The Ethical Challenges facing Open Insurance

  • 21 April 2021

Open Insurance is being positioned as the next significant step forward for the insurance sector. It will energise the market, facilitate innovation and deliver all sorts of benefits to consumers. Well, that’s what is being promised. The reality might be different, for several ethical weaknesses are obvious. Some of these weaknesses are pretty fundamental and need to be addressed before open insurance gathers momentum. In today’s post, I’ll outline these weaknesses and raise five points that insurers need to be address.

Trust

The fundamental challenge facing open insurance is around the extent to which consumers trust insurers with their data. Without that trust, consumers will simply not engage with open insurance, so turning it into a massively poor investment by the insurers involved.

So to what extent do consumers trust insurers with their data? A survey in 2019 commissioned by the UK insurer trade body found very low levels of trust. Consumers said they were cautious and sceptical about how their data was being used by insurers. They saw new data initiatives as designed to work in the insurer’s interests rather than their own.

Nearly nine out of ten were concerned that organisations were selling or sharing their data without permission to do so. And more than half were uncomfortable with this even when they have given permission for their data to be shared.

What this points to then is a massive hurdle that insurers need to overcome before consumers will engage with open insurance. And it exists because insurers have not paid sufficient attention to things like consent.

Consent

The ABI research found poor levels of consumer trust in insurers’ handling of consent. And such concerns are hardly a surprise, given how generic is the standard form of consent used in the market. Academics have told me how surprised they are to find insurers being allowed, in essence, to obtain anything that interests them, and to use it how they wish.

In contrast, the emphasis with open insurance is that it relies on a clear framework for explicit and informed consent being in place for dealings with consumers. So how is this yawning gap in consent perspectives to be bridged? Can we expect insurers to move from generic to specific forms of consent? I doubt it. Yet without it, can consumer consent ever be informed?

The problem here is not that insurers are not trusted to reliably handle the consent they’ve gathered from consumers. It is that insurers are using a form of consent that will always struggle to build trust with consumers. So this is more about the sector’s consent strategy, and less about actually doing what it says on the ‘consent lid’.

Some in the market will say that insurers are free to set their own levels of consent. And indeed, this is a feature of private markets. Yet another feature of private markets is that consumers need to have trust in them. So if insurers want to evolve the personal lines market into an ‘open insurance’ model, they’ll face a choose between their consent or consumer’s trust.

Consumers

Recent reports (such as these by the FCA and EIOPA) highlighted a lack of consumer centricity in how open finance initiatives are being developed. Too often, such initiatives appear to be technology-led rather than consumer-led. And those consumers who are aware of open insurance initiatives see a lack of benefits and data privacy as barriers to engaging with them.

In response, participants are calling for ‘compelling use cases’ and Government education to generate the uptake needed for open finance initiatives to succeed. These will help, but they are not substitutes for what matters to consumers, which is trust on data and meaningful benefits.

The danger is that the market may be talking ‘open insurance’ but be working towards ‘open data’. In essence, having data sharing at the centre of open insurance, rather than the consumer. What happens then is that consumer benefits are framed around sharing, rather than around what matters to consumers.

This begins to feel like driving a car in the right direction down a motorway, but doing so in reverse. Not a reliable or safe way of moving forward.

Access

The common narrative in reports on open insurance is that it will improve access to insurance. Yet the thread followed by those narratives is often more about improving product access for those already able to access insurance. What is missing in comparable measure are two equally important threads – how open insurance improves (or not) access for those who already find insurance difficult to access, and how open insurance may in fact reduce access to people currently able to access insurance.

Am I complaining about such reports being pot half full rather than pot half empty? Not really. It’s just that I judge benefits in context, and a fundamental part of the context for insurance per se is the fairness of access. I want to see who benefits and how, and I want to see who loses out and how.

Am I asking too much in what after all are still the early days of open insurance? Not really, for it is in the early days of initiatives that priorities are set. I would like open insurance’s priorities to be thought through more thoroughly and strategically, starting from a consumer perspective.

Compulsion

An oft raised point about making open insurance a success is that it should be made compulsory for insurers to take part in it. And on a firm to firm basis, I can understand the reasoning for this. However, such compulsion could have knock-on effects in relation to the customer, and in particular, the issue of back book products.

To realise a return on their investment, an insurer might be tempted to organise their product range so as to achieve economies of scale in open insurance. Combined with the repercussions of the recent personal lines pricing review, this raises the prospect of insurers organising their business so as to differentiate the competitiveness of their front book and back book business. This would, to all intents and purposes, mean the consumer has to consent to their data being shared in order to obtain a reasonable, let alone competitive, product and/or premium.

Data

There’s widespread recognition that open insurance raises a number of data ethics issues. Unfortunately, there’s little more than recognition at the moment. It feels like they’re being raised simply to show that they haven’t been forgotten.

Given how strong is consumer sentiment around insurance / data / trust, and given how central consent is to the delivery of open insurance, recognition is nice but not enough. There needs to be a much clearer position taken on staging. Are data ethics issues to be addressed before open insurance takes off? Or are they to be handled while open insurance is already in implementation? The tone so far seems to be much more the latter.

Am I asking too much? In essence, can data ethics be solved before open insurance launches? That’s not quite what I’m saying. What I am seeing are two things. On the one hand, I’m hearing rumours that the FCA is not currently progressing their commitment to look at data ethics. And we know that they’ve publicly stated that the implications of personalisation is not something they’re going to consider. In other words, their interest in data, ethics and trust is being parked. On the other hand, the FCA’s open insurance report has a ‘let’s move this forward’ narrative running through it.

Data ethics and open insurance are both complex, but the UK regulator is signalling its preference for innovation over ethics. That could be a risky approach, given that consumer research points, to their acceptance of innovation being dependent on ethics.

Looking Forward

Having studied innovation at postgraduate level, I’m more than familiar with the different ways in which innovation can move forward, and the issues that can emerge if this is not done right. My starting point therefore is that there is no single ‘this is how it has to be’. Choices exist and should be addressed.

Perhaps the biggest choice facing the insurance establishment in respect of open insurance is the relative positioning of consumer interests and sector interests. My worry is that open insurance is already in danger of descending into a massive data sharing exercise, with consumer benefits becoming patchy and feeling minor compared with their unaddressed concerns.  

To start safeguarding the future for open insurance, these five steps would point the sector in the right direction…

  • Do much more to convince consumers to trust them with their data
  • Revisit consent strategies
  • Put consumers interests before sector interests in how open insurance is developed
  • Be balanced and transparent about both the benefits and impacts of open insurance
  • Address data ethics issues before open insurance gathers momentum
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