The UK regulator of financial services has shelved its plans for a market study into the use of big data in general insurance. What sort of signals does that decision send? Here are five that stand out.
Carry on as you are
While the Financial Conduct Authority (FCA) will not be ignoring big data altogether, the steps they intend taking over the next few months are relatively minor. So the main signal their feedback sends to the insurance market is ‘carry on as you are’. When a regulator talks of price discrimination being “not necessarily problematic” and doing a ‘piece of work’ on pricing practices in a “limited number of firms” in the retail general insurance market, that will be read by the market as a green light to continue leveraging data for individualised, non risk based pricing. This is in stark contrast to the direction of state regulators in the US insurance market.
The narrative in the FCA’s report seems to be orientated very much around a business voice. The absence of a resonant and informed voice from outside of the insurance sector brings a weakness to their findings. No one, including the FCA, seems to be questioning (let alone challenging) either the guiding rationale or practical implementation of big data in insurance. This is again in stark contrast to the position in the US insurance market.
Trusting, not Trust
It is intriguing that a 62 page report on big data contains neither the word trust nor the word justice, yet both lie at the heart of how consumers will respond to the big data trend driving innovation in insurance at the moment. The FCA seems to have absorbed the ‘trust us’ message that market representatives have been emphasising in recent years. It’s hardly surprising therefore that the report’s emphasis is much more on the upside offered by big data, than on the downside it can introduce.
Any influential commentator on ‘big data, business and society’ will tell you to focus not on what is happening now (too late and little chance to change), but to focus on what is coming over the horizon. The FCA’s eyes seem to be pointing very firmly at the present. This hardly positions them as a forward looking regulator.
Lacking Analytical Prowess
The FCA has decided to forego the opportunity to acquire the means to track the emergence of any downsides, again in stark contrast to US state regulators. This may point to a lack of analytical prowess at the UK regulator, and a passivity that the UK Parliament has already criticised it for. This seems odd, given that the FCA’s new chief executive comes from an organisation that sees data as the key challenge facing the regulation of UK financial services.
This week’s problems for Admiral in its use of Facebook data is one example of how insurers still have much to learn about how to utilise big data for underwriting purposes. It looks like the FCA has much to learn as well, but little appetite for doing so. That in the long run will be bad for UK insurance and for UK consumers.