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The continuous harvesting of data in today’s increasingly digitalised world is fueling a drive to include more and more differentiating criteria in the design and pricing of Life and Health insurance products.
Today’s products mostly reflect risk stratification in underwriting and product design. But widespread digitalisation is creating new opportunities to make use of more data from broader areas of people’s lives and adds to that risk stratification.
Importantly, the potential to improve the customer experience is huge.
For example, customers frequently find it hard to answer application form questions that relate to their health status, not just for privacy reasons but also because they have to figure out which details the insurance company needs to know and which they can omit.
Customers also struggle with the disclaimer that any wrongful statement can lead to voiding of the cover - which is perfectly justified from the insurer’s perspective.
Now, imagine a product that guarantees a payout once the benefit trigger is fulfilled and yet doesn’t involve the need to investigate possible non-disclosures. This product would be possible if people provided their insurance company with their electronic health records, making the non-disclosure problem a thing of the past.
In fact, electronic health records are already used in some countries, such as Estonia or Taiwan, while insurance companies in others are working on such solutions. It is only a question of time until these data find their way into insurance applications.
While comprehensive digital health records are still a long way off in most countries, the ubiquitous smartphone can offer a health app. Such apps - especially when combined with wearable monitors - can collect much information on the wearer’s activity. Even these “unofficial” health or lifestyle-related data derived from the customers’ own monitoring of their well-being is a promising development for insurers. By collecting data that serve as a proxy for traditionally gathered underwriting information, such solutions can complement, if not replace, underwriting questions.
It’s accepted that regular physical activity has a beneficial impact on health and can reduce mortality, disability and health risks. Transferring these insights to product development will lead to a much higher granularity of product pricing and, potentially, product design. It’s a major step toward more customer-centric and eventually personalised insurance products.
After all, the typical Internet user of today, irrespective of age, wants the same customer friendliness in the insurance domain that he or she is used to finding on retail or service providers’ websites.
Changing the product design further, from using data not only at the application stage but also throughout the policy term, allows the insurer the previously unknown advantage of staying up-to-date with the insured’s health status, preferences and satisfaction with the product.
Clearly, increasing the number of touch points with customers throughout the policy duration helps the insurer to better understand their customers’ needs and to address them from the company’s own product range - before unhappy customers decide to look into competitors’ offers.
Loyalty programmes for healthy clients have already been introduced successfully, by Vitality for instance. Rewards provide an incentive for the customer to remain loyal, though the rewards might be completely unrelated to insurance or a healthier lifestyle.
Furthermore, insurance companies have the opportunity to gear such loyalty programmes toward healthier lifestyles and thereby establish themselves not only as payers of claims (to counter the possible perception of them potentially being reluctant payers) but as true-life enablers that support the customer in leading a healthier life and being more aware of and trusting in the value of the insurance cover.
As appealing as such propositions might be to both customers and carriers, the latter face a big technical challenge. Outdated legacy systems - and the obligation to administrate policies emanating from decades of product generations in a flawless and well-documented manner - might prevent insurers from being able to quickly respond to new product trends.
However, new technological developments - and partnerships with tech-savvy start-up companies - could help insurers overcome such hurdles and service their current and future customers with cutting-edge products. These products could meet customers’ needs and reflect their individual situations much better than off-the-peg solutions of the past ever could.
