The Financial Conduct Authority is to investigate how insurance companies are making use of big data in order to gather information about customers ‘ behaviour.
Big refers simply to large volumes of structured and unstructured data that are too large to be processed by a single computer.
In this context, big data refers to the vast swathes of data available about individuals, from social media profiles to online shopping habits, that insurers can use in order to profile customers. While companies in all areas of the financial sector tend to make use of big data in some way, insurers in particular use it as it helps them calculate the value of the premiums that they offer to customers based on characterisations that they can come up with.
For example, an insurer could track those involved in road traffic accidents in order to see if they are connected beyond involvement in the accident and determine whether or not the claim in question has been made fraudulently.
The issue is that often, customers are simply not aware that their data is being used in this way, and that many are concerned about what they consider to be invasions of privacy that they did not sign up to.
The FCA has, at this stage, ordered a ëcall for input ‘; that is, a request for data and opinion that is used in order to test the water, so to speak, before the launch of a full-scale market investigation. The study that follows could lead to various different courses of action being taken, from shutting down of certain bodies within the market, to referral to the CMA.
The Association of British Insurers conducted a survey that found that 71% of customers would not be happy if information from their social media profiles was used in this way to calculate the prices of the plans that they are offered.
The ABI did maintain though that use of big data is beneficial, and that it “can make insurance work better for customers by improving the claims experience and creating personalised and innovative products.” They were also quick to point out that the all of the personal data was treated “sensitively and securely.”
PwC insurance director Craig Skinner also pointed to the importance of the use of big data by insurance companies, but did also warn of the “ethical considerations around the use of certain data that has been captured.” He said that “much of the information stored, and used within an insurer, is relevant to the individual and therefore needs to be handled with care.”
This need for caution and care is essentially the crux of the FCA ‘s proposal. Chris Woolard, the policy and competition director at the FCA said that “big data is having an ever-growing social and commercial impact and has the potential to transform practises and products across financial services.”
“We are starting out work on big data by seeking to better understand how insurance firms are using data, and how this may evolve in the future,” he said.