Activity tracker impacts on modern life and health insurance and its uses
Cheerapat Trinkajee
Author Note
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Table of Contents
Abstract 3
Activity tracker impacts on modern life and health insurance and its uses 4
Introduction 4
Definitions 6
[Heading 2] 6
Shared Value Insurance 7
Impacts, Uses and Prospectives 8
Things to Concern 9
Conclusion 10
References 11
Abstract
An increase in smart wearable users combining with wellness program which incentivises policyholders to live more healthily leads to dynamic price charge for premium in life and health insurance industry. This project aims are to study the idea of health and activity pricing, to find the impacts of activity tracker on life and to inspect its potential in insurance industry.
Keywords: Activity Tracker; Life and Health; Insurance; Vitality
Introduction
In past recent years, a number of smart wearables such as Fitbit and Apple Watch has become increasingly popular. An increase in the number of units sold is about four-folded of that in 2014, and it is forecasted to be almost 200 million units shipped by 2022 (IDC, n.d.). Moreover, combining with network connection, activity trackers can measure more sophisticated data and provide companies more information about their users. Although the benefits and drawbacks are still in doubt, the wearers’ health data provided is impactful and promising. It is a new challenge makes us as an insurer think again how the health and life insurance are priced and risks are modelled to survive in the competitive market
Shared Value — the idea of generating product value and social value for society simultaneously while also addressing its challenges — was proposed by Porter and Kramer (2011). Nature of insurance is to protect ones from unfavourable outcomes and organisations from adverse events. By monetising health and other risk factors and encouraging policyholders to live healthily, insurers could improve profitability and benefit society altogether. Ultimately, insurance is the shared value industry in which the company lower cost means a better society life. (Gore, Harmer, Pfitzer, & Jais, 2017)
In the past, many insurers were conservative and kept using the traditional passive actuarial model. Therefore, they had missed opportunities to incorporate new innovations to enhance outcomes for both company and society (Jias, Lund, Pfitzer, & Rodriques, 2017). However, since an introduction of the dynamic model called Vitality program which seek to improve the insured health through a change in behaviour by Discovery, a South-Africa-based company, customers are incentivised to live active and in return get some benefit for being healthy. The company gives customers rewards and discounts, which are based on behavioural science, and results in lower claim costs and rates. After its successful individualised model launch, Vitality model has been expanded to over 15 countries via leading insurers such as AIA and John Hancock (Jias et al., 2017).
Activity tracker role becomes more important as it helps company gather data and improve the accuracy of the model. Many insurers give a discount or even give away activity tracker for free if the insured reaches targeted active points. A study found that those who go gym at least once a week will be less likely to go to hospital compared to those who do not go. Vitality clients has made a better claim rate of percent and two times better mortality rate for members in the risk pool, compared to lapsed clients, according to the report (Jias et al., 2017).
Technical Terms
Activity Tracker
Activity trackers refer to electronic devices which can be used to track the user fitness and activity. These devices are basically pedometers integrated with accelerometers and altimeters to collect distance and daily step counts which can then be extended to plotting graph and calculate calorie amount used in a day. In addition, some of them come with heart rate monitor, sleep tracker or both. Activity tracker is one of Wearables (wearable computers or wearable devices) which, in modern term, are mainly referred to smartwatches which synchronise the collected data to smartphones or cloud storages through internet connection.
Internet of Things
Internet of Things, in Khodadadi, Dastjerdi, & Buyya (2016)’s literature, comprises two important parts which are Internet and Things. Things in this case, rather than referring to any possible thing, is applied to a more specific group of devices which is able to connect to other things, communicate, has contextual awareness. This makes it accessible anytime and anyplace without location or time restriction. The data generation rate has significantly increased in no more than a decade ago, and hence it contributes to the big data pool which requires more sophisticated knowledge and understanding to mine and extract fundamental information and maybe correlation between the set of variables.
Life and Health Insurance
Insurance Policy is an agreement between two parties – the insurer and the insured (or policyholder) – in which the policyholder (or appointed third party) are agreed to gain some paid benefits if defined event occur. The fields of insurance are mainly classified into two sides, namely, life insurance and general insurance (non-life insurance). Life insurance involves the policyholder lives for a certain period of time. For example, whole life assurance covers the period of the rest of the life. Once passing away, the third party (which mostly is the dependent) receives a lump sum. On the other hand, general insurance covers the financial loss of certain events which are not directly related to the life of policyholders. Health insurance – a kind of general insurance – covers the fees of personal healthcare, and usually is written together with life insurance as a rider to enhance the benefit for both life and health of the policyholder.
