But the financial watchdog warns insurers not to use Big Data to penalise certain customers with higher premiums
The Financial Conduct Authority (FCA) has warned that certain British consumers could lose out because of the increasing use of Big Data by insurance firms.
But the financial watchdog said that it was broadly satisfied over the use of Big Data by insurers and said that it would not launch a full inquiry into the matter at this time.
The FCA’s findings came after it sought feedback on insurer’s use of Big Data back in November 2015, as it wanted to “better understand the use of data by firms and how this affected consumer outcomes and competition in the general insurance sector.”
It found ‘broadly positive consumer outcomes resulted from the use of Big Data’, as it said the technology helps transform how consumers interact with insurance firms. It also helps insurers develop new products, and reduces form-filling, and streamlines sales and claims processes.
But there were a couple downsides. The first risk is that that Big Data usage could mean certain categories of consumers are charged higher premiums by insurers as they begin to make greater use of ‘sophisticated analytical tools’ and increasing amounts of data from a wide range of sources.
Secondly, Big Data could also change risk parameters, meaning that certain categories of customers could find it harder to obtain insurance, but the watchdog found not evidence (at this time) of this happening.
And the watchdog viewed these risks as broadly acceptable and said that it had decided against not to launch a full inquiry at the present time. But it would “take forward” a number of measures “designed to further engage with the industry,” and would remind firms of their “responsibilities to consumers.”
“The general insurance sector is vitally important, impacting millions of consumers so it’s important that the market works well,” said Christopher Woolard, director of strategy and competition at the FCA.
“There is potential for Big Data to transform practices across general insurance markets, and some consumers are already seeing benefits but there are also some risks to consumer outcomes,” said Woolard. “While we have decided not to launch a full market study, we are undertaking further work in this area and with the Information Commissioner’s Office to ensure our rules and policies keep pace with developments in the market, but also do not prevent positive innovations.”
Big Data Impact
After many years of promise, Big Data has become an important tool for customer facing industries as information on consumer behaviour can be mined from an increasingly number of sources such as social media, search requests, and customer loyalty cards.
In the summer a London Science Museum exhibition showcased the future of Big Data and the societal implications of mass personal data collection.
Earlier this month IBM revealed new servers geared towards better handling Big Data and AI workloads.
Take our cloud in 2016 quiz here!