Insurance rates have always been defined by statistical averages. It's not sexy, but it works – actuaries use massive amounts of data to predict who will cost more, and thus pay more. But what happens when we have the ability to customize those predictions on an individual level?
What happens when we not only identify a risk, but remove it? The combination of big data, wearable tech, and nanotechnology are going to revolutionize our industry because they're already revolutionizing health care. If this sounds like something out of a science fiction movie, think again — it's actually already happening.
Wearable tech: The future is now
It sounds simple: Slip a device on your wrist and it'll tell you how many steps you've taken, how many calories you've burned, or who posted to your Facebook wall. But we've only begun to tap the potential of wearable tech. In March of 2014, Google unveiled Android Wear, an operating system built specifically for wearable tech.
More than 90 million wearable-tech devices (including Google Glass, Samsung's Gear S smartwatch, the Nike FuelBand and Fitbit Flex) shipped in 2014, according to ABI Research. By 2017, they predict the sports and health industries will use nearly 170 million of these devices. By 2018, they predict the "smart glass" industry will be worth $6 billion.
In the near future, however, these devices will do more than calculate steps taken and calories burned. Once algorithms improve, they'll not only collect but analyze patterns in our activities, giving them the ability to tell us, "Hey, get some exercise — your endorphin level could use a boost," or "You haven't had REM sleep in 18 hours. Turn off Netflix now."
Because wearable tech can have an immediate effect on our behavior, it can also directly impact the risk we represent to an insurer. If you've saved on your car insurance with programs like Progressive's Snapshot or Allstate's DriveWise, your insurer used the same technology to monitor your driving that your Fitbit uses to monitor you. And it's only the beginning of what's on the horizon.
A new underwriting model
It used to be impossible to price insurance based on your particular lifestyle, health or habits — but technology has given us the solution, at least for car insurance. How long before health and life insurance follow? The day is coming when the guesswork involved in evaluating factors regarding a consumer's specific health risk is virtually eliminated.
There are currently a small handful of DNA profiling companies. The most well-known is a Silicon Valley startup called 23andMe, which provides raw genetic data based on a simple saliva swab. Although FDA regulations have stopped them from providing a detailed report of your risk factors for 240 health conditions (including the BRCA gene mutation linked to breast cancer), the technology clearly exists — and was provided to the company's early subscribers.
Co-founded by Anne Wojcicki, wife of Google co-founder Sergey Brin, the goal of 23andMe is to give people more control over their health. It's impossible to separate insurance from that goal. Consider the fact that when Sergey Brin took the test, they discovered he had the LRRK2 gene associated with Parkinson's disease. How would a discovery like that change your client's mind about the need for life insurance? How would it change an underwriter's view of that client?
Another big change is on the underwriting horizon. America's youngest female billionaire, Elizabeth Holmes, is the founder and CEO of a company called Theranos. She created a way to run hundreds of medical tests using a single drop of blood, from cholesterol checks to complex genetic analyses. The tests are available at select Walgreens in California and Arizona and will soon be rolled out nationwide. The cost? At least 50 percent less than the standard Medicare and Medicaid reimbursement rates.
A cholesterol test costs $2.99. A basic metabolic panel costs $5.82. Want to test for a particular cancer antigen? It'll only cost $14.31. Imagine a "snapshot"-style discount being available to life insurance shoppers for submitting periodic test results that prove their blood pressure, diabetes or cholesterol is under control.
These tests serve multiple purposes. In addition to giving the average consumer more information than they've ever had about their own health, the medical and scientific communities are about to be flooded with more data than they've ever had about the health of the nation as a whole. That data is going to reshape the field of actuarial science and underwriting as we know it.
Could the day come when underwriting involves scrutiny of a proposed insured's genome? Could a genome test become standard operating procedure instead of the life insurance medical exam?
Right now, a healthy 30-year-old will pay a lower rate than a healthy 50-year-old, based on age alone. What if, after genetic profiling, the 50-year-old looks like the better bet to an underwriter because of a cancer gene in the 30-year-old's genome?
Risk management vs. risk elimination
Of course, not all risk factors underwriters assess are mapped out in our genomes — we still have to contend with environmentally-based risk factors. But what if technology could identify and fix these, too?
