If Wearables Improve Your Health, Will Life Insurance Rates Drop?
Starting the new year with a wearable device such as a Fitbit, Jawbone or a heart rate sensor on a new smartphone that you unwrapped on Christmas Day can be a good incentive for staying in shape. Could it also be used to get a life insurance discount?
Wearables can track heart rate, pulse, blood pressure, miles and steps taken, calories burned, glucose levels, hours of sleep and other medical factors, giving the user instant feedback on how much they’re exercising throughout the day.
If that information were passed on to insurance underwriters — much like telematics are from cars to auto insurance companies to show how well, or poorly, a policyholder is driving — then it could be used to offer discounts on premiums, according to a November report by Celent on the Internet of things. The medical information could also be used to revoke discounts if fitness goals weren’t achieved.
Changing how underwriting is done
But to do that would require a major change in how life insurance underwriters work — changing the “underwrite once” methodology to a future of continuous underwriting.
“Insurance companies I’m sure would love to get that data, however with life insurance once you are approved there is no ongoing monitoring of your health,” says Liran Hirschkorn, an independent insurance agent.
After a policy is issued, insurers can’t charge more if you become unhealthy and start smoking, for example. But if you improve certain medical conditions, such as losing weight and are no longer obese, you could have your premium lowered if you can maintain the lower weight over time.
Life insurance underwriting models have been in place for generations, according to Celent. They take a snapshot of the insured at the time of underwriting and make a long-term decision on that person’s mortality risk. Future health changes aren’t considered, even though wearables offer data in real time that insurers could use, the report says.
A new concept called post-issue underwriting would still use the traditional method of underwriting to provide a baseline price, but it could be updated if the purchaser agrees to provide additional data over time and meet behavioral targets. That could lead to either a discount on premium, no change, or revocation of discounts.
What wearables can do
Several types of wearables exist, providing instant feedback to the user. Fitness bands such as the Fitbit measure exercise levels. The Apple iWatch will contain a heart rate sensor, as do Samsung’s Galaxy S5 and Note 4 phones.
Google announced a partnership in July with Swiss pharmaceutical company Novartis to develop a smart contact lens that could measure glucose levels. Scientists at Oxford University are researching the diagnosis of rare genetic disorders through recognition software.
Some insurers are already offering discounts for proving how healthy you are. The United Kingdom life insurance company Vitality Life offers discounts for being healthy, with premiums increasing or decreasing, depending on the results of the policyholder’s activity program.
How losing weight would help
One of the main advantages of a wearable is to help track exercise that could lead to weight loss. If insurers used that data, it could lead to lower rates, says Steve Kobrin, who runs a national life insurance brokerage.
“A device like the Fitbit could be instrumental in proving that a candidate is really in top shape and therefore qualifies for the best rates,” Kobrin says.
“If the applicant is already in decent shape, is is not being treated for any serious illness, then he or she is probably eligible for standard plus or preferred rates,” he says. With good nutrition and exercise, they could qualify for preferred best rates, Kobrin says.
Data from the Fitbit, for example, and current lab results could lead to a 15-20% reduction in rates, he says. It could as little as three months of data to get the discount, though a review after six to 12 months is more likely, Kobrin says. Many doctors recommend a gradual weight loss for it to become permanent.
Several insurance companies already take into account “positive point” risk attributes such as not drinking many alcoholic beverages per week, eating enough fruits and vegetables daily, and exercising, says Jason Fisher, a licensed insurance agent in 20 states. But data from a wearable would be minor, Fisher says.
“While having a good BMI and exercising regularly may be great indicators of how healthy a person is, I don’t find it reasonable any carrier will take it upon themselves to take a wearable into consideration,” he says. “While it might offer data, it would be a minor detail when coupled with medical records, blood profiles and a urinalysis.”
Insurers take a long-term view of at least 15 years out, and a daily, weekly or monthly update on an insured’s health — especially if they’re likely to regain half the weight lost in six months — doesn’t make sense, Fisher says.
“I just think there’s too much risk for the carrier,” he says.
There’s also the issue of authenticity, where the insured could have a healthy friend wear the device.
Privacy laws are another potential concern, though the Celent report points out that the programs would be voluntary. As for their data getting hacked, the report says it’s a real concern that must be addressed by insurers, but shouldn’t stop it.
“In reality, the impact to the insured of a breach of their credit card at their local grocery is much greater than the impact of their level of exercise on their insurance policy, but the concerns expressed by our respondents are quite real,” according to the report.
Sharing personal information online is becoming commonplace. Sharing personal information with your insurance company, such as how often you exercise each week, may not seem so bad when you consider what’s on your Facebook feed.
Aaron Crowe is a freelance journalist who covers the insurance industry and specializes in writing about personal finance topics for various websites, including his personal finance blog at CashSmarter.com.
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