Insurance companies have a new proposition: You let them follow you around in the car or monitor your physical activity, and if you’re a good driver or healthy individual, they’ll give you low premiums.
Welcome to what might very well be the future of insurance.
The industry has been experimenting with this for a few years, and the concept seems to be gaining traction. In Canada, TD Insurance, Intact Insurance and others promise potential discounts for drivers who let apps or telematic devices (or both) follow their every move behind the wheel. The same technology is behind a new Canadian Automobile Association (CAA) program that lets people who rarely use their car switch their insurance coverage on and off. And Manulife’s Vitality term life insurance offers low premiums to policyholders who can show healthy habits, by among other things, wearing a smartwatch or sharing their gym log.
The aim is to “reward and incentivize healthier lifestyles,” said Blake Hill, head of the Canadian division at Manulife Vitality. Make that encouraging better driving when it comes to auto insurance.
But not everyone sees the appeal of letting insurers monitor their lives. One obvious worry is data security and privacy. But the concerns go beyond that.
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Especially when it comes to life insurance, is today’s technology really good enough to accurately assess your risk of dying early? After all, even the science behind what’s healthy and what isn’t keeps changing.
And, finally, “individuals with mental health problems, poor mobility or chronic illnesses, such as diabetes, may not care to link their coverage with physical activity,” as one insurance underwriter put it.
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How it works
Global News reviewed three Canadian insurance programs that rely on tracking: TD My Advantage and CAA MyPace for auto insurance, and Manulife Vitality for term life. (A note to readers: The author of the article is a policyholder with Manulife Vitality.)
TD MyAdvantage offers a discount for safe driving to existing policyholders. Users download a phone app that will collect and analyze their driving: How they accelerate, brake and handle corners. They receive a driving score for every trip. If their average score is high enough, they can get a discount on their premium of up to 25 per cent when they renew their policy. The program is available in Ontario and Quebec.
CAA MyPace, which debuted in Ontario in May, offers a discount to those who drive less than 9,000 kilometres per year. The average Canadian motorist, by CAA’s own estimates, drives over double that much, logging in 20,000 km annually. But the number of low-mileage motorists is on the rise, with millennials being a notoriously car-shy generation and aging boomers starting to reduce the time they spend behind the wheel, CAA president Matthew Turack told Global News.
With MyPace, drivers must download an app, install a telematics device in their car and are charged based on how much they actually drive. There’s a basic rate for coverage even when the vehicle isn’t in use and another charge that applies for every 1,000 km of driving. Kilometres are reloaded automatically in 1,000-kilometre increments in a pay-as-you-go model.
With Manulife Vitality, policyholders get low premiums from the get-go. Members must accumulate a certain number of points every year by doing things like answering online questionnaires about their diet and lifestyle, reporting their physical activity, and going to the doctor for regular check-ups. If they accumulate enough points in a year to achieve Gold Status, they get to keep their low premium. Silver Status means a small premium increase. Doing nothing results in a Bronze Status that comes with a slightly larger premium increase. But there’s also a Platinum Status that gets you an even lower premium.
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Privacy
All three insurance programs pledge to use the data collected exclusively for scoring purposes within the program. While TD and CAA collect and analyze the information themselves, Manulife relies on Vitality Group to do that.
What happens if you speed, drive too much or ditch the gym?
All three companies responded by saying that users who allow tracking are never penalized. But what that means in practice is slightly different.
TD says drivers’ premiums never go up because of activity recorded by the app. In fact, you’re guaranteed a 5 per cent discount just for signing up.
CAA also says it doesn’t apply a surcharge if things don’t go as planned.
For example, let’s say you’re a Monday-to-Friday public transit commuter and usually only use the car on weekends. But one year you break your leg and end up having to drive to work for six months, which brings your yearly mileage above 9,000 km. You won’t save any money that year, but you’ll spend no more than you would have with regular CAA coverage based on your risk profile, Turack said.
With Manulife, premiums do go up unless policyholders make it to Gold or Platinum every year. But the way the company sees it, that’s not a surcharge either. The idea is that you’re starting off with a discount, said Hill. Even if you never go beyond Bronze Status, your premium won’t rise past what you would have paid over the term of your policy with traditional coverage.
And your ability to reach a higher status has more to with how much you engage with Vitality’s wellness program than how frequent or intense your workouts are. The aim seems to be to get you to be the healthiest you can be, within your individual limitations and circumstances.
“Regardless of a member’s health status or starting point, anyone can reach Platinum Status,” reads a 2017 Vitality study that Manulife shared with Global News.
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Will there be losers?
More data, better monitoring and more sophisticated algorithms are allowing insurance companies to fine-tune and personalize their risk assessments a great deal. This is great news for the teenager in a muscle car who actually always drives the speed limit.
But what does it mean for bad drivers, couch potatoes, people with health issues and those who simply don’t want to be tracked?
“Big data sharpens the divergence between risk precision and risk spreading,” Peter Kochenburger, professor of law at the University of Connecticut and specialist in insurance and consumer law, wrote in Insurance Business Magazine.
“However, there are instances where we as a society want to subsidize policyholder risk; the best example may be forbidding health insurers from using an insured’s health status or pre-existing condition in setting rates,” continued Kochenburger. “There are also good reasons why individuals who can legally drive (despite a series of accidents) should be able to obtain affordable auto insurance, and assigned risk plans are often subsidized in part by the voluntary market.”
Canada, unlike the U.S., doesn’t have to worry about private health coverage for basic services, but the general idea stands.
Of course, it’s possible in theory that technology will enable insurance companies to lower their premiums for most people while simply keeping rates as they currently are for a minority of higher risk individuals. In other words, a lot of winners and no losers.
After all, tracking apps aren’t just better at estimating risk. They also seem to encourage less risky behaviour, according to the industry.
“Telematics programs that are more mature in other markets, like Europe or the U.S., show significant reduction of claims and claims costs,” TD told Global News.
But better monitoring could also help prevent events that would lead to insurance claims.
Some are eyeing the era when actual medical devices will become as easy to wear as a Fitbit. Instead of measuring physical activity as a proxy for health risks, insurance companies could track actual vital signs.
“One example of this is a pilot being done on cardiovascular patients who have been given the medical grade device, following their medical procedure. The patients return home and the device measures their vital signs and feeds it back to the doctor. If the vital signs show any abnormalities, it enables instant intervention and treatment,” writes Kelvyn Young at reinsurer Swiss Re Institute.
The technology could make it cheaper, rather than more expensive, to cover individuals with certain health conditions.
“There’s a potential for costs savings,” Kochenburger said. “These companies are going to be more nimble, able to live with smaller premium rates.”
But he is skeptical of insurers’ actual willingness to live with smaller premiums across the board.
To make his case, Kochenburger uses the example of credit scores, which he calls “old big data.”
It’s common for insurers in the U.S. to use credit scores as part of their underwriting because credit scores have turned out to be uncanny predictors of risk for a variety of behaviours, Kochenburger said. (The practice is highly restricted in Canada.)
Credit-scoring resulted in lower premiums for a majority of policyholders, but the overall dollar amount of premiums collected did not go down. A minority ended up paying much more, Kochenburger told Global News.
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“Personalized insurance must be heavily regulated,” he said, to ensure that prices aren’t “excessive, inadequate or unfairly discriminatory.”
But with insurance relying on ever more complicated models, often developed by third-party vendors, doing so is becoming increasingly challenging, he added.
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