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Categorized | Insurance

UK insurers warned by regulator over use of big data

Posted on November 22, 2016

The head of the UK’s Financial Conduct Authority has warned insurers there should be limits to their use of big data so groups of customers are not unfairly penalised.

Speaking to the Association of British Insurers, Andrew Bailey said there had been “a revolution in our ability to capture and use information” but added that there had to be boundaries on the way that information was used. 

Data is an increasingly contentious area as insurers seek to use information to make more accurate pricing decisions. This month Facebook blocked Admiral, the car insurer, from using posts on the social media site to make decisions about pricing. Admiral had hoped that the language used in the posts would provide clues about driving style. 

Mr Bailey said the use of big data could allow the industry to base its decisions on individual behaviour rather than assumptions about different groups of people. This could be a good thing in car insurance, he said, because it could encourage better driving.

But he added that in other cases there were dangers — for example in using data about which customers were likely to shop around for policies.

“Big data could be used to identify customers more likely to be inert, and insurers could use that information to differentiate pricing between those who shop around and those who do not. The latter pay more and thereby can cross-subsidise those who do shop around,” he said.

“We are … asked to exercise judgment on whether as a society we should or should not allow this type of behaviour. To simplify, our view is that we should not,” he added.

Mr Bailey also weighed in on the debate surrounding the use of genetic data to influence pricing for health and life insurance. 

“The implications for life insurance are potentially profound … Now, maybe the reaction to improved identification is to say ‘it is what it is’ and we accept the implications for purchasing life insurance. Or, maybe we say that it creates unacceptable divisions within society — outcomes that are not acceptable for society in terms of access to insurance,” he said. He added that the solution to the issue was something for the government, rather than just regulators, to decide.

Jamie Monck-Mason, an executive director at Willis Towers Watson, welcomed Mr Bailey’s comments. “It is encouraging to see that the FCA is open to — and indeed positive about — the use of big data by insurers, albeit in the context of wider public policy principles,” he said. “The use of big data opens up a world of commercial opportunities for the insurance sector — and it is clear that Mr Bailey welcomes those opportunities for the good of the sector — but it is refreshing to see the FCA inviting insurers to look at the longer term and the bigger picture.”