I have always argued that I consider insurance to be a form of gambling based on educated guesses. In effect, insurance companies make a bet that, based on the information that you have given to them, you will not need to claim from them. If they calculate those estimates incorrectly then they will have to pay out. This is an industry laden with risk, and the key influencer of that risk is the information that you provide. Have you been in an accident before? How old are you? What is your medical history? Accurate information is the key to success in a global industry that is expected to be valued at $5,563.1bn by the end of 2017.
In recent years we’ve seen insurance companies take advantage of advanced technologies and the big data that comes with them, in order to supposedly deliver a better service to end consumers. We’ve seen the likes of No Nonsense car insurance here in Ireland offering SmartDriver devices to their under 30 customers…
And we’ve also seen the likes of VitalityHealth in the UK which provides “health and life insurance that rewards you for being healthy”. This is done using age calculators and wearable devices.
However, over the weekend, a very interesting article by Alistair Gray in the Financial Times shed some much needed light on the topic of ethics in the use of big-data by insurance companies. According to Paul Evans, who is the chairman of the Association of British Insurers, the insurance sector is engaged in an “arms race” when it comes to data-gathering. The competition is getting more intense amongst insurers and one must really question if this is mutually beneficial to both the insurer and the customer.
The greatest concern highlighted in this article is the question of whether of not the implications of introducing data-driven decisions in the insurance industry will result in a greater divide between those who can afford and those who can’t.
“The industry will have to take great care to ensure we’re not creating, because of big data, sectors of society that can’t buy insurance,” said Mr Evans, who is also chief executive of Axa UK.
It’s clear that the insurance industry will fight hard against any regulation of the use of telematics or other forms of big data to calculate their insurance premiums. However this is a relatively new area and we have the capacity to use (and regulate the use of) data in ways that can be both economically and socially beneficial.
My questions to you are:
- Do you think the use of telemetry and wearables is ethical in insurance?
- Do you think this use of data is fair?
- Who do you think will suffer and who will benefit?
- What kind of regulations should be imposed, if any?