InsurTech: Oxymoron or Match Made in Heaven?

Several years ago, I interviewed for an entry level position at a large insurance company in Boston.  I hadn’t ever thought about working in insurance, but it was my first interview in Boston and I was excited about the prospect of landing my first professional job out of college.  After a couple of rounds of behavioral and case interviews and a job shadowing segment, I made it to my final interview of the day. At some point during our conversation, the person interviewing me made a case for why he thought insurance was “sexy.”  In that moment, I cringed in my head and told myself I would never work in the insurance industry. I thought to myself, “Is this person serious?? How could anyone think insurance is anything but plain?” Well, even though I did not get that job, I guess the joke is on me because I have spent the last 5 ½ years of my career working in – you guessed it – insurance.

The firm I work for now specializes in implementing large life insurance portfolios for ultra-high net worth clients who use life insurance as a tool for estate planning and wealth transfer strategies.  I never imagined coming to the conclusion that insurance is anything other than boring (my 23-year old self would be shocked), but because of the unique niche market we serve I have come to appreciate the value that insurance brings to a family on this scale.  And in order to remain a leader in our market, it is critical to keep tabs on changing trends. For the most part, these trends have been focused on the client side (such as how changes in the financial markets or tax laws would impact people’s planning strategies and needs).  However, in recent years there has been something looming on the insurance carrier side and over the last several months I have gotten used to hearing one buzzword: InsurTech.

“InsurTech” is inspired by the term FinTech and and refers to the use of technology innovations designed to squeeze out savings and enhance efficiency from the current insurance industry model.  As illustrated in the graph below, investment in global insurtech has grown significantly since 2014. As of November 2018, global insurtech deals had raised $2.5 billion across 100+ deals, with the market expected to grow at an annualized growth rate of 41% over the next five years.  Additionally, companies based in the United States have completed significantly more insurtech deals than the next leading country, making up 51% of total deal activity since 2014.  The belief driving insurtech companies and investments by venture capitalists is that the industry is ready for innovation and disruption, and innovation has already started to manifest itself in smartphone apps, consumer activity wearables, online policy handling, claim acceleration tools, and more.

As you know, the insurance industry is composed of many different segments – each of which could take up their own blog post discussing the impact of insurtech – but since I have experience in one of those segments (life insurance) I thought I would spend the rest of this post highlighting one example of how insurtech has impacted the life insurance market.

One of the most promising technology trends that is becoming popular in the insurance industry is wearable tech.  From smart watches to activity trackers, it is hard to look around and not see someone wearing some type of wearable tech, and John Hancock has been an early mover to capitalize on this trend.  The company launched their Vitality program back in 2015, which rewards customers for taking everyday steps to live longer, healthier lives.  In a nutshell, participants in the program use some type of activity tracker (the current program offers an Apple Watch) to monitor daily activity, and John Hancock is able to use the data gathered from all policyholders to reset life insurance premiums each year.  The program therefore incentivizes customers to make healthy choices – log plenty of activity, get regular physicals, avoid smoking, and you’ll be rewarded with a lower annual premium (in addition to some other rewards, such as discounts for travel and entertainment).  

In its early days, only customers with certain products were eligible to participate.  However, at the end of last year, the company doubled down on this unconventional life insurance model by announcing that all of its products will be eligible for Vitality participation.  The results of this program have proven to be positive so far, for both the customers and John Hancock.  Policyholders have shown to take nearly twice as many steps as the average American, have logged more than three million healthy activities, and engage with the program approximately 576 times per year.  The last piece is particularly advantageous for John Hancock, since typical life insurance policy holders traditionally only engage with their life insurance company once or twice per year (or in some cases, never).

So, is this the beginning of a life insurance revolution?  I think time will tell, but the whole InsurTech wave is about bringing more transparency and convenience to the customer.  Ultimately, I think insurance x technology will prove to be a match made in heaven.



10 comments

  1. Great and thought provoking blog! As we have talked about a lot in this class, this seems to toeing the cool / creepy line. As someone who wears an Apple Watch to track their activity, I would be open to this idea. Yet, with this data then going back to my insurance maker I’m not sure I would be comfortable with this. It just seems too much of an invasion of my privacy. I appreciate the incorporation of tech into any business, yet I think this is more in the “creepy” then “cool” realm.

