| NEW YORK
NEW YORK Twice a day, Scott Ozawa's Bluetooth-enabled toothbrush tells his dental insurer if he brushed for a full two minutes. In return, the 41-year-old software engineer gets free brush heads and the employer which bought his insurance gets premium discounts.
The scheme, devised by Beam Technologies Inc, is just one of the latest uses of technology by insurers hungry for more real-time information on their customers that they say lets them assess risk more accurately and set rates accordingly.
In theory, everybody wins, as policyholders adopt better habits and insurance companies save money on claims.
However, there are concerns that insurers will eventually use the data they get to cherry-pick the best and most profitable customers, while hiking rates or even denying coverage to people who choose not to participate.
"It's not expected today, but in the near future it will be used to penalize people," said Mitchell Wein at Novarica Inc, who advises clients on insurance technology.
Insurers are still in the data collection stage, said Wein, but he predicts that in about five years, tracking tools will have a direct impact on pricing and coverage on a range of policies.
Insurers recognize the dangers but consumers have nothing to fear, according to Michael Barry, a spokesman for the Insurance Information Institute, an industry-funded communications group.
"Insurance is such a heavily regulated industry that insurers must justify, in actuarial terms, the reason for any rate increase they’re seeking in almost any line of business," he said.
Moreover, the insurance marketplace is competitive. "If any insurer raises rates to the point where a consumer is dissatisfied, the consumer can go elsewhere,” he added.
Beam's technology follows auto insurers using devices in cars to find out how far and how safely policyholders drive - known as telematics - and life and health insurers giving customers wearable devices such as Fitbit and Apple Watch to keep track of their activity.
U.S. insurers and their customers have generally been slow to adopt new monitoring techniques, which have been common in auto insurance in South Africa, Italy, Brazil and Britain for years.
But the world's biggest insurance market, with $1.3 trillion in premiums in 2015 - more than a quarter of the global total - is catching up.
Mayfield, Ohio-based Progressive Corp (PGR.N), an early leader in the area, said its telematics-based 'Snapshot' auto policy allows it to "attract, identify and reward good drivers while also retaining those customers longer." Progressive has more than 2 million Snapshot policies in force, about a fifth of its total U.S. auto business.
About 30 percent of North American auto insurers now have telematics programs, according to a survey last year by insurance consultants Strategy Meets Action (SMA). That will rise to 70 percent by 2020, SMA said.
In health insurance, health insurer Anthem Inc (ANTM.N) has been working since 2013 with Fitbit Inc (FIT.N) and Garmin Ltd (GRMN.O) to offer premium discounts to eligible customers who wear the devices and transmit information to the insurer.
In life insurance, John Hancock Financial started offering a policy in 2015 that gives customers discounts on healthy groceries when shopping at certain retailers and rewards for hitting exercise targets as measured by a wearable device.
The program, designed in partnership with Vitality Group, includes a free Fitbit or an Apple Watch for as little as $25 if a customer hits their targets.
"We get to know you better than your doctor does," said Brooks Tingle, head of insurance marketing for John Hancock, owned by Canada's Manulife Financial Corp (MFC.TO).
Insurers generally do not disclose data on premiums or profit on specific types of policies, so it is hard to tell what effect such approaches have had on their bottom lines, or whether riskier customers are being asked to pay more.
However, people in the industry agree that increased data from technology means insurers can target more desirable customers.
The benefit for insurers is "competitive advantage, pure and simple," said Katie DeGraaf, a senior consultant at insurance advisory firm Willis Towers Watson, in a recent report. "Companies that have integrated granular telematics data into rating plans are better positioned to attract and retain the most profitable customers."
Much of the pioneering work in the area has taken place in South Africa, which suffers chronic high crime and accident rates.
Johannesburg-based financial services firm Discovery Ltd (DSYJ.J), whose car insurance unit has been tracking customers' driving and using the information in pricing since 2011, said it has seen a 10 percent drop in accident claims since then.
Discovery's ratio of losses to premiums for drivers in the tracking scheme is more than a quarter lower than those not participating, the company said. Data has also upended a longstanding rule of thumb in the insurance industry that younger drivers are the riskiest.
"The whole beauty is that someone who might be seen to be a bad risk can turn out to be a good risk," said Anton Ossip, CEO of Discovery Insure, the company's auto insurer.
The new approach has "substantially improved the quality of new business and our ability to attract and select high-quality clients," Discovery Insure said in its latest financial report.
Still, Ossip is concerned about consumers who do not want to use the telematics devices to relay data: "Generally, someone who chooses not to use it is a worse risk," he said.
Insurers interviewed by Reuters said better data collection allows them to underwrite risk better, and customers tend to take better care of themselves when confronted with numbers.
They described participation in data-tracking programs as voluntary, and said they are transparent about what information they collect and confident about data security.
Some of that might be changing, however. Root Insurance Co, a Columbus, Ohio-based startup, immediately uses the information it gathers and only insures what it believes are good drivers.
Root's smartphone app tracks car movements for two weeks before offering eligible customers a quote, according to CEO Alexander Timm. An algorithm assesses risk using factors such as tailgating, fast turns and texting.
Using data to segment risks in such a way is only set to spread.
"Pricing will change," said Anand Rao, a principal at consultancy PwC who focuses on analytics and uses of artificial intelligence in business. "Not everyone will change their behavior, which will start translating into different pricing and different types of products."
Some industry-watchers worry that approach will fundamentally change how the insurance business works. But for now, consumers do not seem too concerned.
"There are a lot of pieces of information that companies are tracking about you anyway," said Ozawa, referring to Facebook Inc (FB.O) and other social media.
While Ozawa no longer works for the company that introduced him to Beam, he expects the impact will be long-lasting. The two-minute requirement has motivated his kids to do more than a simple "swish-swish" when they brush, he said.
(Reporting by Suzanne Barlyn; Editing by Lauren LaCapra and Bill Rigby)