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To Be or Not To Be – Is Behavior Monitoring A Win For Insurers?

Posted by Michelle Canaan, Insurance manager, Deloitte Services LP, on February 26, 2014

Just as telematics for usage-based pricing is poised to transform auto insurance, mobile technology is emerging that can monitor a variety of other personal behaviors. While this bodes well for the consumer looking for premium discounts, insurers will likely be the biggest winners, as real-time monitoring devices may provide the long elusive vehicle for establishing frequent connections with their customers.

Cultivating strong client relationships up until now has been largely problematic for most insurers, given the dearth of touch-points throughout the insurance lifecycle. Traditionally, the insurer's opportunity to connect with a client only appeared at the point of sale, renewals, or in the claims process.

Moreover, with the progression of insurance-aggregator and price-comparison sites, consumers have little hesitation in switching carriers — the process is now as effortless as turning on a computer or mobile device. Retention has therefore become inevitably linked to pricing, which alone is not a viable long-term strategy.

The insurers' paradox is how to craft a client-centric strategy to strengthen customer loyalty and retention despite the unremitting pursuit of lower pricing. Emerging technology that can measure consumer behavior across a gamut of activities may potentially be a means to this end, as it offers tangible benefits for value-conscious consumers, while making insurers relevant in the everyday lives of their policyholders. This behavioral data provides novel approaches for insurers to better understand, serve and retain consumers.

By harnessing the continuously streaming "quantified self" data, using devices such as smartphones or wearable or embedded body sensors, insurers could theoretically capture a huge array of personal data and use it to analyze a person's movement, environment, vital signs and psychological and physical behavior. For example, life insurers can potentially harness data from devices that monitor daily activity levels, heart rate, nutrient consumption and sleep patterns to more accurately underwrite their policies.

For insurers, this may not always lead to higher market share. Indeed it may even put a short-term squeeze on revenues given the need to compensate participating consumers with discounted pricing on top of investments to finance infrastructure supporting the new strategic initiative.

So, how then is this a 'win' for insurers? Personalized behavior monitoring is poised to elevate the frequency of the insurer-client touch-point, thereby strengthening relationships amid a clientele with diminishing brand loyalty. It is important to note here that consumers and likely regulators will expect an option to opt-in or out of monitoring features, based on privacy concerns and how the information will be used and shared.

Insurers can further incentivize consumers to opt-in to behavior monitoring by highlighting the benefits over and above the obvious premium savings. Insurer-client connections can be reinforced through real-time, behavior-related value added services, such as focused advertising and marketing, travel suggestions based on location, rewards for reaching fitness or healthy-consumption goals and even recommendations for more beneficial lifestyle choices.

Moreover, to illustrate how it works in the real world today, telematics users tend to improve their driving habits while reducing crash rates1. This "nudge effect" indicates that the motivation to change driving behavior is likely linked to surveillance. Imagine the benefits to society if health, fitness, consumption and other behavior monitoring were also measured by insurers? In addition, the technology used to measure behavior is becoming increasingly cost-effective, which could help boost adoption.

However, while the cards seem to be stacked in favor of behavior monitor adoption across the insurance universe, there may be a few hurdles that will need to be overcome.

First, the historically conservative approach to innovation in insurance may impede the speed and flexibility required to participate in these neoteric consumer strategies. Execution may require more nimble data management and data warehousing, security and privacy policies that will reassure both consumers and regulators and adjustments to corporate culture grounded in more centralized organization of data control.

But the bottom line is that insurers cannot afford to compete on price alone over the long term. Strengthening customer bonds must now be elevated to a more prominent position in an insurer's strategy — so will behavior monitoring become one means to this end?

What types of insurance coverage do you think might lend themselves to telematic monitoring? What might be the potential upsides and downsides? Have you engaged in any such discussions with your clients lately?

1Becky Yerak, "Devices Map Your Driving Habits, Can Help Save Money on Insurance Premiums," Chicago Tribune, September 23, 2012

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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