In light of ongoing demographic changes, population ageing, shrinking public budgets and the increasing prevalence of chronic diseases, as well as the current and predicted consequences of the COVID-19 pandemic, it appears unlikely that healthcare systems worldwide will be able to continue to meet people’s health-related needs. As such, it is important to identify viable means of buttressing national healthcare systems. In this regard, the digitisation of insurance has been suggested as a promising means of fostering an efficient, effective and future-proof healthcare system.
The current product strategy within the insurance industry focuses on increasing the market share and improving both distribution and the policyholder experience. Moreover, most digital insurer and intermediary platforms tend to focus on the population aged under 55 years. Such a strategy may bode well, albeit only in the long term. In the short term, however, there remains considerable room to grow. The population aged over 60 years in Poland is not considered within the zone of interest for insurance companies because such people generate significant costs from a portfolio-wide perspective. The reasons behind those costs include ageing, chronic diseases and co-morbidities. Yet, if the industry is to evolve, it is important for insurers to change their approach. There exists a need to move away from acting as reactive risk managers for mere claims payers and toward actively supporting policyholders in terms of managing their health.
The health and life insurance industry could grow significantly through the creation of a digital health marketplace. Doing so would provide an opportunity for health and life insurers to take advantage of the emerging market by diversifying their current product lines, growing their policyholder base, improving their customer service and countering the effects of low interest rates.
The digitisation of insurance could be a key factor when it comes to promoting the financial sustainability of healthcare systems due to offering the ability to better target interventions as well as to reduce the number of unnecessary physical visits. Further, the opportunity presented by digitisation represents a shift from pure financial protection and long-term savings products to insurance that impacts people’s wellbeing, prevents the development of adverse health conditions and provides support for those with pre-existing conditions.
The benefits of digitalisation also apply to life insurance, which has long played an important role in funding people’s lifestyles in retirement. Indeed, this is an area of increasing significance, as both low interest rates and population ageing, which means people are increasingly outliving their savings, have resulted in added pressure with regard to funding retirement.
The digitisation of insurance represents a promising way of attracting younger customers earlier through value-added services while also promoting active ageing among existing policyholders. This is particularly important because current digital health products may not reach members of the older age groups, who have an increased likelihood of developing co-morbidities.
Prior research has shown that the use of digital tools works well in terms of modelling favourable behaviour patterns through the creation of a programme of incentives and rewards. Research has also shown that the provision of even short-term incentives such as discounted cinema tickets and hot drinks has a positive impact on increasing the number of people’s activity days per year. Combining incentive programmes that include aspects of digital health with support for preventative services such as blood-sugar screening, for example, could open up new avenues for the insurance industry by significantly improving claims statistics. Further, the use of apps could enable insureds to regularly monitor any changes in their status. Indeed, such apps would allow users easy access to valuable information such as dietary advice, stress management techniques, etc. Taken together, all these elements should combine to create a positive ecosystem for the insured.
The voluntary nature of health and life insurance causes challenges due to information asymmetries leading to adverse selection, with more risk-prone insureds buying insurance while healthier individuals opt not to do so. This often leads to an increase in the average risk borne by insurers. Health digitisation could help to address these challenges to a certain extent. From a value chain perspective, some insurers could use more targeted online marketing and distribution campaigns to attract previously untapped populations and, therefore, to achieve more balanced risk pools. Greater precision in terms of underwriting could also be applied on the basis of the data provided by digital health platforms, which should serve to provide more transparent and appropriate protection to those most at risk of disease.
The current role of digital health in relation to life and health insurance is principally focused on marketing and distribution. The offer is generally aimed directly toward insureds in order to improve their experience through the provision of new products and better services. The inclusion of digital health within the offer implies an increase in sales volumes due to value-added services. For example, renewable life insurance could be offered to people with diabetes at reduced premiums in exchange for them maintaining a healthy lifestyle and keeping their blood glucose levels within the recommended limits.
As the provision of preventative care increases, the long-term benefits of offering such care will also increase, both in terms of achieving a decrease in the number of claims and with regard to the simplification of claims processes due to automated digital processing. Further, claims data can be used to analyse the behaviour patterns of insureds in order to detect areas of undersupply or oversupply in relation to care. This would enable the active management of dedicated support for the insured. Having an efficient mechanism for preventing health risks in place will not only help the insured to stay fit, but also create an opportunity to save the huge costs associated with treating certain conditions e.g diabetes.
The digitisation of insurance would allow for increased growth and the penetration of previously untapped markets (including geographical coverage) through improving service quality, customer satisfaction and customer loyalty. It could also facilitate the expansion of the user base and the introduction of new distribution and sales channels. The effective introduction of such changes would have to take place in several stages. The process would have to start with the introduction of digital health into the everyday lives of the insured. For insurers, this would involve collecting and analysing data in real time. Doing so would allow them to work flexibly, respond quickly to changing data, reduce costs and control claims. The awareness of such portfolio development should enable product diversification, filling insurance gaps and developing additional products and services. To achieve all this, insurers could partner with digital health companies and researchers who have already developed innovative ways of collecting, studying and reporting on the impacts of digital health solutions. This would mark a significant shift away from the focus on sales and marketing seen today.
Key to the success of such a change will be fostering confidence in digital health, particularly among older people, who are more likely to need health services. It should also be acknowledged that the development of digital health is actually supported by the current global situation. Indeed, there has been a noticeable increase in demand for contactless health services during the COVID-19 pandemic. Moreover, the insured have already some experience of contactless services delivered by other industries (retail/entertainment). Therefore, it is important to highlight how the proposed insurance solutions will provide people with similar experiences.
It is important to note, however, that the digitisation of health will not solve all people’s health-related problems, as some conditions will continue to require in-person diagnosis and treatment. Still, it is crucial that the barriers to entry become less demanding, which will happen faster as more companies engage in the digitisation of health services. Further, it is necessary to move beyond the so-called ‘euphoria of gadgets’ and to more holistically assess the business and social opportunities that digital health offers for insurers. This will enable insurers to add more value to the insured experience while also increasing efficiency.
At the macro level, a key element will be the availability and affordability of insurance within both the public and private sectors. At the personal level, it is vital to foster a renewed understanding of physical and mental wellbeing. In addition, digital health innovations will need to appeal to both levels if they are to strengthen the confidence of the insured.
The digitisation of insurance is still in its infancy, although there is already a strong case to be made for the existence and importance of the market, especially during the current COVID-19 crisis. Through digitisation, there exists an opportunity to slow down the seemingly inevitable rise in healthcare costs and, most importantly, to proactively manage the risk of illness among insureds. Now is a good time for the industry to take stock internally of its vision and capabilities when it comes to implementing innovation on a large scale.
This will require investment in closing the gaps in terms of the digitisation of insurance, with a particular focus on offerings aimed at the older population. It will also be necessary to develop new solutions and overcome the challenges of data integration, in addition to gaining and maintaining the trust of policyholders. Moreover, the young will likely want their parents to be taken care of and will themselves be actively involved in the implementation of digital products. The digital marketplace could serve to bring the generations together on a digital health level. It is important for the insurance industry to take stock of its current digital health strategy and then use it to support the achievement of global goals concerning improved and efficient healthcare.