15 March 2018

Commercial Risk Europe: Regulators need to strike balance between data protection and risk innovation: Geneva Association

The use of big data analytics in insurance offers huge potential benefits for the way risks are assessed and priced, thus reducing costs and making cover more readily available and affordable for individuals and businesses alike. If applied well, the whole emphasis of the insurance sector should shift from pure risk protection towards risk prediction, management and prevention.

But future policy decisions about how data could and should be used primarily to protect individual human rights could seriously hamper this potentially game-changing development. Also, new competitors such as technology companies could use their access to rich customer data to drive out traditional insurance companies and basically take advantage of the fact that they are not regulated in the same manner.

These are some of the conclusions of a new research report from the Geneva Association, entitled Big Data and Insurance: Implications for Innovation, Competition and Privacy.

The report concludes that significant societal benefits could be drawn from big data, as improved understanding of risks can inform risk reduction and enhance insurability. However, it warns that individuals, firms and regulators face complex trade-offs as they try to balance the benefits and risks that emanate from the use of personal data from digital sources to calculate insurance premiums.

The Geneva Association report stresses that the societal and regulatory debate about the “appropriate” use of personal data and the implications of the ongoing digital transformation in the insurance industry has only just begun. “In this context, policy choices can have far-reaching consequences for the future face of the industry, its socioeconomic relevance and the value it creates for its customers,” it states.

As the report was published this week, Anna Maria D’Hulster, secretary general of The Geneva Association, said: “In many instances, better data makes it possible to better align premiums and risks and to reduce the overall cost of insurance. This has great economic and societal benefits. New approaches to encourage prudent behaviour can be envisaged through big data, thus new technologies allow the role of insurance to evolve from pure risk protection towards risk prediction and prevention. However, the use of big data in insurance also raises trade-offs with respect to competition, individualisation of products and customer privacy.”

Full article on Commercial Risk (subscription required)

Full report

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