Wearables Poised to Reshape Insurer-Insured Relationship

Boosted by the impending release of the Apple Watch, wearable devices have received a fair amount of attention recently – and with good reason. Wearables, loosely defined as miniature electronic devices that are worn under or on top of clothing, will be owned by 33% of US consumers by the end of 2017 (Nielsen). Morgan Stanley predicts that the Apple Watch will be responsible for a considerable amount of this market -- it expects Apple to sell between 10 million and 30 million devices within weeks of its release. And while the wearable market itself has tremendous potential, its effect on the health insurance industry could be just as significant. Wearables allow consumers to transmit a wealth of personal information between the device and an app on a phone, tablet or computer. This emergent technology has the potential to alter the way the health insurance industry operates on a fundamental level.

Cooperation between businesses that operate in vastly different segments of our economy – from insurers to tech companies – is vital. There is already evidence of this on a smaller scale. Samsung and Cigna partnered to build the Coach app, pre-installed on all new Galaxy phones, which helps users track and achieve fitness goals. Samsung also recently announced partnerships with Aetna and Humana, along with 22 other health-focused companies like the Cleveland Clinic. While it remains unclear what these partnerships will achieve in the future, it is evident that tech companies and insurers alike value the potential of wearable devices.

The devices are able to record basic vital signs, like heart rate, calories burned and distance traveled. They also wirelessly sync with other smart devices like smart scales to import weight, BMI and body fat percentage. This information could be beneficial to insurers, cluing them in to their members’ diet and exercise habits. Insurers could be privy to a previously unattainable level of insight into the lives of their members. This relationship would be partially predicated on financial incentive, encouraging members to remain engaged in the program. This practice, better known as UBI (usage based insurance), both rewards healthy behavior and motivates users to continue healthy diet and exercise habits.

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There is, however, a catch: the devices are new, and their functionality is therefore restricted. Using technologies like accelerometers, built-in heart rate sensors and GPS, the current generation of wearable devices and their Bluetooth-capable companions (e.g. smart scales) provide limited – albeit interesting – data. Fortunately, new technologies that have either demoed in the past six months or will make their first appearance in the near future will allow for far more informative data capture. Devices that provide blood pressure measurements, EEG readings, glucose monitoring and urinalysis results have already been introduced to the public, allowing patients to share this information with their physicians and specialists. This means that insurers can reward members for behaviors beyond the conventionally-tracked steps taken and minutes “active”. Ideally, members would be rewarded for any healthy activity, including getting a complete night of sleep, passing cognitive challenges (courtesy of a medical-grade device designed by Evoke Neuroscience), submitting an improved blood pressure reading and even maintaining good cholesterol levels.

While the wireless transmission of personal information may be concerning to some, it is integral in the progression of the health insurance industry. Similar innovations are driving the auto insurance industry forward (e.g. telematics), allowing insurers to monitor participants’ driving behavior and offer preferential rates for safe drivers. In the property insurance sphere, unmanned drones have become a recent point of contention. Insurers hope to use drones to learn more about the property for which they write policies. Wirelessly-collected member data could be as beneficial to health insurers as it is to property and casualty insurers.

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The practical advantages of wearable devices will benefit insurers and clients alike. While legislation dictates much of how plans are priced and what constitutes discrimination, it must also expand to address the implementation of wearables within insurance plans. While pre-existing illnesses cannot – and should not – be held against individuals, certain behavioral choices – like smoking or poor exercise and diet habits arguably should. More importantly, the members that are actively making healthy decisions – like eating well and exercising regularly – should be rewarded. The reward, of course, would come in the form of a reduced monthly premium. The option to be monitored by a wearable can be introduced as a policy add-on, similar to a rider on a life insurance policy. The information obtained by insurers through wearables can help reassess the cost of a health insurance policy. And with the precision granted through the use of medical-grade wearable devices, health coverage decisions can be made using more accurate and up-to-date information than ever before.

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