The advent of big data and sophisticated analytics has brought about a great excitement for the future of life and health underwriting. New products, simpler processes, wider access and greater engagement have all been much talked about. And indeed, we have seen progress on all of these fronts. It’s an exciting time to be in the market.
That’s one of the narratives. The other narrative is set out in some recent legislative developments. In the EU, there’s the European Health Data Space (EHDS) and the Artificial Intelligence Act. In the US, there’s the National Association of Insurance Commissioner’s (NAIC) AI Model Law. And in the UK, there’s the much anticipated decision from the Information Commissioner’s Office (ICO) on biometric classification.
That second narrative is putting limits and barriers on how health data can be collected and analysed. So, for example, the EHDS legislation bans the use of secondary health data for insurance purposes (more here). And in the US, the NAIC AI Model Law is behind the move by some insurers away from secondary health data (more here). The UK’s ICO stated in 2022 that they’d yet to see any form of emotional AI that complied with data protection legislation (more here).
Uncertain Future
These two narratives clearly don’t sit well together. Indeed, the overall stories they convey for the future of life and health insurance seem to be pretty incompatible. So where is the ‘happy ending’ going to lie?
The first point to bear in mind is that all of this legislation has only recently been enacted or introduced. The meaning of some of the articles and clauses will now be the subject of much debate. Bear in mind though that the starting point for that debate is legal wordings that cannot be changed. This will mean that its interpretation will at times feel like between a rock and a hard place.
The second point to bear in mind is that policy makers, in listening to the arguments put to them that shaped all this legislation, will still want to see new products, simpler processes, wider access and greater engagement coming out of the sector. Is this a case of ‘cake and eat it’ then? I don’t think so. What they’re looking for are new products etc that fit within the legal and social justice frameworks created by their legislation.
Like it or not, the life and health sector needs to revise its narrative. For sure, the interpretation of all that legislation will establish leeways here and there, but the core position of policy makers will not substantially change.
A Lot of Rethinking
As a result, data lochs will have to be trawled for data that can now no longer be so freely used. Digital decision systems will have to be reconfigured to make sure their outputs are still legal. And I can’t think of a rating factor that will not need to have its scope and depth checked.
Two things strike me. Firstly, this work will involve a lot of rethinking, and that will be tough for firms to do properly, given how embedded that first narrative has become. It will involve not just the technology, but also the management practices and strategies around it.
Secondly, insurers and reinsurers will not want to do this sort of rethink on repeat. To avoid that, they will need to adopt a stronger pricing philosophy and adapt their pricing culture to match it.
