Insurers have always needed to know something about us in order to assess the risk we’re seeking insurance for. That puts who we are and how we behave at the heart of the underwriting process. It also helps make identification one of the key privacy issues that insurers need to understand and take on board.
At the same time, information technology has helped underwriting become more and more sophisticated, allowing nuances of risk to be tracked and reflected in pricing. Often referred to as lifestyle underwriting, it relies on attaching ever increasing amounts of data to the personal profiles insurers hold about each of us.
It’s a trend that will continue into the future, with new technologies emerging capable of gathering almost microscopic amounts of our personal data. This new era of ‘big data’ will bring insurance much closer into our personal lives. This is not altogether new: insurance has always had some implications for how we live our lives (our driving habits for example). However, ‘big data’ is going to scale up those implications quite considerably.
Insurers will be expected to understand the privacy issues this trend raises and to engage with the public in finding a balanced way forward. It is about balance, for the ever more detailed identities insurers hold for us has both ethical upsides and downsides.
So, for example, the more insurers know about us, the less they have to rely on broad (and sometimes unfair) approximations of risk (think gender and driving). Our premiums and cover then more closely reflect the risk we present, which has a great deal of fairness about it. On the other hand, if those identities held by insurers become so incredibly detailed that the pooling principle fundamental to insurance is undermined, then a great deal of unfairness also emerges. Where is that balance going to be struck and who will decide this?
Such questions are invariably addressed at both the societal and individual levels. At the moment, we can individually choose whether to have a telematics box fitted to our car, while here in the UK, insurers’ access to genetic tests results is subject to a market agreement with the Government.
This dual approach to finding that balance between an insurer’s right to know and an individual’s right to privacy is likely to be relied on for quite some time. It will however face some challenging moments. How will the market agreement on access to genetic test results hold up in the face of technological advances that have caused the cost and speed of such tests to plummet? Can insurers make access to our social networking accounts a condition of certain types of insurance? Do they have the right to know our every movement through mandatory telematics?
And should we grant access to what we might feel is privileged information about ourselves, can insurers then be relied upon to make fair judgements when interpreting that new dimension to our identities? The track record of insurers has been somewhat chequered on this.
An early marker for the emergence of this privacy debate could be an increasing number of policyholders wanting to know more about the information held by insurers about them. The increased use of external data sources by insurers in a post ‘utmost good faith’ world and new data access regulations being brought in by the EU will influence this emergence.
Handled sensibly, issues around identification will transform the market and the value that policyholders gain from participating in it. However, handled badly, issues around identification will become as controversial as payment protection insurance is today.