The Fundamental Challenges that Insurance faces from Data Analytics

  • 15 July 2019

In October 2012, in a speech to the Financial Services Forum, I offering this prediction:

“I believe that over the next five years, tensions between the insurance industry and the general public around privacy issues will grow to be as controversial as the mis-selling of payment protection insurance is today.” 

I went on to outline ‘three big uncertainties’ that that would be fuelling this controversy:

  • “the rapidly changing way in how insurers are acquiring underwriting information to price their products”;
  • “what we actually mean by privacy…. It’s something that we recognise more by its loss, than by its presence.”
  • “changing attitudes around what we share and make public. The rise of social networks… allow us to find out all sorts of interesting things about people. This has excited insurers, who talk of data mining these social networks for underwriting purposes.”
Move Forward to 2018

Move forward just over five years, to January 2018 and a meeting of the UK Parliament’s Treasury Committee. The chief executive of the Financial Ombudsman Bureau told the committee that they were predicting the use of customer data by the financial services industry to be responsible for the next big surge of complaints after payment protection insurance dies down.

I was 3 months out, but otherwise, I’m afraid, pretty spot on. I was a lone voice back in 2012, but there are now many raising such questions. Yet time has moved on and the nature of the question has evolved. Clearly, the central issue is the use of customer data by the financial services industry, but with insurance, the presentation of that issue is much more nuanced. The shape of the problem, as I outlined in 2012 with my three big uncertainties, has evolved.

Profound Risk

Over the past six months, you’ll have noticed (and hopefully enjoyed) a series of posts on this blog, about the fundamental challenges raised by insurers’ use of data analytics. In those posts, I’ve covered six issues that I see as so fundamental that they could expose the insurance market to profound risk. And by ‘risk’, I mean the type that disrupts markets for all the wrong reasons – trust, confidence, stability and  the like.

I spent a great deal of time in 2018 thinking over these six fundamental challenges, discussing them with academics and fellow market practitioners. I’ve trialled them in speeches, to clients and wider audiences, and evolved them accordingly. They’ve drawn on my 18 years in the market, and my 18 years as a consultant. And surprisingly, after all this time, the postgraduate research I did at the University of Manchester in 1981 on the economic, political and social nature of risk evaluation.

Back to the present then. I’ve put the six posts together into a single ‘guide’ that is now available to download from the ‘Ethics and Insurance’ website. It provides the sector with a set of independent, informed and yes, sometimes challenging views on what lies ahead. Here’s the link.

All about Insurance 

Remember that the focus of the six posts in the download  is entirely on insurance, to the point that it does not cover some of the broader themes that data analytics presents, such as accountability and explainability. Much has already been written about those broader themes elsewhere, and those writings apply to any business sector undergoing digitalisation, not just insurance. The guide addresses themes that are unique to insurance.

Like I did back in 2012, I am challenging the insurance sector to stand up and recognise these fundamental challenges. And I do so as a strong supporter of insurance, and of the need for it to innovate like any other sector. Yet I also want the market to innovate in ways that secure and build public trust.

Five years from now, in the summer of 2024, it will be very interesting to see how the market has risen to these challenges, and whether it did so voluntarily or through some form of political pressure. I hope the former, for a lot of what makes up this curious thing called trust comes from goodwill.