Pervasive technological monitoring of customers seems to be insurance companies' new dream. Are you willing to comply?
16-Aug-2022 •Dhirendra Kumar
In recent months, there have been many articles in the international financial press about the kind of innovations the insurance industry is bringing in, using technology to lower costs and improve customer outcomes.
What does this mean? If you translate the buzzwords to what they really mean, the previous sentence basically says this: Using technology, the insurance industry is going to squeeze customers even more by charging some customers more and denying insurance to others. In other words, business as usual.
This use of technology is supposed to guide customers in avoiding situations where the insurance company may have to make a payout. One article that I read recently in The Financial Times is typical of the feel-good story that the insurance industry is pitching. It's purportedly a heartwarming tale of how an insurance company had some kind of a points system linked to exercise that inspired this 56-year person to lose weight. The system 'uses a wearable device to track physical activity and offers financial benefits and vouchers for progress, was instrumental to her lifestyle shift.'
Now, it so happens that controlling payouts by preventing losses has always been an integral part of general insurance. For example, if you want to insure a factory against fire, then the insurance company is entitled to make sure that you have proper fire detection and suppression systems. No one can object to that. However, putting digital, networked monitoring devices on the bodies of customers to ensure that they behave in a manner approved by the insurance company is not quite the same thing. One argument that's always trotted out is that of lower costs for the consumer. This is a sham argument to anyone who has given some thought to how the insurance industry operates.
Let's take a longer perspective on it. Once upon a time, before the rise of large-scale data capture and analysis, the insurance business was different. Essentially, it involved getting a larger and larger number of customers and then getting the averages right so that the risks were balanced in that large population. Now, the whole idea seems to be shifting to using technology, 'big data', and AI (whatever AI means in this context) to only provide service to those who are unlikely to file a claim! If the algorithms say that you might file a claim, then you will be either rejected, or you will be quoted such a high premium that you will rather go uninsured.
Reading these stories, I recall a decision of the Delhi High Court in 2018 which lays bare how insurers actually operate. The decision struck down health insurers' practice of disallowing coverage of genetic disorders. The case was originally filed by a customer whose health insurance claim had been denied by United India Insurance in 2012 on the grounds that his illness was a 'genetic disorder', which was an exclusion listed in the policy.
The judge took a deep look at the issue and considered whether a general exclusion based on the broad label 'genetic disorders' should be done and even more broadly, should a person's genetic inheritance be used as a basis of any kind of discrimination at all. The court ruled against the insurance company on all these issues. Since this 'genetic disorder' exclusion is allowed by the Insurance Regulatory and Development Authority (IRDA), it was in effect, a broad judgement against the regulator and the entire industry.
The judgement's implication is clear - exclusion based on genetic disorder is essentially a fundamental discrimination. This is something one is born into. This exclusion is no different from discrimination based on sex or caste or ethnicity or anything else that one was born with. The question is, why is this allowed? Why did it become standard practice? The answer lies in the basic instincts of the insurance industry - to sell insurance preferentially only to those who are unlikely to file a claim. Intrusive body-monitoring technology is going to make this worse, much worse. I hope Indian regulations specifically disallow this insidious form of discrimination that the global insurance industry is smuggling in through the backdoor.
Suggested read: The oldest problem in insurance