarily paying fruit either, as the linkages are not as direct as the powers that be would have us believe; a combination of wishful thinking on behalf of the medical professionals and a drive to sell by the technologists has resulted in far more trust being put in these devices than the results necessarily justify.
Then again, should we really be pushing to reduce individual risk on this basis. Most areas of general insurance, for example, steer away from this level of personal risk assessment as too much of it is based on self-certification rather than on actual hard fact.
Of course, there is the exception of the monitoring device fitted to the cars of younger drivers in order to provide cheaper insurance. These are very popular but having a box fitted to one’s car is not quite as intrusive as attaching devices to the individual’s themselves and in any case, unlike wearable technologies, it is not easily cheated.
It is deemed far better to stick with more traditional methods of spreading risk over large pools with guaranteed standard characteristics than trying to finesse the pools into smaller and smaller groups in order to give marginal bargains to selected groups whose risk appears smaller but has not yet been around long enough to ensure that it is proven to be true.
The life companies would do well to do the same rather than follow the unproven route down the path of individualisation of life assurance. The broad categories they follow at the moment to identify and assess cohorts of risk have been tried and tested over time and there have been few examples of life assurers who have been driven into insolvency by problems on the protection side.
The idea of moving too rapidly in response to the rapid changes in technology may well prove to be a major mistake; who can tell if the overall effect will be to improve their risk assessment or to put their companies at risk by overvaluing characteristics that have not yet been proven to pay off in terms of life extension, no matter how much common sense seems to point in that direction.
Whilst technology promises much in the field of protection, it is too early yet to be leaping on the bandwagon and granting subsidies to those based on the information coming from wearable technologies, especially those which are entirely voluntary by the public. This is a dangerous route to travel at this early stage in the life of the wearables and the promises of the technologists have yet to be proven in terms of whether they will deliver benefits in terms of health or whether the fad will fade out just as quickly as it arrived.
By Tom Murray, Head of Product Strategy at Exaxe.
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