Insurance and outsurance

A couple of years ago, the World Economic Forum (WEF) put out their report on “The Future of Financial Services” [PDF]. This report (for which I was subject matter expert, as it happens) said that while it is natural to focus on the imminent disruption of banking because of new technology, the biggest disruption caused by that new technology will be in insurance. For all of the talk of open banking and contactless payments, your life is not going to be fundamentally changed by having Goldman Sachs lend you money via your Amazon app. The advent of “insuretech”, on the other hand, will almost certainly mean that you will change your day-to-day life.

Here’s why. When you insure your teenager’s car you have the insurance company install a “black box” in the vehicle to encourage them to drive within appropriate parameters to the dual ends of keeping them alive and reducing the cost of their comprehensive cover. So why not do the same for people? After all, a third of US consumers have adopted wearable devices, such as smartwatches and fitness trackers, to help themselves to better health. In turn insurers (and employers) are of course looking at ways to benefit from the massive quantities of data that people are therefore generating about themselves, whether consciously or not.

This will completely change the relationship between insurers, health care and individuals. It’s in the life insurers’ interest to have you stay alive and paying premiums for as long as possible! It might seem odd that when you go to renew your health insurance you find the premium raised because you didn’t go to the gym enough, or went to the pub too much, but I’m sure we would soon get used to having the additional data and the feedback that goes with it. (Although it would spoil a great many detective shows, since the first thing the police will do after the jogger has discovered the body in the park will be to download the bio-telemetry data so that their companion coroner-bot can instantly tell them the time and cause of death.)

This isn’t some internet-of-things (IoT) future hype. John Hancock, one of the oldest and largest North American life insurers, has said that is going to stop selling traditional life insurance and instead sell only “interactive” policies that track fitness and health data through wearable devices and smartphones. Apparently, nearly half of its customers are already part of such as scheme and they check in with company a couple of times every day!

Such initiatives are certain to spread. Accenture says that three-quarters of US consumers are willing to share data from wearable devices with their insurance company, and with Apple launching their new watch with all sorts of health monitoring facilities built in to it, the normalisation of the personal black box is advancing to the point where I can easily forsee scenarios in which consumers will be required to have such devices into order to obtain insurance at all.

Now, this may all sound (as Vox rather memorably put it) like a cross between Nectar points and the Hunger Games, but there is no getting away from it. Big data is all around us and its most voracious consumer, machine learning, is preparing the ground for artificial intelligence (AI) to step in and manufacture wisdom from that raw material. In many industries this may well lead to great efficiencies and amazing new products. Your insurer could, potentially, know everything about you. And I mean everything. From your data exhaust they will know where you are and what you are doing. Never mind counting your steps, they will know whether you are walking or riding the bus, sleeping or having sex.

All good stuff. There is, however, an elephant in the room. Society is going to have to decide the regulatory envelope for insurers’ strategies. Do we want a society where individuals are given affordable access? Will we allow people to be divided into insurable and uninsurable groups? Given the knowledge generated by the additional data at their disposal, which will serve to reduce the number of “average” risks (as shown in the picture), what will we do about the growing numbers for whom insurance will become an unaffordable luxury? While it seems reasonable to give you a better deal on life insurance if you are going to live longer, it seems unreasonable that you are not going to be able to afford health insurance if your genes indicate a tendency to expensive illnesses! We might all think it’s a bit rich to have the NHS pick up the tab because you are stuffing your face when you might otherwise eat sensibly, but what if it turns out that your genes have given you no option?

As it happens, my good friends at the Centre for the Study of Financial Innovation CSFI) are hosting a (free!) lunchtime roundtable on InsureTech on 6th December 2018 in London. I’ll be on a panel there as the Technology Fellow at the CSFI, along with my no.1 RegTech go-to person Jo Ann Barefoot, Matt Cullen of the Association of British Insurers (ABI) and an informed audience that may well include you if you get over to the CSFI and register a place now. See you there.

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