The security and privacy of the data produced by wearables has also been questioned, particularly as the number of news stories about hacking and cyber breaches continue to rise. It appears as though everyone is interested in us and is closely monitoring what we do. Businesses, associations, charities, and governments: they all seem to want to know what we talk about, what we want to buy, where we hang out, whom we hang out with, and where we plan to go. The positive outcome of all this data monitoring is to provide us with the "perfect" deal at the "perfect" moment for the "perfect" product, however, what about the negative outcomes of all these people having so much information about us?
Insurers are one of the groups that are very interested in personal activity and biometric data. This interest is similar to the GPS-enabled telematics devices introduced by them a few years ago to obtain information about the driving habits of policyholders and adjust premiums accordingly. Wearables can be thought of as telematics devices for consumers, and as they become more common and more capable of sensitive readings, insurers are looking at how they can use data from wearables to offer rewards or premium discounts to policyholders. In addition to rewarding healthier habits, insurers hope to inform policyholders with unhealthy habits about actions they could take to manage better their health.
This article presents the pros and cons of the convergence of wearables, the healthcare system, and the insurance industry. It discusses how and why insurers are now using the data produced by wearables to price insurance, and whether or not it is appropriate from both actuarial and medical standpoints.
The concept of behaviour-driven insurance premiums is not new. Many large employers have established "wellness programs" for their employees as a means to slow down the increase in healthcare costs and to reduce absenteeism. The objective of wellness programs - which may include medical screenings, health education, health coaching, weight management programs, discounts on gym memberships, and other incentives - is to promote a healthy lifestyle and place an emphasis on prevention and early detection of serious conditions, many of which are caused by obesity. In the U.S., where data on wellness programs is more readily available, wellness programs have helped bend the cost curve downwards because prevention is often cheaper (and better) than the cost of cure. In the U.S., more than $2 trillion are spent on healthcare every year and a significant part of these costs are paid through employer-funded programs: wellness is a significant costs saver. Even in Canada with our "single payer" healthcare system, about 30% of the nearly $220 billion dollars spent on healthcare is paid for privately. Canadian employers also stand to obtain significant savings through wellness programs.
More recently, with the increase in popularity of wearables, some employers in the U.S. have started purchasing them in bulk and selling them at a discount to their employees as part of their wellness programs with the hope of attaining a more active and healthier workforce. This practice has been met with mixed results. The employers who have seen the highest decline in healthcare costs, compared to the cost of offering wearables, are the ones where management has been actively involved in promoting a healthy culture. Many employers have not attained the results they had hoped for. In reaction, some employers have gone a step further and are using data generated by wearables to offer discounts on health premiums to employees with healthier habits, while some have gone as far as penalizing employees with unhealthy habits.
Although consumer-grade wearables are far from being clinical-grade, some doctors think that wearables may be a good motivational tool for individuals to take ownership of their health.
The practice of offering wearables to employees at a discount has garnered some traction in Canada. However, there is not enough data available to evaluate its success.
Employers in the U.S. are not the only ones interested in accessing data generated by wearables. John Hancock, the subsidiary of Manulife Financial in the U.S., has recently introduced individual life insurance products where discounts can be obtained by sharing data with the insurer. All policyholders start at the "Bronze" level. By accumulating points, policyholders can move up to Silver (3,500 points), Gold (7,000), and Platinum (10,000 points) levels. Points can be used towards travel, shopping, and entertainment-related rewards and discounts. There are many ways to earn points:
These rewards, a free wearable device, and potential savings on insurance of up to 15%, are promoted by John Hancock to attract potential policyholders who cannot access such a program through their employers.
John Hancock only offers wearables with two products: universal life and term life. It claims that a 55-year old policyholder for $1M could save up to $27,000 over 20 years by staying at the platinum level. In comparison, policyholders maintaining the silver and gold levels would save $7,000 and $22,000, respectively, with the bronze level remaining as the base rate. At present, these products are not offered in every state in the U.S. and they are expected to reach the Canadian market sometime in 2016.
John Hancock may be the first to offer insurance products linked to wearables but it is unlikely they will remain alone for long. The following are some reasons why insurers are interested in offering products with wearables:
Rewards and premium discounts offered by insurers are not free; they come at a price. The data generated by wearables is private information and insurers can only get access to the data if they are given explicit permission by policyholders. Thus, policyholders must compromise on their privacy to get rewards and premium discounts.