Traditionally, these two kinds of insurances have already defined the set amount of premiums which policyholders are expected to pay for chosen benefits in their selected term. It is almost unchangeable during the contract period as an amendment in the premium without prior knowledge to Actuarial department might result in a company bankruptcy in a worse case scenario. These invariable factors express the goals of insurance: “to protect the beneficiary from infrequent, high-cost, catastrophic events” (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3411238/). However, with the arrival of Internet of Things, the new form of insurance has been founded, which is a dynamic pricing program. In this study, we will refer to dynamic pricing insurance as shared value insurance.
Behavioural Economics
Shared Value Insurance
Shared Value is a concept of making a company more competitive while also improves the community living standard and the economy through its policies and operating practices. To create shared value, both economic and societal progress must be addressed using value principles which taking relative costs into account not just profits or benefits alone. Rarely has businesses approached community issues from a value perspective. A lack of serious concern of these has deteriorated the links between economic and social concerns. If social sector were to measure their success by value terms not just monetary or beneficial terms, they would have been more eager to cooperate with business. (Porter & Kramer, 2011)
Shared value insurance is, therefore, a dynamic pricing program which encourages people to try to prevent the likeliness of damage or loss of products, property, health or life and to reduce the risk and the loss incurring from the events. For instance, if the owner of a car adds anti-lock brake system on his car, the safety of the car will be enhanced. Hence, there could be a reason to reduce the premium of the car insurance for that individual owner (Hersch, 2015).
Vitality program can be another good example to combine the health insurance and individualised wellness program. By using the activity trackers such as wearable devices, the insurance company can reward the insured with healthier lifestyles by giving the premium discounts, gift cards and other types of rewards. In other words, this programme has the adjusted premium and dynamic charge rates which depend on people’s health condition. The program is a win-win strategy that can be seen an innovation of insurance company (Hersch, 2015) meanwhile encouraging customers’ health conditions. Vitality program will be a main part of Shared Value Insurance study in this section.
Idea behind the Program
The main concept of Shared Value Insurance is to create shared value between the company and society. To incorporate this idea into a core strategy, the company – as an insurer – needs to understand the difference between shared value and social responsibility. Also, the company will need to move out of its comfort zone (paying too much attention on its insurance products and claim costs) and seek to approach the external factors by reducing the risk factors from the policyholders themselves. The key strategies have 3 steps: (1) prevent risk and dynamically reward risk reduction; (2) close the protection gap for the underserved; and, (3) invest assets in prevention and protection systems (Jias et al., 2017).
• How do they price health and Vitality points?
Vitality points and its rewards
The program firstly requires its members to take some health assessments (Vitality uses online health review initially) to find the age group you are belong to (so called Vitality Age) which may be the same or different from your actual age based on the program statistic model and assumptions ("How Vitality Rewards Work | Vitality Rewards And Partners", n.d.). Vitality members are entitled to Vitality partners’ discounts or cashback on partners’ products, including gym membership, sport equipment, bicycle, spa and plane tickets.
The Vitality program offers its own annual health checkup, Vitality Healthcheck, at affordable price, and the member can also get more insightful health checks at a discount rate from its partners. The policyholders then earn a reward point (Vitality points) which can be redeemed to convert it into actual discounts or rewards later. There are various ways to earn points by getting health check or check in at the gym. One simple way is to exercise as shown in Table 1 below. The top row represents the number of points you can earn from completing the listed activity. The idea of calculating maximum heartrate or calories burned per hour might firstly look complicate, but basically the idea is simply the more active you are, the more points you earn. This is where the activity trackers have played a vital role of fitness measuring and data transmitting to the company.
Table 1: Vitality points for activity tracking
8 Vitality activity points 5 Vitality activity points 3 Vitality activity points
12,500 steps tracked in a day 10,000 steps tracked in a day 7,000 steps tracked in a day
30 min at 70% max HR Partner gym visit
60 min at 60% max HR 30 – 59 min at 60% max HR
30+ min at 600 kcal/hour (300kcal) 30 – 59 min at 300 kcal/hour (150kcal)
60+ min at 300 kcal/hour (300kcal)
Parkrun*
Note: *Parkrun is one of the Vitality Partner which manages free, weekly, 5km timed run in park surroundings.
