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Insurtechs, firms that use innovative technologies such as artificial intelligence, big data and machine learning to enhance the traditional insurance industry, have been around for a while. Some of them are technology-focused, regulated insurance companies themselves. Others develop solutions for the pain points of the insurance value chain, designed to be leveraged by insurers or their customers. This group offers significant collaboration opportunities for insurance companies in terms of strengthening their digital transformation and developing new business models or products.
Creating a tech-driven solution benefiting insurance processes or customers is not an easy task. Traditional companies who have to deal with legacy systems, strict regulations and complex processes may not have the resources, tech infrastructure and digital expertise required for innovation. This is where insurtechs step in, offering capabilities that can assist insurers in enhancing their services and their relationships with policyholders.
An insurtech-insurer collaboration can bring experience, industry knowhow, technology and new perspectives together.
Tech startups offer plenty of services and applications to be integrated in insurance. A focus area for many of these companies is supporting Life and Health insurers by utilizing physical activity or health data collected from wearables. Wearable devices such as smart watches and fitness trackers gather extensive daily data such as step count, heart rate, exercises and sleep patterns that could give indications of health status and lifespan. These tools become more prevalent every year; smart watch users are expected to reach 225 million worldwide in 2024.1
The public perception towards wearables is also improving. A study assessing the acceptance of wearables in Germany showed that 33.8% of participants in the survey already use a wearable, and around 60% are willing to wear a sensor to collect health data.2 Even though the study is not necessarily representative of the general population, it does indicate the increasing openness to this topic in relevant parts of society.
Insurance companies can make use of these developments, but one challenge is comparability. There are numerous devices and brands in the market, with diverse algorithms. For instance, two different brands of smart watches might use different methods to calculate the pace and distance of an outdoor run, leading to discrepancies. So, if we want to use the data from a wearable in an insurance context, how can we normalize the information in the portfolio and make sure we get the correct picture of the policyholders?
Insurtechs come into play here. These tech startups are creating algorithms capable of connecting to various wearables, extracting daily activity data, harmonizing the information, and deriving insights. Several startups provide raw data and also interpret it by combining the data with demographic information such as age and gender and generate health assessments. Insurance companies can benefit from the outcome for gaining a deeper understanding of their policyholders and crafting products for individual needs and circumstances.
Customers could also take advantage of these solutions in the form of apps and platforms they could track their health and activities.
From an insurer’s perspective, getting to know its customers on an ongoing basis is challenging and usually not possible. Up-to-date customer data flies in only at limited insurance touch points such as underwriting or the claims stage. Hence, application which can gather and interpret wearable data provide valuable opportunities.
First, it would be possible to address attractive customer groups more precisely, including options for premium differentiation. Scientific research backs the argument that sports and physical activity lead to better health outcomes and a prolonged life. So, with wearable device insights at hand, insurers would be able to make better assessments. Lifestyle influences the risk of death or suffering from cardiovascular diseases, and there is also evidence of a connection between physical activity and several other health issues, such as a number of cancers or mental illnesses.
Lifestyles are not static but change over time, and the regular collection of wearable data – beyond the initial risk assessment – enables insurers to respond to any changes and ideally support the customer on the path to a healthier life.
One of the most important add-ons from technology startups is the bridge they build between policyholders and their insurers. With the digital health solutions provided by insurtechs, insurance turns out to be more than a one-off interaction. An ongoing engagement and communication can strengthen the trust and customer relations and lead to better acquisitions and long-term customer commitments.
Digital solutions leveraging wearable device data can benefit insurers as well as customers. An app condensing lifestyle information or providing daily health assessments can create a better health and wellness awareness for the users and incentivize them towards improving their wellbeing practices. These solutions come with relevant content about healthy living, games, challenges and selfcare tips and tricks.
By providing such services, insurance companies would be able to place themselves beyond the position of a financial service provider into being a healthy lifestyle supporter.
Getting to know their customers better allows the insurers to develop new services tailored to their needs. For instance, if the information from the wearable reveals that the daily step counts are lower than the healthy levels, the insurer can take action and offer incentives such as reward programs or relevant content. This approach could boost customer satisfaction as well as potentially reduce future claims.
Plenty of insurtechs offer customizable solutions that can be tweaked according to the expectations of the insurer. They can supply ready-made apps to be directly distributed to customers or provide their technology and algorithms to be integrated in an insurer’s own apps and platforms as a white label solution. Some of them offer the possibility to build an entirely new product together.
These collaborations require participants to be aware of potential concerns, particularly regarding data privacy regulations. Insurance companies and the insurtech firms must both ensure that their approach and technologies comply with legal standards and are equipped with the necessary resilience to safeguard customers’ personal information.
Transparency in the process is necessary not only to meet regulations but also for customer sentiments. For example, if an app provides daily lifestyle assessments based on data derived from a wearable device, users should be able to understand how this assessment is constructed. Also, it must be clear and transparent which part of the data the insurer has access to and to what extent it has an impact, if any, on the insurance coverage and the amount of the premium.
The wealth of lifestyle data available today enables us to offer customers more personalized products and services, and insurtech companies are instrumental in this endeavor. The applications come with challenges, but the potential improvements in offerings and customer relationship make the options worth investigating.
The expectations of consumers are rapidly changing; people have grown accustomed to personalized, digital, and improved services from various providers. The insurance industry is being urged to meet this standard too. Given that technological progress is already enhancing the industry, collaborating with tech-born innovators could unveil even greater opportunities, and leveraging data from wearables is only one way to do so.
Pinar Darici
Global Research and Development – Business Analyst Digital Solutions
Tim Eppert
Head of Products & Analytics
