Last week, the 156-year-old insurer John Hancock made waves by dramatically announcing that it was abandoning traditional life insurance in favor of a behavioral-based wellness program called interactive insurance.
The concept of insurance companies rewarding healthy behavior is not new. A decade ago, I remember getting a printout of my visit history from the front desk of my gym and sending it to my health insurance company in exchange for a small rebate. The use of wearables, be they Fitbits, Apple watches, or other fitness trackers by insurance carriers is also not new. In fact, UnitedHealth, Aetna, Cigna Health, Oscar, and other carriers offer the use of fitness trackers as an option to policyholders in exchange for discounted premiums or other rewards and use this data to supplement fully underwritten policies. The Hancock announcement is significant, however, because they are bundling the use of trackers into all new life insurance policies.
Interestingly, the use of biometric data in life and health insurance parallels the use of so-called telematics in auto insurance. Auto writers such as Progressive, for example, will offer policyholders a discount on premiums if customers plug an ODB tracker (called “Snapshot”) into their car. The ability to track a few driving metrics such as how fast you drive, how hard you break, and even when you drive can help determine how safe a driver you are.
Back to life and health insurance, there are several biometric markers currently easily trackable including:
- Daily steps taken.
- Periods of inactivity or prolonged sitting.
- Resting heart rate.
- Duration, intensity, and frequency of exercise as measured by heart rate intensity, and movement as recorded by an accelerometer.
- Mindfulness activity as measured by the use of meditation or breathing apps.
- Sleep duration and quality.
- Diet tracking including food logs and water intake.
Furthermore, there are other more sophisticated, medical-grade biometrics currently available but being refined to be more easily and less invasively measured, including:
- Electrocardiography (EKGs) – the recently released Apple Watch Series 4 can measure this when you put your fingers on the digital crown.
- Blood oxygenation.
- Blood pressure monitoring.
- Continuous Glucose Monitoring (CGM).
- Stress level as measured by body temperature and galvanic skin response.
- Sweat analysis to detect nicotine, alcohol, or other drug use.
- Eye tracking to measure cognitive health.
- Measurement of medication adherence.
The most interesting to me by far is CGM. There are currently several companies that have CGM devices including Dexcom, Abbott, and Roche. The Dexcom sensor is currently inserted into the skin of your abdomen, whereas the Abbott senor is currently inserted into the back of your arm. There are also rumors that Apple had a team of biomedical engineers working to try to develop an FDA approved non-invasive optical CGM that can be integrated into the Apple watch.
I believe CGM to be the most promising marker – obviously for diabetics but also for the general population – for several reasons. First, it provides an accurate window into a person’s diet, much more so than diet logs where people can misestimate macronutrients. Second, blood glucose levels over time also provide an excellent window into a person’s health, especially as it relates to diabetes and heart disease. I would posit that if someone can maintain their blood glucose levels to a mean of around 83 mg/dl plus or minus ten including postprandial measurements, they are, to put it mildly, an excellent underwriting risk. Finally, a CGM can impact behavior – and I would go so far as to say it is perhaps the only device I have seen that is able to do this consistently. If I know my blood glucose is going to spike, I am much less likely to eat that doughnut!
Why are life and health insurance carriers – not to mention self-insuring employers – so interested in these types of markers instead of or addition to metrics used in traditional, fully-underwritten policies? It offers many advantages to them, including:
- Healthier customers make for more profitable policies due to fewer hospitalizations, delayed payments, and greater compounding of premium investment during a more extended float period.
- Similarly, healthier employees are less costly because of reduced healthcare expense and lower insurance premiums. There are also second order benefits such as less missed work days, and more productive and engaged employees. In an era of increasing healthcare expense, this is especially important to employers. We saw evidence of this first hand with the success of our portfolio company ShapeUp.
- It is possible that only the lower risk customers will opt into fitness tracking programs whereas less healthy customers will avoid it. In this sense, these programs offer a self-selection bias that can improve underwriting profitability.
- Carriers have the potential to create a valuable health data trove and use artificial intelligence and other analytical methods to enhance actuarial forecasting.
- Creating more engaged policyholders and employees and deepening the customer/insurer and employee/employer connection.
- Faster and less invasive biomarker measurement vis-à-vis the tests performed in a fully underwritten policy (where an examiner comes to your house and draws blood, for example) has the potential to enable a faster and more efficient underwriting process and compress the insurance purchasing cycle.
For policyholders, there are pros and cons:
- As mentioned above, carriers are offering discounts on premiums (typically in the 15% range) or rewards at partners (such as Amazon gift cards) in exchange for fitness data.
- For policyholders, there is also the ability to detect the need for and access early targeted medical interventions.
- The potential to reduce lifestyle derivative diseases, such as heart disease, type-2 diabetes, and certain lifestyle-related cancers.
- The potentially faster, more efficient, and less invasive underwriting process mentioned above is also a benefit to customers.
- On the negative side, policyholders are giving up privacy.
- There is also the risk (if such activity is legally permitted to occur) of customers paying higher premiums or even losing coverage if their biometrics are bad.
I believe the most far-reaching implication of the interactive insurance movement will be the ability to adjust premiums dynamically. So, instead of setting premiums on an annual basis, premiums can be personalized and adjusted more frequently, perhaps even daily. Indeed, in addition to the promise of creating healthier customers, interactive insurance may also help create more profitable insurance companies.