Real-time tech to revolutionise insurance industry
Rethink posting those takeaways on Instagram: it could put your insurance premiums up.
In as little as five years technological advancements will allow insurance companies to monitor their clients health and habits in real-time and adjust premiums almost instantaneously.
That's according to a new book by insurance commentator and Massey University senior lecturer in finance Michael Naylor.
Wearable smart devices will provide feedback to insurers on everything from diet, blood pressure, and exercise, which will then be data-mined alongside social media accounts to create detailed customer profiles, he warns.
* Insurance industry ponders how to tackle autonomous vehicles
* Who should a driverless car try to protect if a crash is unavoidable?
* NZ businesses slow to embrace cyber attack insurance
According to Naylor this in turn will be utilised by insurers to continually update an individual's risk profile, create customised policies, and ultimately dictate premiums.
This unprecedented and invasive view into clients lives will have many concerned about privacy, but Naylor believed people shouldn't worry, as almost every step of the process would be handled by a computer.
American studies already showed people were willing to share data for lower premiums, he said.
"People are prepared to give an insurance company all their data if they can trust it, and they do. You give Facebook a fantastic amount of data."
He predicted the only group that would object would be those who thought sharing would lead to higher premiums, but they are in turn would be classed as high-risk for not partaking.
"ICompanies won't force you but it becomes quite an implicit bargain," he said.
"Unless you've put all the privacy safe guards on, [you're social media] is already being mined by everyone."
Clients could also expect increased contact with their insurer as they receive regular updates on how their lifestyle was predicted to affect their premiums.
This could be positive, because it would incentivise and advise clients on how to live better with anything from weekly to six-monthly updates.
It wouldn't stop at health either, Naylor said. Car and home insurance were also facing a shake-up.
"The example I use which seems to make sense to people is driving. Currently how do they assess you for riskiness? It's have you had crashes, what's your age, are you urban or provincial, etc."
In the future such questionnaires would be replaced by data from black boxes installed in a person's car, and eventually inbuilt computers.
"All the insurance companies have to do is link into that and they have the speed you drive, the way you go around corners, when you drive - so they have a complete profile of you, complete individual underwriting."
"If you crash they immediately know and if two networked cars crash the two cars will know who caused it. They will call an ambulance, they will tell the police, they will tell the insurance company. By the time the ambulance arrives the claim's been paid."
There are cost benefits as well. As more of the insurance chain is handled by computers Naylor said it would likely bring the costs of transactions down from dollars to cents.
"Once the underwriting is done by an algorithm there's no people involved apart from people overseeing," Naylor said.
"Applying and claiming on insurance will also be mainly automatic."
Naylor said insurers that did not make the transition from human-based to software-based services fast enough, or failed to utilise new technology to their advantage, would quickly go out of business.
"Each of these technologies has individually, as yet, not had much impact on insurance, and this has lulled the insurance industry into complacency. This complacency is starting to crack," he said.
"It's going to happen a lot faster than anyone in the industry thinks."
But Tim Grafton, chief executive of the Insurance Council of New Zealand, which represents insurers, said the claim insurers would be forced out of business by technological change was "nonsense".
He said insurers were in the business of protecting against risk and uncertainty. "If anything, that is growing in the world. Where that grows, that's the foundation of the growth of insurance."
Grafton said insurers were aware there were challenges to be addressed, but that was already happening. Some firms had set up laboratories specifically to consider how new technology could be used more effectively and what changes would need to be made, he said.
"It depends on how adept they are at changing to meet the demands that new technology brings. But this is not an industry that is a dinosaur asleep at the wheel."