Idea Insurance: Connected Health Insurance

Andrea Silvello

The integration of technology in insurance companies’ value proposition is turning out to be one of the main evolutionary trends of the sector.

As synthesized by Meg Whitman (CEO at Hewlett-Packard), ‘we’re now living in an Idea Economy, where the ability to turn an idea into a new product or service has never been easier’. This impact is pervasive on all industries, and a company has to achieve enough agility to respond to market opportunities and threats, and quickly turn ideas into reality.

For some years now, ‘digital’-driven projects have become a priority for all insurance groups. Here, the term ‘digital’ refers to several important aspects, starting with a digitalized customer experience, which is completed by digital/technological processes aimed at improving relationships with the clients, and with the mid-term objective of maximizing the single client’s profitability.

Insurers are beginning – and those who are not doing so should start – to give serious thought to how they can build their strategy to incorporate the IoT into the insurance value chain.

The Internet of Things (IoT) is ‘the interconnection via the Internet of computing devices embedded in everyday objects, enabling them to send and receive data’. The most important factor in the IoT ‘equation’ is data – which is the main element providing value to the insurance company if harvested and analyzed in an adequate manner. In product development, there should be a data collection and analysis approach embedded in the business model itself, otherwise the strategy will lack in bringing in the desired added value. Having a ‘data mindset’ in all the stages of the business will ensure that the implemented model will have the capacity to gather and analyse the high quantity of data provided by the interconnected devices and environments.

Telematics is the integrated use of informatics and telecommunications; it is about registering, storing and analyzing data via telecommunication devices. As Matteo Carbone, who is an expert in the field, says in his article, “Telematics could be one of the most relevant digital innovations in the insurance industry directly impacting the technical results. Due to the pervasive diffusion of the Internet of Everything, this approach could be extended from motor insurance to other insurance businesses.”

Carbone thinks that the next step in the insurance industry is the integration of such information into the insurance value proposition. The sensors would be designed to register ‘behaviours, status and context influencing the risk covered by the insurance policy.’

[su_pullquote]International best practices demonstrate that in order to reap actual benefits, it is necessary to focus on innovation. Insurance companies’ approach towards the health insurance policy now has the opportunity to evolve and tackle rising health and wellness costs, thanks to the widespread availability of advanced technological means. [/su_pullquote]

The health insurance sector is getting a considerable amount of attention all around the world and in particular, in the developed countries. This is partly because of the ever growing costs related to certain health issues, like aging and chronic disease, and, on the other hand, due to the reshaping of public welfare.  The common factor at an international level is that insurers are trying to move from a simple payer role to a reference point for all the health-related needs of their customers.

In light of the above, Health telematics (from wearables to m-heath) presents great potential for the insurer. Such potential should be harnessed in a profitable way by targeting less risky clients and presenting them with an improved, better-priced value proposition. For this to happen, the insurance company will have to seek partners from both the technological innovation sphere and medical providers, keeping in mind that its role in the health system is changing from ‘payer’ to ‘pivot’. The trend is now clear as companies are becoming 360° health ‘counsellors’ which assist the insured in taking the best decisions based on digital solutions. This helps in differentiating their offers and also allows managing profitability levels.

[su_pullquote align=”right”]Matteo Carbone- “Telematics could be one of the most relevant digital innovations in the insurance industry directly impacting the technical results. Due to the pervasive diffusion of the Internet of Everything, this approach could be extended from motor insurance to other insurance businesses.”[/su_pullquote]

The use of mHealth devices and gadgets certainly has its advantages, as seen within the insurance value chain and by making a parallel with the successful implementation of telematics on motor insurance business. In his article, Matteo Carbone goes on to explain five main value creation levers for the health insurance business:

1. Risk selection, enhancing the underwriting phase with a temporary monitoring based on dedicated devices;
2. Loyalty and behaviours modification programs, leading the client toward risk-less behaviours;

1. Value added services, developing client-tailored ancillary services that allow the insurer to play an omni-channel medical concierge;
2. Loss control, developing a broad approach to mitigate claims:

1. Developing ‘early warning’ system capable of anticipating more expensive claims,
2. Adopting e-health and m-health approaches that are able to reduce health-care costs,
3. Improving reimbursement valuation;

1. Risk based pricing, developing insurance policies with pricing linked to client behaviours.

Risk selection may refer to one of the following:

• The capacity of self-selection and deterrence of risky behaviours;
• The integration of data (gathered within a certain amount of time by means of telematics) with static variables which are normally used for pricing. They have the sole purpose of being used as support for the underwriting phase.

Whereas the average health insurance client will tend to be older in age and with a higher probability of having at least some health-related issues, the younger customers are, generally speaking, healthier and more prone to using wearables. This is key to insurance companies. They can use to their advantage by  ‘gamification’ of the experience that will attract the younger segment and will generate a self-selection effect as well.

Behavior guidance would be using a loyalty-based system which rewards non-risky behaviour. This has proven to be effective on several levels, such as commercial appeal, attracting less risky clients, and  reducing the individual risk profile of each client.

