The Insurance Regulatory and Development Authority of India (Irdai) recently formed a working group to examine innovations in insurance involving wearable or portable devices. “In the context of both health insurance and life insurance, wearable devices could be used to measure personal fitness, (and) incorporate a healthy lifestyle…,” the regulator stated in an order earlier this month.
It has already recognised the role of wellness aspects in risk assessment and product design in its health insurance regulations issued in July 2016. According to these, general and health insurers are allowed to devise mechanisms or incentives to reward policyholders for preventive and wellness habits. While insurers cannot offer discounts on any third-party products, they can offer discounts in premium or benefits on diagnostics, pharmaceutical or consultation services from their network providers.
Such discounts in premiums or allied services are not currently allowed in life insurance. But Irdai’s recent working group, which includes life insurance representatives, is expected to examine the impact of new technologies like wearables on pricing of insurance. Use of telematics in motor insurance is already recognised.
Telematics is a way of collecting information from devices connected to the internet. Some insurers and vehicle manufacturers use devices that are fit in vehicles and are connected via internet. These devices allow insurers or car makers to monitor driving behaviour.
At present, car insurance premiums are priced based on parameters such as the vehicle’s engine capacity, purpose of use, and its age. A discussion paper by Irdai highlighted how several other aspects can be made a part of this decision: “For instance, customers who use their vehicles for lesser duration, or lesser distances, are prone to fewer risks and those who use their vehicles for longer durations and longer distances are prone to more risks; but both sets of customers today pay the same premium for a particular vehicle.” Insurers using telematics in India have found device cost to be a barrier. “The response from consumers to telematics related products is a bit slow. The cost of technology has not decreased the way it did in other areas like mobiles. Once the price comes down, it could catch on,” said Sanjay Datta, chief-underwriting and claims, ICICI Lombard General Insurance Co. Ltd.
Current regulations do not allow insurers to offer full-fledged telematics-based insurance products, and there isn’t any provision to factor in driving behaviour in premium pricing. In fact, pricing of the mandatory third-party insurance is decided by Irdai.
The regulator has allowed health insurers to offer discounts and rewards to consumers for healthy living. The simplest form of these is where an individual’s fitness and activity is monitored using a wearable device.
Mayank Bathwal, chief executive officer, Aditya Birla Health Insurance Co. Ltd, said that incentivising healthy behaviour helps customers as well as insurers. “In the medium- to long-term, it will help bring down the potential claims cost,” he said. The company gives rewards of up to 2.5% per month or 30% per year based on the number of ‘active days’ that a user clocks (10,000 steps a day or 300 calories burnt in a single workout session).
Similarly, CignaTTK Health Insurance Co. Ltd is offering reward points equivalent to 10% of annual premium of a policyholder. Sandeep Patel, managing director and chief executive officer of the insurance company, said about 15-20% of their total policyholders are opting for some form of reward programme. But people using their wearable devices to connect with the insurer’s app is lower, he said. “Often, by the time the person remembers to do this (sync the wearable with the insurance app), a lot of data is lost. The syncing levels are an issue,” Patel said.
According to Bathwal, in the past 1 year, younger consumers have shown more interest in such products as they like the idea of engaging through smartphones or wearable devices.
So, unlike telematics in motor insurance, the cost of wearables may not be a hindrance in health insurance. “The cost of device is there, but… people are willing to invest for health. A lot of people already have wearables,” said Datta, but added that premiums and claims cannot be the reason for a person to use a wearable device. “It has to be related to improvement in health. That could lead to some outcome in the form of reduction of premium or ease in claims. Ultimately, wearables are a means to an end and not the end in themselves,” he said.
Even with the benefits, it will take time for wearables to become entrenched. Patel added that the segment is growing fast, but on a small base. “On the wearable side, if we can get up to 20-25% of policyholders as part of these policies, that will be a great number,” he said.
A wearable device combined with health insurance can reduce the feeling that you do not stand to gain from the policy if you are fit, or that the only way to get value from a policy is by getting hospitalised. But it needs to be seen if the regulator will find wearables useful to determine benefits for life insurance policyholders as well.