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Greedy Insurers Are in for a Nasty Surprise – Positioning You for Big Profits

6 | By Wall Street Insights and Indictments Staff

It’s a great day when a mega-profitable industry that sucks money out of us for services we can’t live without has to change how it lines its pockets.

And that day has come for insurance companies.

We’ve been talking at length about the new economic disruptors that are forcing change in everything from public policy to the financial markets.

And even the powerful insurance carriers aren’t immune.

Thanks to these Disruptors, you can you bring down your cost of health and auto insurance – benefitting the consumer side of your personal ledger.

You can also bolster the investment side of your ledger: Disruptors are upending the insurance industry, meaning you can make money by betting against insurance dinosaurs whose business models are under attack.

Let me show you what I mean…

Flo Knows

In the good old days for insurance companies, auto and health insurers lumped all their customers together. If you were a good driver, you paid virtually the same rates as bad drivers. If you exercised and ate right, you still paid the same health-insurance rates as fast food-eating chain smokers.

The reasoning is simple to explain. Insurance is about pooling risk and the dynamic of imperfect information – meaning that, as long as customers don’t know how to assess what kind of risk they represent to an insurer, they can’t negotiate the price they pay.

Insurers pool good drivers and healthy people with high-risk policyholders so that there will be enough money to pay claims – and still profit handsomely.

In 2014, U.S. insurance companies earned approximately $338 billion in profits.

But that’s all changing.

For a while, insurers have offered better rates based on an insured customer’s good driving record or good health history. Still, history takes time to develop, so rates haven’t come down that much.

That’s because smart devices, smartphones and wearables are changing the information-gathering dynamics and forcing providers to distinguish between low- and high-risk customers.

Auto insurers are already offering discounts and safe-driving rewards based on “dongle” devices an insured motorist can plug into a portal behind the dash of most new cars.

Progressive Corp. (NYSE: PGR) – known for its hugely popular fictional pitchwoman “Flo” (actress Stephanie Courtney) – also advertises Snapshot (a dongle device) in the company’s many TV and radio ads.

According to Autoblog.com, “Progressive uses these devices as part of its Snapshot usage-based insurance program, which has been around since 2008. The dongle, which plugs into the OBD-II diagnostic port, collects data on how many miles are driven, what times of day a vehicle is in operation and how hard a driver brakes. In exchange for this driver data, prudent drivers can receive discounts as large as 30% off their premiums.”

Allstate Corp. (NYSE: ALL) offers its customers Drivewise. According to Compare.com, “Drivewise tracks your driving habits via a mobile app or a small device installed in your car and then sends the data to Allstate. You can look at the data collected on Allstate’s website, so you can analyze your own driving habits to look for problem areas and see how much you’re saving. Allstate says Drivewise will not increase your rates, and could help you save up to 30% on your premiums.”

Check with your auto-insurance provider and see if it has a device that can earn you discounts. If you decide to make that request, be sure to also ask about the cybersecurity on the devices and if the device can be hacked. Someone could remotely take over your car. (And I’m not kidding.)

Unhealthy Health Giants

The health-insurance industry is facing even greater disruptions from new technologies than its auto-insurer counterparts.

As I hinted earlier this week in my column on healthcare Disruptors, wearable devices are changing the landscape in medicine. And that includes changes with insurance costs and practices.

Dr. Benno Keller, head of research and policy development at Zurich Insurance Group Ltd. (OTC ADR: ZURVY), recently said that “this interaction with technology will inevitably generate an enormous of data about the wearer’s choices and lifestyle which insurers can use to refine their understanding of the risks faced by their customers. It would make it easier to predict outcomes and even push solutions to challenges that have yet to occur.”

Insurance giants UnitedHealth Group Inc. (NYSE: UNH), Humana Inc. (NYSE: HUM), Cigna Corp. (NYSE: CIG) and Highmark Inc. are creating programs to integrate wearables into policy pricing and care dynamics.

Companies like energy heavyweight BP PLC (NYSE ADR: BP) are encouraging their global employees to sign up for programs that use wearables to track the number of steps they take, how long they sit and other activity measures to get them healthier so they can lower the cost of insurance they charge them through company-coverage policies.

Time’s Running Out on Insurance Giants

The soon-to-be released Apple Inc. (Nasdaq: AAPL) Apple Watch may single-handedly change the face of insurance.