Reference: https://www.vitality.co.uk/rewards/partners/activity-tracking/
There are, however, some limitations for points earning. For example, the members daily rewarded points are capped; members can earn only a maximum of 8 and 40 points per member in single day and week, respectively. This is consistent with the workout plan which too much workout can lead to overtraining and might no longer positively contribute to policyholders’ health anymore. Still, we are not certain if this is just coincidental or deliberated. The company might just try to prevent user from exploiting loopholes in the rule and earning more points than they should resulting in a reduction in premium but same mortality rate.
• Dynamic Pricing
• Ref: http://sharedvalueinsurance.com
To make it easier for the company to track the members’ health and for the members to afford activity trackers, Vitality program offers a huge discount over a range of wearable brands: Fitbit, Garmin, Misfit, Apple, Polar and more. In Table 2, we extract special monthly finances for Apple Watch offered by Vitality which amount of monthly direct debit payment depends on the member activity points. The members will need to pay the upfront cost and 24 monthly payments.
Table 2: Monthly Apple Watch Direct Debit Payment by Series and Monthly Earned Activity Points
Monthly Earned Activity Points Apple Watch Series 4 Apple Watch Series 3
0 – 39 £12.50 £11.25
40 – 79 £10.00 £9.00
80 – 119 £7.50 £6.75
120 – 15 £5.00 £4.50
160+ £0 £0
Upfront Cost £99 £9
Reference: https://www.vitality.co.uk/rewards/partners/active-rewards/apple-watch/
• Vitality introduces trackers to members
• Ref: https://www.vitality.co.uk/rewards/partners/active-rewards/apple-watch/
• Similar programs – Wellness program + On Track.
• Selected lives mortality: Does it really work?
Impacts, Uses and Prospectives
• Assumptions
• more accurate health data
• discovering underlying factors
• (?) machine learning and AI for model improvement
Things to Concern
• Premium Discount vs Privacy trade-off
• Elderly more vulnerable?
• Ref: http://theconversation.com/why-life-insurance-companies-want-your-fitbit-data-103732
• Issue with the tracker itself: accuracy of the tracker -> higher pricing error?
• Ref: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4974868/
• malign encouragement
• external factor: disease from environment not behaviour-driven choices
Conclusion
References
IDC. (n.d.). Forecast wearables unit shipments worldwide from 2014 to 2022 (in millions). In Statista – The Statistics Portal. Retrieved December 5, 2018, from https://0-www-statista-com.wam.city.ac.uk/statistics/437871/wearables-worldwide-shipments/.
Jias, N., Lund, F., Pfitzer, M., & Rodriques, A. (2017). Insuring Shared Value: How insurers gain competitive advantage by better addressing society’s needs. Retrieved from http://www.fsg.org/publications/insuring-shared-value?utm_source=newsletter&utm_medium=email&utm_content=Learn more and download the report&utm_campaign=20170627insuringsharedvalue#download-area
Gore, A., Harmer, P., Pfitzer, M., & Jais, N. (2017). Can Insurance Companies Incentivize Their Customers to Be Healthier?. Retrieved from https://hbr.org/2017/06/can-insurance-companies-incentivize-their-customers-to-be-healthier?utm_campaign=hbr&utm_source=twitter&utm_medium=social
Hersch, W. S. (2015). Bringing innovation to premium pricing. National Underwriter / Life & Health Financial Services, 119(5), 26. Retrieved from http://0-search.ebscohost.com.wam.city.ac.uk/login.aspx?direct=true&db=bth&AN=102754224&site=ehost-live
How Vitality Rewards Work | Vitality Rewards And Partners. Retrieved December 5, 2018, from https://www.vitality.co.uk/rewards/
Khodadadi, F., Dastjerdi, A. V, & Buyya, R. (2016). Chapter 1 – Internet of Things: an overview. In R. Buyya & A. V. Dastjerdi (Eds.), Internet of Things (pp. 3–27). Morgan Kaufmann. http://doi.org/https://doi.org/10.1016/B978-0-12-805395-9.00001-0
Porter, M., & Kramer, M. (2011). Creating Shared Value. Retrieved from https://hbr.org/2011/01/the-big-idea-creating-shared-value.