The Financial Conduct Authority has found “broadly positive” use of big data by insurers and has decided not to carry out a market study on this issue.
But the regulator has expressed concern that providers could use big data to charge consumers more and that some could struggle to get insurance.
Big data refers to information on consumer behaviour extracted from unconventional sources such as social media and loyalty cards.
The FCA said that while it will not be carrying out a market study, it will take forward a number of measures to engage with the industry.
Christopher Woolard, director of strategy and competition at the FCA said: “The general insurance sector is vitally important, impacting millions of consumers so it’s important that the market works well.
“There is potential for big data to transform practices across general insurance markets, and some consumers are already seeing benefits but there are also some risks to consumer outcomes.
“While we have decided not to launch a full market study, we are undertaking further work in this area and with the Information Commissioner’s Office to ensure our rules and policies keep pace with developments in the market, but also do not prevent positive innovations.”
The FCA found that increasing amounts of data from a wider range of sources could lead to the use of reasons other than risk and cost in pricing becoming more prevalent.
To assess how different pricing factors are used, the regulator said it will start a piece of work on pricing practices in a limited number of firms in the retail general insurance sector later this year.
The FCA said it will also remain alert to the possibility of some higher-risk consumers being excluded from the insurance market.