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Health Telematics: What it is and What is the catch?
Thanks a lot for the overwhelming response and the questions for the articles in the past especially the latest article on Self Insurance & Captive Insurance. This week I am here to simplify yet another topical insurance jargon – Health Telematics! I hope you would find this article informative and the article would help you in making a conscious decision before you join the bandwagon! Let’s start by understanding what exactly it is.
What exactly it is?
Health telematics refers to a technological discipline with a focus on health-related activities that involves transmitting information across significant physical distance. So this much wider than fitness bands and could include wider areas like telemetry, telemedicine, etc. However, for the purpose of this article, let’s pretend health telematics refers to fitness bands and involves tracking health through smart wireless devices like watches!
In the insurance world, health telematics is synonymous to sharing exercise-related data with insurance companies and expecting discounts on insurance premiums. But why does it make sense for insurance companies to offer discounts? Read on!
Why insurance companies offer discounts?
Life & Health insurance companies take a bet on when the policyholders would die or fall sick. They don’t want them to die or fall sick but they are interested in estimating when the insured event would happen.
In the context of life insurance, if the policyholder assumes the room temperature (a euphemism for death), the insurance companies would be required to pay the death benefit and would also have to forgo future premiums. Healthier lives are expected to live longer and hence insurance companies would be happy to part away with a proportion of future premiums that they now expect with more and more people exercising (and sharing data to prove it), becoming healthier and living longer.
To put things in context, research findings from the countries wherein wellness programmes were launched in late the 1990s suggest that the participants are expected to live 13 to 21 years longer than rest of the insured population. So, if a life insurance company offers you a discount which is of the order of 10% on insurance premiums, they are, in reality, sharing the profit that they would earn from you living longer. Sounds fair and logical?
The same line of argument applies to health insurance companies offering discounts. The only difference being they gain from the policyholders not falling sick or falling sick less frequently!
Well, the benefits (for insurance companies) don’t stop here. They also get an opportunity to interact with their customers more frequently, which is otherwise at the time of premium payment or claims settlement. And hence, they stand higher chances of upselling and/or cross-selling!
What’s the catch?
Giving your data which has financial implications is a potentially slippery slope. There are reasons to believe that the picture is not as rosy as it looks to be. I have identified some of them below
· Discounts higher than prevailing rate: If the discount offered by your insurance company is similar to that offered by other players in the market, things should be all right. A significantly higher discount though could mean there's something else they value in the data!
· Weeding out of bad-risks: The arrangement could be marginally better for good-risks i.e. the healthier lives but could mean that not-so-healthy lives bear the brunt of it by being charged significantly higher or worse by being denied of the insurance cover
· Costlier retirement products: The healthier lives are expected to live longer, which means that insurance companies would have to shell out benefits for a longer duration to those who buy retirement products like annuities. Chances are the benefit derived from discounts on life insurance products could possibly offset the loss from the retirement products!
And of course, there is always the risk of a data breach and it could fall in the hands of the unintended audience, who in turn might have malicious intent.
While sharing exercise-related information with insurance companies in exchange of discounts might look like a win-win arrangement, it does come with its own potential downsides. I am all for fitness bands and tracking footsteps. Sharing it with others for discounts is something I am a bit skeptical about.
I hope that you found this article helpful and now have a fair idea of what health telematics is. Should you have any questions on these or insurance, in general, please do reach out to us at firstname.lastname@example.org. And of course, I go live on 20th May at 8 PM SGT on Twitter for the #AskTheActuary session. But don’t wait to tweet your questions, you can tweet them anytime including now!
Disclaimer: The article has been written with an aim to broadly explain an otherwise complicated and technical topic for readers with little or no insurance background. Hence, it doesn’t have finer details but is still broadly correct. The readers are recommended to take advise from their respective financial advisers before taking any financial decision.