With the volume of personal data involved, experts cite that the biggest risk is data security. Wearable manufacturer Jawbone, a competitor to the more popular Fitbit, has been hacked at least once. Their user information, including e-mail addresses and passwords, was compromised. This risk of data security is compounded when more parties, such as employers and insurers, have access to personal data.
The second major issue that arises due to the use of wearables in insurance is inequity. Policyholders who are willing to compromise on their privacy are offered rewards and discounts. However, other policyholders of similar risk who are not willing to share their personal information are charged higher premiums. Are we heading towards an insurance industry that pressures consumers into wearing tracking devices to have access to more affordable insurance, while discriminating on those who do not? And will this ultimately result in higher base rates, causing "bad" risks to the priced out of the market? It is fine to say that bad risks will be insured elsewhere, but if every insurer would eventually have similar data then who will accept these risks? And at what price?
Many medical practitioners and technology experts have raised concerns about the accuracy and reliability of the data produced by wearables. Similarly, actuaries are starting to wonder if the data can be credibly used to assess the likelihood and severity of life and health insurance claims.
A study performed by Iowa State University tested seven popular fitness-tracking devices on their ability to correctly track calories burned during different types of workouts. They then compared the results to their own measurements, which were made using a system proven to accurately measure metabolic response to different exercises. The outcome: the best tracking devices were more than 15% off, whereas the worst were off by more than 30%. This study and many other tests have shown that at present, the data produced by wearables is far from being clinical-grade. However, wearable technology is advancing at a rapid pace and wearables may become more reliable in the future.
… some employers have gone a step further and are using data generated by wearables to offer discounts on health premiums to employees with healthier habits, while some have gone as far as penalizing employees with unhealthy habits.
In addition to the accuracy and reliability of wearables, concerns have also been cited about the true impact of wearables on the health of individuals over the long term. Although wearables quantify activity and biometric data, many wearables do little to help individuals act on the data. Some wearables do provide inactivity notifications, motivational messages, and social media platforms to interact with other users. However, it remains to be seen if individuals stay motivated long enough to experience a significant improvement in their health.
The vast majority of wearables on the market today provide data that is of very limited value and interest to doctors for the following reasons:
In addition to the above, there are also risks that individuals with limited medical knowledge may misinterpret data from their wearables and self-diagnose or self-medicate. As wearables only provide a partial picture of overall health, some individuals could actually be encouraged to undertake seemingly positive actions that are detrimental to their long-term health. Furthermore, some individuals may misinterpret the data and unnecessarily approach medical practitioners, swamping the healthcare system.
Although consumer-grade wearables are far from being clinical-grade, some doctors think that wearables may be a good motivational tool for individuals to take ownership of their health. However, as stated above, it remains to be seen if wearables will help individuals stay motivated long enough to experience a significant improvement in their health.
As the quality of data from wearables approaches that of clinical-grade instruments, they might help doctors in many ways:
For example, Google successfully secured a patent for a magnetic wristband that might one day detect the presence of cancerous cells in the blood. It works in conjunction with a pill containing nanoparticles that will be absorbed in the bloodstream. By binding to target cells and passing through the magnetic field in the wrist area, it would theoretically enable early detection of cancer and potentially save many lives. The same might be possible for HIV, Parkinson's, or any disease caused by abnormal cells. Google says the device may still be five years away from FDA approval.
Google also recently patented contact lenses that monitor blood glucose levels. This has obvious applications to help people affected by diabetes, but could also very well complement data from food logs and other wearables. Other companies have already launched products that are marketed as clinical-grade wearables such as electrocardiograms and high-quality fitness watches, but these devices come at a hefty price and currently have a very low market penetration.
In conclusion, with advancement in technology, wearables are likely to become more accurate and reliable for clinical diagnosis. However, in their present state, wearables are more of a tool for behaviour modification and do not offer much value in diagnosis.
Currently, none of the OMA Group insurance products have pricing or rating features that are linked to wearables. Although we have no plans to do so, we do monitor the market to ensure we are staying current and competitive in our offering. Based on the significant amount of uncertainty surrounding the use of wearables, it is not our intention to be a market leader in the use of wearables at this time.
With respect to the individual insurance products we offer, we will introduce whatever innovation our individual insurers introduce to the Canadian marketplace. As noted above, we expect the Manulife initiative to come to Canada sometime in 2016, although no exact date has been announced as yet.