Secondary use has been a problematic ethical issue for insurers. On the one hand, insurers reply on information from the policyholder to underwrite the risk being presented and to handle often complex claims. At the same time, insurers have what other businesses would see as an enviable opportunity to gather and exploit all sorts of interesting bits of data about their client. That tension between need and opportunity has not always been handled well by insurers.
There are no set rules as to what an underwriter is allowed to ask of the policyholder, other than what would be considered reasonable to underwrite the risk. However, as rating methodologies for many types of policy have become more and more sophisticated, policyholders will find it increasingly hard to assess how reasonable a question really is. Seeking a quote last year, my eighteen years in insurance, with six of them managing a large household scheme, didn’t help me work out why the ages of my three young daughters should be a material factor for underwriting standard buildings and contents cover.
This information asymmetry makes it difficult for the policyholder to recognise when secondary use has taken place. This has led to some insurers sensing an opportunity to remarket data in ways that the policyholder could not envisage. This has been justified by reference to: a) the service having some potential benefit to the policyholder, and b) the policyholder having given their consent. Remember that secondary use is “the use of data for purposes unrelated to that for which it was initially collected, without the consent of the person involved”.
Such justifications have however been judged to be rather paper thin at times. The data remarketing was being undertaken for the revenue it generated, with the benefit that some policyholders gained being a convenient by-product. The consent obtained through a broadly worded declaration is weak to non-existent, as a) the policyholder has no option but to sign, and b) it is very general and completely uninformed. To be consent, it needs to be freely given (or withheld) and informed.
The classic example of secondary use in the UK insurance market has been the remarketing of claimant information by motor insurers in return for generous referral fees. Insurers have been earning several hundred pounds per non-fault claimant by selling their details on into the wider motor accident market, where it is acquired by everyone from car hire companies to personal injury lawyers. As a result, average claims costs have risen and, as I set out in an earlier post, whiplash claims inadvertently encouraged. The UK motor insurance market has since been branded as dysfunctional and referred yet again to the Competition Commission.
Secondary use undermines the public’s trust in the insurance sector. In particular, trust is undermined around just the issue that is of most importance to insurers – the gathering of risk information. If policyholders feel that their information will be exploited in ways that they find at best uncomfortable and at worst vulnerable, then they will become reticent about divulging information to insurers. That’s a slippery ethical slope for insurers to venture onto.