Some of the things the Apple Watch will track include your heart rate, blood pressure, hydration and blood sugar. It will count your steps, monitor your sleep, measure how much sunlight you get and remind you about your weight. Everything the smartwatch will be able to do, in terms of monitoring your health, can be transmitted to insurance companies and provider servicing databases to better profile what kind of risk you pose to the insurance company.

If you want to save money on your health insurance, you’ll be able to do so – if you don’t mind sharing your personal metrics with your provider.

How much might you be able to save? In due course, a lot.

That’s because there are already startup insurance companies like Oscar“Disruptor” companies – that are attacking the old insurance model to bring down premium costs for policyholders who demonstrate they are low-risk customers.

Late last year, in fact, Fortune described New York-based Oscar as a “hipster health insurance company” and a “web-savvy startup” – just the kind of Disruptor to take on the entrenched giants.

As these disruptions take hold, you are going to be better equipped to improve your own health with wearables.

You are going to be able to negotiate down what you pay in premiums for your insurance.

And, if you stay tuned here, I’ll tell you who the new Disruptors are that will be worth investing in – like the privately held Oscar, when it finally goes public.

And I’ll also spotlight which giant insurers are going to end up being burdened with bad risks, faltering profits and falling share prices.

And some of those could end up as “short” candidates – underscoring the fact that Disruptors create profit opportunities on both sides of a trade.

[Editor’s Note: Shah wants to hear from you. If you have questions or comments, please feel free to post them below.]

Related Reports:

Wall Street Insights & Indictments: Healthcare Disruptors and the “New War” on Alzheimer’s.

6 Responses to Greedy Insurers Are in for a Nasty Surprise – Positioning You for Big Profits

  1. Lindell A Lawrence says:

    I LOVE THIS ARTICLE BUT IT NEEDS TO GO FURTHER. INSURANCE COMPANIES NEED TO PAY LEGITIMATE CLAIMS PROMPTLY AND STOP FINDING EVERY MEANS BY WHICH THEY CAN AVOID SETTLEMENT.
    TOO OFTEN MOTORISTS WITH HEAVY “NO CLAIM” DISCOUNTS INDICATING YEARS OF SAFE DRIVING FIND IT ALMOST IMPOSSIBLE TO OBTAIN SETTLEMENT EVEN IN CASES WHERE THEY ARE NOT TO BE BLAMED FOR THE ACCIDENT.
    I HAVE PERSONAL KNOWLEDGE OF A CASE IN TORONTO, CANADA WHERE AN INSURED WAS HIT IN THE REAR WHILE WAITING ON THE LIGHTS TO CHANGE AND TO DATE THIS PERSON HAS NOT RECEIVED A CENT. WE URGENTLY NEED “DISRUPTORS” WHO WILL ASSIST PUTTING THESE INSURERS WHO REFUSE TO SETTLE LEGITIMATE CLAIMS OUT OF BUSINESS.

  2. Chris Haggerty says:

    I hope I am never so hard up as to allow any insurance company to monitor me like that. The purchase tracking, background checks, surveillance cameras everywhere, etc.is already too much, this is more than crossing the line as far as I am concerned.

    I already get exemptions from my doctor for meeting the health metrics used to get the discounted health insurance rates at work. I will let them have the meaningless Cholesterol numbers and the out of range, but not really dangerous (compared to the prescription drugs they want you to take to keep the numbers in range) Glucose numbers. They get the health records from the doctor visits anyway to pay those bills. But the minute they insist on my being tracked all the time without an exemption opt-out method to get the discount, is when I will probably opt out of the discount and pay the higher rates. Besides, the verdict is still out and will be for some time on the long term health effects of wireless (such as cell) usage.

    That said, I can see the money making opportunities here. People just love to go after fads and only a few see through the hype and spot the dangers.

  3. Ajoy Mukherjee says:

    I leave in India. All the above are very attractive. But what are the possibilities for us here.

  4. Jeff P. In Canada says:

    Besides the huge privacy concerns that this all presents, which alone, I believe will limit the broad acceptance of these devices, I can see some 300 pound smoker who sits and watches TV all day, lend his smart-watch to his son who plays tennis twice every day.

  5. mandy says:

    Shah, I’ve lived long enough to watch Big Brother look over our shoulders year by year, but wearing something that tells “them” something I might not want anyone to know, it’s no longer the shoulder!

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