Value added services is the second area of value generation, and refers to the improvement of the customer experience through the use of telematics data in order to construct new and improved health services. A classic example would be the use of geo-location services related to medical structures and doctors (directly linked to the medical reimbursement plan).

How can the insurance company maximise its efficiency when it comes to the process of guiding the client within the preferred network? The answer is ‘perceived value’. A client that perceives the health-related service being received as high valued will lead to the creation of a mechanism allowing the company to control the loss ratio of a medical reimbursement product.

Telemedicine will certainly bring important economical benefits within the health industry, mostly involving the optimization of money spent either on medical reimbursements or on monitoring the client’s actual medical prescriptions. The scope is to gather behavioural and environment-related data to prevent fraud and to maximise early intervention and prevention.

[su_pullquote]In order to enable pricing definition based on individual risk, there has to be a constant monitoring of the amount of exposure to risk. This can be achieved by looking at the customer’s health state, habits and lifestyle through the use of wearables and other devices.[/su_pullquote]

Insurance companies have to step up their game and provide what the clients need in terms of health-related services, such as full medical coverage, services complementary to those provided publicly, long-term care and additional services like telemedicine or second medical opinions.

Successful International Examples

There are several practices which have already begun integrating radically innovative elements into their customer experience. We will present some concrete examples which have brought significant gains in terms of both revenues and profitability.

The Vitality programme has been created by the South-African Holding Discovery, and is one of the best examples of how an
insurance company can build a highly competitive business model by focusing on the selection of those younger categories of clients which exhibit a better state of health. This, combined with a very effective reward system, can help steer customer behaviour. The immediate consequence is an increase in client retention for the company, which is almost always combined with a significant reduction in spending. Vitality is a great example of how an insurance company can become a point of reference for its customers when it comes to health related issues.

Let’s take a look at how their incentive system works: the starting point is to evaluate the customer’s state of health by using both traditional methods and wearables that allow creating a personal improvement plan. In order to motivate the insured to follow
through with her individual plan, the company offers discounts for a wide range of “health partners” including gyms, healthy food providers, sellers of wearables and other devices. Moreover, when customers adopt ‘healthy’ behaviours recommended by the insurer and achieve certain pre-established targets, they can be rewarded with points. Last but not least, is the payback of 20% of the annual premium (this is reserved for those clients who have reached a certain number of membership years). The model performed so well that Discovery rolled it out for other lines of business such as personal protection and motor insurance.

The approach of Discovery Holding described above has proven to be successful at an international level in the last couple of years. This is acknowledgement of the fact that there can be tangible and concrete benefits resulting from a mechanism which makes the health policy interesting for healthy individuals.

A traditional health insurance policy is of interest and brings value only to someone who has a health problem and thus, medical costs that need to be reimbursed. In these last years, the health insurance companies have begun developing a growing interest in wellness related topics. Talking a look at the actions of the players in this sector:

1. They are clearly marketing-oriented, and in some cases they also focus on how to monetise the services, hoping that they would also manage to modify behaviours in the same way as Discovery manages to do. This approach often remains at the idea level, being difficult to implement because the insurance business case is relatively risky.
2. Some see the wellness module as a ‘gift’ for the client in order to convince him to share his personal data.

Other insurance groups use a different approach for health business innovation based on medical services.

An interesting example is Medibank, a leading Australian health insurance company which was privatised in 2014. Medibank has a great incentive scheme and leverages technology to become the pivotal element between clients and medical providers. In order to create its reward plan, Medibank has partnered with Flybuys to allow its customers to accumulate Flybuy points while accomplishing different objectives: a proven healthy diet triples points for healthy food shopping at Coles; every $3 spent on insurance premium translates into 1 Flybuy point; 10 Flybuy points if a daily goal of 10,000 steps is reached (using a wearable device). The company chose an internalization of medical preferences approach. making available a 24/7 virtual nursing service via phones to offer remote health assistance and information. Another benefit is the online health portal which provides medical-related information, tips and coaching to customers. To complete the picture, Medibank has also created their own virtual clinic called “Anywhere healthcare” for those insured that seek a direct confrontation with a specialist via video. The preferred user interfaces are by far digital ones as Medibank provides apps for almost any type of service. For example, they have apps for making a claim, locating medical structures, checking symptoms, receiving physical exercise and diet tips and for discounts and other privileges etc.

Another interesting and ambitious initiative concerning the health marketplace field – launched in the last months by CXA, a broker active in the Employee Benefit Sector – shows another way of how to make a profit from selling add-on services to the insurance policy associated with the customer experience.

A third area concerning medical services is remote health advice tools. During the last six months, many companies have associated a health policy to a remote health advice service via app (Aviva with Babylon in UK, FAB with Consiglio dal Medico in Italia, Blue Cross with American Well in USA, Aviva with Chunyu Online Doctor in China).

