50 Asia Insurance Review November 2017
Going Digital Rainy days ahead for life and health insurers:
Is the industry in need of a new “protection umbrella”?
There is a need to reform the life and health insurance sectors. Mr Thomas Dijohn of dacadoo emphasises digitalisation and its use to engage policyholders and incentivise them to lead healthier lives.
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ife and Health insurance has fundamentally not changed since the German Emperor Otto von Bismarck invented the “Krankenkasse” (Sickness Box) in 1883. There, his soldiers would each place coins in the Box and when someone got sick they would claim from the Box. That simple model has served society well the last centuries but the industry is now facing rainy days ahead and it will only get worse very quickly unless several things are done differently. It is time to remodel the Emperor’s innovation for this century.
Another strategy could be to attract a lower risk population such as Gen YZ, which now accounts for 53% of the population, to rebalance the risk. But they require a totally different distribution, engagement and product than their parents – one which is still to be developed by the industry to its full potential. Unprecedented high household savings has created an abundance of cash so improved investment returns is unlikely to be the saving grace in the foreseeable future either. So indeed, rainy days ahead.
Rainy days ahead Poor lifestyle choices mean that chronic conditions now account for as much as 7080% of all healthcare cost leading to both increased medical claims and increased disability claims. Pressure from regulators to include mental health – the fastest growing condition – in policies will push this even higher. This means the pool of profitable people is quickly shrinking. The simple solution to this challenge would be to increase premiums, but that is becoming increasingly more difficult as product simplification and comparison sites are creating a more transparent market with pressure on premiums and the risk of greater churn. In the most mature markets such as Australia, the number of people having a health insurance is now decreasing due to the high premiums.
The Third Wave in insurance The digitisation of insurance is often referred to the Third Wave of insurance (Health Insurance and Life Insurance being the two first waves respectively). The reason why digitisation has earned its right to be called a wave is not only because the products are different (more about that later) but also because of the extensive use of digital technology. A true Third Wave insurer is fundamentally a technology company that is in insurance and not an insurer embracing technology. ZhongAn Insurance – the offspring of Tencent, Alibaba and PingAn Insurance, which had a highly successful IPO in September this year – is a good example of this. Seventy percent of employees are engineers, distribution is entirely digital, and 99% of all claims proceed without human intervention
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Going Digital at a speed of thousands per second. ZhongAn entered Health Insurance last year and has recently announced their entry into Life insurance. With a cost ratio up to 25% below a legacy insurer, the attraction to go full digital is enormous. Third Wave insurers are applying machine learning, IoT, health risk scoring (using third party data), chatbots, and predictive and prescriptive tools to be relevant to customers, to influence outcomes, and to better understand actual risk at any given point in time. The potential from genomic testing, which some insurers have embraced, but most are just circling for now, is huge both in terms of understanding risk and in offering bespoke health advice. Fundamentally, the Third Wave will see insurers shifting from a claims-based reactive business model to a predictive/prescriptive proactive business model, where products will be much more whole-of-life assurance rather than just insurance.
The ABC of Life and Health insurance While the attraction of going full digital is high, the reality is that most insurers will embark on a gradual transition. With lifestyle being the single largest contributor to health (40%) and hence in a direct relationship with claims, it is not surprising that many health initiatives are currently in development. The best ones are taking a holistic view and are built around the ABCs of Life and Health Insurance ie Algorithm of Life (health scoring), Be Engaged (gamification and rewards) and Coaching (lifestyle navigation). All clients of dacadoo are currently following this principle with promising results. The ABC of Life and Health Insurance is all about building willingness and self-belief in behaviour change – pre-conditions for any engagement and change. We are seeing health scoring, as a measure of a persons’ overall health to simplify and demystify health data, and hence lowering the barriers to embark on a health journey; AI-based coaching for personalised feedback and suggestions; and a wide range of gamification, tracking and social media features to cater for people’s different preferences – engagement on an individual’s terms.
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Rewards are quite common by now as an engagement feature mostly in the form of discounts on premiums. However, will people remember on a day-to-day basis that they are being rewarded and hence stay engaged? Will discounts be a death spiral for insurers? Are discounts personal enough? The jury is still out on whether this is a sustainable form of rewarding people. The more personal we make the engagement, the more relevant it is and the more likely people are to be engaged in their health and well-being.
Accelerated Underwriting and Dynamic Underwriting Underwriting, with its static life tables and limited data, is also undergoing the biggest transformation in decades in the form of Accelerated Underwriting and Dynamic Underwriting. The former, which is on-the-spot underwriting/quoting, is mainly driven by a desire by insurers to target Gen YZ or the “no-wait” generations who are used to getting a personal digital and instant experience and hence reject the traditional paper-based and timeconsuming quoting process. Other benefits sought are lower acquisition costs as Accelerated Underwriting does not require costly medical check-ups. Dynamic Underwriting takes advantage of the continuous streams of data flowing from the engagement and third parties – a lot of it is new lifestyle data which gives us a good understanding of REAL risk in real-time and hence, better understanding of whether a person’s health and thereby risk has improved or worsened since the policy was entered. This will ultimately lead to the development of dynamic lifetables at a cohort level or even at an individual level – subject to consent – also known as “Pay-As-You-Live” pricing so consumers will be able to buy bespoke products at bespoke pricing reflecting their actual circumstances. Consumers who were not insurable can be insured now One of the biggest winners of this is consumers with well-managed chronic conditions who now become a visible and a predictable risk for insurers and who now can be underwritten and offered products. The insights will also determine when a cohort is large enough to economically develop and
launch a new product. A win for the consumer and a win for the insurer and ultimately a win for society as a whole. T hese t y pes of en ha nced u nderwriting utilise the increasing understanding of related and correlated health and lifestyle data, which has led to the development of Imputation Models which with very few data points can create ROC AUC scores above 0.9. In dacadoo, we can predict All-Cause Mortality and a range of Morbidities with ROC AUC values above 0.8, based on just four data points out of 100+ required, and well above 0.9 with more data. These models can be calibrated to specific populations so it is possible to factor in differences in ethnicity to further improve the accuracy of the modelling. Regulators play an important role in making possible enhanced underwriting, and its benefits to consumers. Thankfully, we see open minds across Asia, as population health is deteriorating, though more work needs to be done in educating the industry.
Summa Summarum Life and Health insurers need to change from a reactive and passive business model to a proactive business, where there is equal focus on assurance of health and life as on protection. This means that products need to be different than they are today. The opportunities to connect with customers on a daily or weekly basis on positive health discussions and the benefit of a healthy and happy life, will create loyalty and retention, better health outcomes and lower claims, and insights will open up for better customer experiences, better products, better pricing, and better understanding of risk. The path to this is to make technology the central part of the business and not an add-on. The new digital-only insurers will have an increasing following as Gen YZ becomes the market force and legacy insurers will be marginalised if nothing significant is done. Insurance is truly one of the most exciting industries to be in at the moment… if one likes change. It is time to rework Bismarck’s “krankenkasse’”and move to a much more preventive, predictive and prescriptive insurance model. Everybody wins. Mr Thomas Dijohn is Vice-President, Asia-Pacific, at dacadoo.
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