Big Data and Insurance: Implications for Innovation, Competition and Privacy
Article Synopsis :
This paper looks at the impact of big data and the potential implications that the use of enhanced data that comes from insurtech may have on the market.
Of particular interest is the chapter looking at how society may view the use of enhanced data from the development of insurtech.
The paper suggests that consumers may not be the prime beneficiaries of the use of ‘big’ or enhanced data and raises concerns that might arise in society about the ethics of using data.
Privacy and data protection are one key concern, with the potential to develop a risk profile – or score – for an individual consumer.
This is clearly discriminatory in that it provides a better picture of risk for an individual, and prevents others unwittingly underwriting the cost of their premium.
The matter of risk profiling is a thorny subject, for while some may say it is unfair for an individual to be treated differently for a possible genetic predisposition towards a disease, it is surely unfair for other with lower risk profiles to have to fund that premium. It would also undermine the use of a premium as an indicator of risk.
There will be a need to balance the risk assessments with how different social groups are treated.
Privacy raises the right for an individual to have control of their data. Products that reward or penalise policyholders in order to influence behaviour – such as used in auto and some healthcare areas – may be considered as interfering. The paper suggests this may be tackled by giving individuals the rights to their data with the ability to sell it on. This will allow choice for the individual and create better quality information markets.
Of course, the better a risk is identified, the more unaffordable a disease will become. This has social implications if that disease or condition are associated with low income.
Premium subsidies would allow the poor to receive cover while maintaining differentiation, but they lead to distortions and inefficiencies in the market and have not been widely adopted to date.
There is also a concern about how a dominant technology could lead to a lack of competition in a market. This has happened in other areas of technology, where disruptive tech has been challenged by regulatory authorities on the basis of anti-trust legislation.
Google was fined €2.42 billion by the EU in 2017, while Apple, Microsoft and Uber have all come under regulatory scrutiny for a number of reasons.
Ultimately, a lack of choice could reduce market transparency and make it harder for consumers to compare products, reducing competition.
The paper offers a series of possible scenarios that might develop from the use – or perceived misuse – of big data.
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Digital Insurer's CommentsThere is a tension between what the data generated by insurtech can tell the industry about its customers and concerns about invasive data capture and fears of ‘Big Brother’.
This needs to be managed by the insurance industry in partnership with regulators and consumers to ensure that all parties to identify what might constitute abuse and to mitigate that potential.
This sounds difficult, but should become a part of the customer journey, so that they understand what the technology can do, they are informed of how it can help them in their lives.
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