Big Data could make some people ‘uninsurable’

Big Data could make some people ‘uninsurable’

Big Data can offer new business insights to insurers - but what about policy holders?

A new report from the Chartered Institute of Insurance warns that Big Data could create an “underclass” of people who cannot afford insurance.

Big Data has been heralded as the future of business, with computer algorithms and machine-learning increasingly being used in tandem to enable companies to gather and act upon new insights. For example, such data could tell a business how a machine is performing on a production floor, or which product is selling best in a retail store.

There has been excitement for Big Data in the insurance world too, with risk managers seeing the potential to know more about their policyholders, and how much of a risk they really are. By knowing more about their customers, and how they behave, insurers believe they can improve risk management, reduce the likelihood of having to pay out on a claim, and ultimately improve their own bottom line.

In addition, through Big Data, insurers believe that they can price more effectively and ultimately advise their policyholders on how to lead a healthier and safer lifestyle.

Despite this, the new paper from CII warns that the Big Data approach threatens to destroy the insurance market model of pooling risk.

“Data is a double-edged sword,” said David Thomson, director of policy and public affairs at the CII, in the report. “The insurance sector needs to be careful about moving away from pooled risk into individual pricing. They need to think about the broader public interest.”

The report says that the concept of pooling risk “underpins the effectiveness of insurance cover”.

“Some people may be identified as such high risk to insurers that they are priced out of insurance altogether,” adds the report.

“Big Data could, in effect, create groups of ‘uninsurable’ people. While in some cases this may be to do with modifiable behaviour, like driving style, it could easily be due to factors that people can’t control, such as where they live, age, genetic conditions or health problems.”

Related: 10 real-life examples of IoT in insurance

The ethical issues of Big Data

Experts say that pricing around health and, in particular, genetic data is contentious. For example, some insurance professionals have questioned at what point an insurer intervenes in the event of a serious incident – like a heart attack – while basing pricing on genetic conditions seems unfair and exclusive to many.

The UK government acted on the latter in 2000, signing an agreement with the Association of British Insurers (ABI) in order to stop the insurance industry from using predictive genetic test results. That agreement runs until 2019, although a review is due later this year.

“You could price people out of the market for health products. There’s a danger insurers will not offer health cover to some people. The government would intervene if people are doing social sorting,” added Thomson.

Swiss Re customer technology manager Oliver Werneyer touched on some of the difficulties of IoT and Big Data at our recent Internet of Insurance summit.

“It’s great to figure out those people that are now healthier than they were, and for those you can give discounts. That’s exciting, except you now have people that are not as healthy as you thought they were.”

Spiros Margaris, VC and senior advisor at ,, and ranked No. 1 Fintech Influencer by Onalytica, told Internet of Business that these dangers could be allied by emerging InsurTech start-ups.

“There is a danger that with Big Data insurance companies will not insure some people anymore and therefore some people might fall through the cracks. Though I truly hope and believe that InsurTech (insurance technology) start-ups would pick up where others fail.

“The Fintech (financial technology) industry’s greatest achievement will be to provide the unbanked – or in this case the uninsured – a possibility for a better life.”

Taking place on 27-28 September in New York, the Internet of Insurance is exploring the profound impact of IoT on insurance business models and customer relationships. Featuring case studies from USAA, Progressive, Liberty Mutual and more – email [email protected] for more information

Related: Meet the insurer betting on wearables, data and free coffee