Protection industry warns on FCA big data comments

Telematics is the integrated use of telecommunications and information technology for application in vehicles, and with control of vehicles on the move .

While the City watchdog expressed concern over its use in general insurance, using so-called 'big data' to provide more tailored underwriting for life and healthcare policies can be helpful, Phil Jeynes, head of sales and marketing for UnderwriteMe, has said.

It was last week that the Financial Conduct Authority (FCA) published a feedback statement on big data.

In its latest feedback statement, the regulator said it had found "broadly positive consumer outcomes resulted from the use of big data", such as in the development of new products or making the claims process more streamlined.

However, it identified two big areas of risk.

The FCA stated: "The use of Big Data has the potential to leave some consumers worse off.  Big data changes the extent of risk segmentation so that categories of customers may find it harder to obtain insurance.

"The FCA is also concerned about the potential big data might enhance firms’ ability to identify opportunities to charge certain customers more."

The FCA has also decided not to launch a market study into this at the present time. 

Mr Jeynes said: "I think the big data issue, particularly when related to telematics, is a complex one. At the moment, some insurers have begun using data from their clients to reward them for healthy activities, like going to the gym or walking a number of steps.

"There is no downside to the client for this: it is all carrot and no stick."

The use of telematics for the life insurance industry has been described as pay-as-you-live (PAYL) insurance, and early forms of this have been adopted by some insurance companies already, such as Vitality Life.

Vitality has been collating such data to incentivise wellness and wellbeing among consumers for 10 years, and believes consumers will become comfortable with data sharing, particularly if doing so leads to positive rewards, such as cinema tickets and other services. 

The concept of providing relevant, semi-bespoke propositions is not only in its infancy in the protection sector, but will also require applicant permissions Guy Williams

Vitality refers to PAYL Insurance as the ‘shared value model’, which earlier this year, Tom Davis, head of research and development for Vitality, told FTAdviser was: “trying to find a way to create value for the insurer, the insured and for advisers in the system."

Commenting on the FCA's concerns over telematics, which it issued as part of a feedback statement on the use of big data in general insurance, Guy Williams, director at Liss Systems, said the proliferation of big data, combined with sophisticated analytics tools and digital technology, means there is potentially greater access to a more granular view of a given risk when it comes to underwriting.

He said: "The extent to which the 'data genie' can be pushed back into the bottle of 'pooled risk' remains to be seen.

"Despite much discussion about the use of big data for risk assessment it is yet to gain widespread usage in the protection market, which is probably more to do with the speed of change within this sector rather than the value of the data."

He added the whole life and protection sector had "much to learn from general insurance" and other markets to help bridge the so-called protection shortfall with personalised, targeted propositions underpinned by appropriate and transparent big data and driven by digital technology.

However, Mr Williams added: "The protection sector needs innovation and not just regulation.

"Yet there are issues with both: the concept of providing relevant, semi-bespoke propositions is not only in its infancy in the protection sector, but will also require applicant permissions.

"For example, a recent survey conducted by The Syndicate, reported that 58 per cent of those questioned were prepared to share their full medical data in return for a better insurance premium, but only 38 per cent would agree to share (the very limited) data held on their fitness device, showing the current distrust of data among this sample."

The one concern Mr Jeynes raised was where to draw the boundaries between using telematics to ascertain a better underwriting outcome at a given point in time, and creating a continuous, daily, underwriting process.

He said: "If you widen that concept out, however, accessing more data could let an insurer see all aspects of a client’s life: how much alcohol they drank this weekend, weight they gained over Christmas, even the onset of more serious medical conditions, some of which may be entirely beyond the customer’s control.

"This creates a moral quandary, as to whether insurers could or should use that data to more accurately reflect the real risk a customer poses, on a day-to-day basis. Instead of underwriting a customer at a point in time, as we do now, underwriting could become an ongoing process.

"As the technology becomes more accessible, the industry needs to come together and decide where the boundaries lie."

Speaking last week, Christopher Woolard, director of strategy and competition at the FCA, said: "The FCA found that Big Data can improve consumer outcomes but its use could also affect pricing practices.

"The increasing amounts of data from a wider range of sources, alongside sophisticated analytical tools, might lead to the use of reasons other than risk and cost in pricing becoming more prevalent."

Earlier this year, FTAdviser produced a Guide to Pay-As-You-Live insurance, which qualifies for 60 minutes' worth of structured CPD.