  2. Do you think there’s any risk of insurance companies losing their competitive advantage here? If they all resort to using the same pools of data (Apple watches, Fitbits, etc) and are able to offer the most accurate premiums based on a full quantitative picture of the individual, then what else is left? Will we be left with insurance companies that cater to those that can afford an Apple watch – who undoubtedly lead healthier lives resulting in lower premiums – and companies that cater to those that cannot afford tech? (cough single payer cough)

  3. I am on the receiving side of this benefit and I love it…I actually wrote a blog about the technology earlier this semester. For someone who is regularly active, it is so easy to hit the required amount of exercise to receive the full incentive on a quarterly basis. It’s basically free money. I would not have a problem with my insurance provider having access to this information; my phone and fitbit already have access…so what’s the difference? Who knows if other apps/companies have access to this data. Curious to see how the Vitality program caters to those customers who are unable to exercise regularly due to certain conditions they may have. Overall this will be a huge benefit to the customer, those who remain active anyways.

  4. Great post! I myself first heard the words “insurance is sexy” during my first interview and I never thought that would turn out to be true. I like yourself am sitting here 3 years later working for a large insurance company. In the past 3 years I have seen the vast change in the way insurance companies are leveraging technology, and wearable tech is a great one. At the end of the day policyholders want a lower premium and the right coverage when they need it, and some of these innovations have help pave that path. I agree that this could be a match made in heaven as the world changes there may even be more insurance products that need to be sold to protect new technologies and way people are using them. The shared economy has been a huge one I have been hearing that, but for every risk that has arisen new technology is an enabler for beginning to solve the problem.

  5. Actually, the lead story for our 2019 MIT research on digital business is Met Life partnering with Techstars to jumpstart digital innovation in the industry. I think insurance can be very “sexy” once it’s infused with the data digital platforms can now generate.

  6. The concern I have about wearable tech and insurance is that it will have the potential to further the divide between those who can and cannot afford insurance. Like insurance, wearable tech is expensive. Additionally, the health habits being monitored behind wearable tech (healthy eating, exercising) can also be pricey. I wonder how the insurance companies will be able to employ this potential industry shift while still focusing on making insurance accessible and affordable.

  7. Like Jim, I’m a bit skeptical of the effects of a widespread infusion of “insurtech.” I think the incentive-driven way in which these platforms mitigate cumulative risk pools is very innovative, but I also wonder if such programs (or at least a blanket application of them) might trigger some arbitrary assignments of risk or risk reduction that will ultimately make risk pricing more inefficient. For example, if an activity tracker reports that a customer is engaging full-throttle in highly/abnormally strenuous physical activity, could this be classified as risk-taking behavior that’s more likely to cause breathing difficulties, heart issues, injury, etc? If a person bikes at excessively high speeds or regularly goes for runs in high-crime locations (if the data includes GPS location), could there actually be a data-driven justification for increasing the customer’s cost? The application of “insurtech” seems to have the potential to do a lot of good for both insurers and their policy-holders, but it could be a double-edged sword if implemented without proper nuance.

  8. It’s great to hear about the different, traditionally less sexy, industries that tech is disrupting (thinking back to the presentation about tech advancements in construction as well). It seems there is an application in almost every industry that allows tech to positively impact it. I would not be opposed to this application personally, because I believe I lead an active, healthy lifestyle and would be excited to get any benefit this would give me. However, I see the concerns others have raised about it only being accessible to those who can afford wearable tech, and gathering excessive amounts of data on us…

  9. WOW, I had no idea this type of approach was being used in life insurance! Must be nice to get an Apple Watch, where do I sign up? All jokes aside, I think this is a great idea to get people to be more active and change their lifestyles. If the end result is a reduction in insurance premiums, I would absolutely do it. I know that car insurance agencies have implemented something similar with trackers, but that would definitely not decrease my premiums. This on the other hand may entice me to exercise more between work and school. I think while insurtech sounds great and is probably doing well, there is still the issue of adoption and people really catching on to this type of technology. To play devil’s advocate, I wonder what other capabilities insurance agencies can leverage the data collected aside from premium reductions.

  10. To address some of the issues that people are having with the affordability of wearable tech, I wonder if insurance companies will begin providing wearable tech to its customers. Car companies handed out devices for free to be able to track driving behaviour, so why would an insurance company not hand out a cheap wearable device to incentivize its customers? I can see this being a benefit both for the insurance companies and for people who can’t or don’t want to afford a wearable health tracker. This can be a great way for companies to encourage healthy behaviour at no additional cost to customers. However, I can also see a situation where this data may work against someone – Broke your leg and didn’t work out for 3 months? Your insurance premiums are going up!

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