There are cases from the US that have started to approach these topics, focusing more on innovating the key profitability levers: Oscar (an app-based health plan, which has a guidance process made possible by a complex tool that allows comparisons of medical structures and reception of remote health advice, not to mention engagement elements, wellness rewards, etc.) and Beem (a Bluetooth-connected toothbrush that communicates with an app, a dental insurance policy and a network of dentist).

Oscar is an American-based start-up that has excelled in using technology in order to both maximise its profit pool within the health insurance area and to differentiate itself from its competitors. Oscar came up with a simplified underwriting process (compared to traditional players) and modelled its user experience with the help of intuitive mobile applications, creating more ease on the customer’s side.

Taking a look at the more technological aspects of its business model, Oscar focuses, like Discovery, on attracting younger clients by offering a reward system and wellness apps/activity tracking apps. They also manage to help clients save money or simply identify their best options: the possibility to confront prices of different medical providers or medical doctors (based on geo-location criteria) means added value from the insured’s point of view.

This approach is replicated when it comes to comparing prices of medical treatments by looking at different pharmaceutical products. In order to limit spending related to first-time medical visits, they have adopted a free call-back and messaging system via mobile applications (remote health advice), which provides a partial filter meant to reduce the number of unnecessary consultations. The model put in place by Oscar succeeds in offering value-added services from the customer’s point of view, while securing business profitability due the effectiveness of the process to influence the client choice.

[su_pullquote]The winning insurance value proposition will be the one which is able to propose to its customers both insurance components and modular services made available in a single, easy to use and complete UX accessible via a mobile app: wellness, medical network access and medical services.[/su_pullquote]

Such smartphone apps should be able to give access to all the modules and services provided by the Insurance Company through a user-friendly experience. As data gathering is another essential part of the process, the app would have to communicate and collect data from all the other relevant apps in the market and also from the wearables that the insured uses. The user should have one unique tool (the app) for accessing all the information related to the health insurance policy.

Gamification is key to attracting and retaining those “healthier” segments of patients. To do so, the system has to be flexible and must be able to communicate with third party service providers (e.g: Health TPA, telemedicine player, medical concierge, etc.) as well as with the company system. Last, but not least, there is the commercial strategy which should incorporate both digital and traditional infrastructure in order to ensure a complete omni-channel approach.

An approach built upon the five value creation areas – the same already exploited by Insurers in motor business - which I’ve described earlier in the article, has the capacity to bring concrete and relevant benefits to the insurer’s P&L.

In order to do a quick recap of these concepts, I will illustrate what type of benefit results from each value creation area and what the enabler is in the single cases.

Value creation from an insurance point of view is based on five elements which are closely interconnected with the insurance coverage:

1. Risk selection: Attracting healthy individuals. Here, the wellness module is the ideal lever.
2. Loyalty and behaviour guidance: Getting healthy individuals to become loyal clients and incentivising them towards an even healthier lifestyle. In this case, the wellness module is the perfect lever.
3. Services: There are three key elements, the wellness module being one among them. But, the fundamental aspect is that part of the user experience related to the access to the preferred network: this is the case of Oscar which has the instruments of interaction within the network of health clinics and medical doctors, as well as a mechanism to compare structures/doctors and to book appointments. The third element is represented by mobile health services. For example, adhering to certain treatment “pathways”, or services for chronic patients or the elderly. In this case, the company does not insure the risk, but they are part of the family-network of the person who bought the insurance policy.
4. Loss control: Reduction of the payment made by the insurance company.
   1. A very immediate benefit is the possibility of using mobile health services in order to reduce the cost of a great number of services, which is currently being paid by the company. The main lever is the mobile health services.
   2. Access to the preferred network becomes an important element in guiding the behaviour of the insured and it is the key to a health insurance company’s profitability. This is the concrete way for the insurer to make its role from ‘payer’ to ‘health pivot’; this benefit instead requires progressive work in order to exploit its potential.
   3. Medium/long-term benefit – still in need of research and a more mature technology – which uses the wellness module and the mobile health services with a preventive approach in order to be able to act before the patient develops a health-related problem.
5. Risk-based pricing: Here, I foresee a long way ahead which requires the construction of an integrated database made out of the three modules, putting together technical data (paid claims) and CRM data provided by the insurance company, in order to progressively build ever more efficient risk models that can allow, in the mid-term, to define important rewards and at the end a risk-based pricing.

The way to quickly turn these ideas into reality and disrupt health insurance market is a smartphone app – designed to deliver the value proposition described above with an integrated customer experience – and a state-of-the-art platform able to gather, store and manage all the data. The best source of knowledge and inspiration in creating the process and the platform itself is the telematics motor insurance. Motor insurance is some years ahead of the health insurance business and can provide some great examples of how to structure a successful process and how to exploit the value of data gathered along the insurance value chain.

---

The author is the Founder and Managing Director of Business Support Spa, a Strategy Consulting & Financial Advisory ’boutique’ which focuses on SMEs in Italy.