Much of the attention being given to the impact that big data will have on insurance focuses on the personal insurance market. Yet the impact of big data could be just as significant for commercial insurances. And it raises an important ethical question, again around disclosure.
All sorts of engines, systems and machinery are insured in the commercial markets. And that machinery is increasingly coming with all sorts of internet enabled monitoring devices. So the engine will have sensors embedded into it that streams performance data to a central hub, where it is assessed for significance. When tolerance levels are exceeded, decisions will have to be made, about whether to take the engine off-line and check it for any problems. Those checks could be quite intrusive, so such decisions may not be taken lightly. On the other hand, it might simply result in the engine coming in earlier than usual for maintenance.
The ethical question resolves how those tolerance levels are agreed and the decisions associated with them. A manufacturer will want key pieces of machinery to be subject to as little downtime as possible and so might be somewhat tolerant of all that streaming data signalling an amber light. An insurer on the other hand will want to minimise their exposure to loss and so could be less tolerant of those amber lights. Better for the machine to be offline for a while rather than burst into flames, with all sorts of business interruption risk.
This creates a potentially tense situation at the time of a claim. Was the machine’s maintenance schedule detailed enough or even adhered to? Were warning signs acted upon with sufficient promptness? All sorts of policy clauses can be pointed to in such circumstances. The question, as ever, is around their intention and their interpretation.
Insurers and firms need to develop a mechanism to help keep the interests of both sides to the insurance contract aligned. That mechanism needs to be able to distinguish between a tolerable maintenance issue and a potential loss in the making.
Big data is going to reveal many new insights: that’s how it’s often defined in the first place. Some insights will shake up the status quo and prove disruptive to existing business practices. This is to be expected. Now is the time for commercial insurers and industrial firms to start preparing for them.