Behaviour and Technology: The Challenge for Insurers

By Colin Bullen, head of Habits at Work

The world of insurance is changing.

Just 100 years ago, the Spanish flu infected around half a billion people, and killed between 20 and 50 million. Nowadays, if we hear about a new deadly contagious disease, like Ebola or H1N1, it makes the news for a few days before the controls imposed by WHO and others rapidly immunize us from a spread of the disease. As Yuval Noah Harari observes in the excellent Homo Deus, “in the arms race between doctors and germs, doctors run faster”.

Instead of contagious disease, insurers are faced with rapidly increasing claims driven by conditions of our own doing – behaviour-linked or non-communicable diseases (NCDs) like heart disease, cancer and type 2 diabetes.

In addition, the traditional framework of insurance is being undermined by the emergence of data aggregators better able to assess the behavioural risk that each individual presents. The traditional underwriting approach is to ask individuals to declare their health histories on an application. The mighty cloud of data, and the emergence of Artificial Intelligence (AI) capable of processing it, means that we can know more about who we are and who we will become than ever before.

Faced with this double onslaught, insurers are behaving like rabbits trapped in the headlights. When I presented to the representatives of the insurance profession at a recent conference, there was a squirm of discomfort as I explained the role that health habits have on their policyholders. Their discomfort comes from uncertainty about how to deal with this news.

In their defence, insurers have some legitimate concerns:

• They don’t understand behaviour change
• Even if they did, they are not comfortable that they could achieve it in their insured populations, from whom they are often two steps removed
• The cost of engaging in behaviour change or using the technology might be greater than the benefit, from a strictly insurance perspective
• They don’t have the data to calculate reliably the impact of behaviour change.

For the insurance community to survive, it will need to move quickly and embrace the change. Insurers will need to be open to making some difficult decisions and taking risks that will test not only the boundaries of tradition, but also of the limiting legislation and regulation.

In response, I believe that we can do more in three areas:

• Research: The academic community can help by providing more research that more robustly explains the link between behaviour and the outcomes that interest insurers (ill-health, disability and mortality)
• Measures: Device manufacturers can produce devices that reliably and accurately measure the behaviours and risks that matter to insurers, and they should be willing to share that data with insurance partners
• Protection: Insurers can design products with services that help people to adopt new healthy habits, like behaviour linked insurance. They will need to be able price competitively based on prospective rather than retrospective risk, and be able to adjust plans to reflect their insured population’s changing risk profile.

What do you think?

Do you think the insurance industry will survive? Might the emergence of a new breed of insurer backed by technology companies and data aggregators be a good thing?

How can the research community improve insurers’ understanding of the likely future for people who engage in new behaviours? How robust can research statements be to help the insurers looking to take bold moves in this space?

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Colin Bullen is an actuary by profession, and is the head of Habits at Work, the consulting division of the behavioural research company BRATLAB. He is the deputy chair of the Institute and Faculty of Actuaries Working Party on Wearables and the Internet of Things, and is passionate about making the world a healthier and happier place to be.