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Wearable technology and insurance pricing

Mark Farrell, Queen’s University Belfast 2019 Geoffrey Heywood Prize winner and Senior Lecturer at Queen’s University Belfast, Mark Farrell, blogs on how his research worked to fill a gap in industry understanding of the opportunities presented by health and lifestyle data from wearable technology.

Like most people these days, I receive many emails and messages every day. Out of the hundreds or perhaps even thousands of messages and emails I received in 2019, the one that really stands out was one from the IFoA telling me I had been awarded the Institute and Faculty of Actuaries Geoffrey Heywood Prize for 2019 for my published paper ‘A Conceptual Model for Pricing Health and Life Insurance Using Wearable Technology’ (co-authored with Michael McCrea).

This prize was established in 2015 using a bequest left in Geoffrey Heywood’s will. He was President of the Institute from 1972 to 1974 and was the first consulting actuary to hold this post. I never met Mr Heywood (he sadly passed away in 2014), but I think I would have liked him.

Reading about his contribution and thoughts on the actuarial profession, I read how Mr Heywood believed "each man is a servant to his profession."

Given the very uncertain future we now inhabit, this advice seems extremely relevant and all actuaries have a duty to play some part in helping to prepare for how the actuarial profession might evolve in the future.

I view technology as being one of the main driving forces of change and I have been reading and writing about this on my ProActuary blog and LinkedIn for a few years now.

Online event: emerging technologies

I feel strongly about this and I am using the £500 prize money to help produce a virtual online event for actuaries to learn about new emerging technologies affecting the profession as we continue to move into the digital, technology and data focused future.

I will present on wearables and bring together many actuarial thought leaders to distil their thoughts on the future of the actuarial profession. You can register your interest for this free online event. [Note: this is not an IFoA event – please direct enquiries via the Proactuary.com website]

If you are interested in being a speaker, please email me.

Questions

As a fitness and technology enthusiast, I had become interested in wearable devices and the immense health data these devices were capable of recording. It intrigued me to think about how the insurance world, especially actuaries, would embrace the use of these devices and their data within insurance.

Would life and health insurance companies be able to gain behavioural insights from the data in a similar fashion to telematics devices in the general insurance world?

How can the insurance industry use more timely and rich biometric data to refine their underwriting and pricing practices and provide a more personalised product?

Can wearable and health data be used to predict the risk of adverse health outcomes for insurance pricing and incentivisation of healthy behaviour?

Does more accurate pricing of health insurance open the possibility of extending coverage to those who were previously deemed uninsurable?

What are the socio-economic implications from potentially reducing adverse-selection in insurance markets, via pricing using wearable technology data?

How will customers react to the introduction of new technology?

So many interesting questions without answers! I was awarded a Lloyd's of London sponsored Fulbright scholarship to the US in 2017, to spend six months researching this area and to examine some of these questions. I was also a member of the IFoA Wearables and IoT (Internet of Things) working party.

A conceptual pricing model

During this time I began working on a conceptual pricing model paper, alongside my MSc dissertation student, Michael McCrea.

We recognised that many insurance companies were starting to use wearables, yet there was no literature examining the actuarial pricing implications of the resulting data. We felt there was scope for insurance companies to go beyond using wearables for customer engagement and to begin incorporating the data into actual pricing models.

Our main aim was, therefore, to come up with a health risk score to investigate the possibility of using data provided by wearable technology to help predict overall health and mortality, with the ultimate goal of using this score to enhance the pricing of health or life insurance.

Our findings help to demonstrate the predictive capabilities of potential new rating factors, measured via wearables, which could feasibly be incorporated into actuarial insurance pricing models. Our model also provides an initial step for insurers to consider the incorporation of continuous wearable data into current risk models and I’m delighted that this prize provides recognition that this is an important contribution in this area.

This award is for a journal article demonstrating excellent levels of communication for an actuarial audience. This seems quite ironic when I think back to my earlier school years, when I never considered written communication to be a strong part of my skill set.

Thankfully, I've learnt a few things since then. One of the most important lessons I've since learnt is the belief that you can always keep learning, improving, and mastering new skills.

Thank you, Geoffrey Heywood for reminding me of this.

 


Have you come across any research that may merit consideration for a prize?

Nominate stand-out papers for the Peter Clark and Geoffrey Heywood prizes.

  • The Peter Clark Prize is awarded to the best paper written by members of the profession and presented or published for an actuarial audience.
  • The Geoffrey Heywood Prize considers material which demonstrates excellent levels of communication and engagement with a general actuarial audience.