The European Insurance and Occupational Pensions Authority (EIOPA) has published a report on the use of Big Data Analytics in motor and health insurance. The report reveals a trend for increasingly data-driven business models throughout the insurance value chain in both health and motor insurance.
Following the publication in March 2018 by the joint Committee of the European Supervisory Authorities of a cross-sectorial report on the uses of Big Data by financial institutions, EIOPA undertook a thematic review on the use, and potential benefits, of Big Data Analytics in insurance.
The evidence gathered for this report reveals that there are many opportunities arising from the use of Big Data Analytics but there are also risks. In particular, EIOPA identifies that ethical issues arise in respect of the fairness of the use of Big Data Analytics as well as the transparency and auditability and the ability to comprehend applications such as artificial intelligence.
The report identifies:
- Increased use by insurers of new data sources such as social media profiles and telematics data alongside traditional data sources. This use of combined types of data is creating opportunities for increasingly tailored products and services.
- Credit, driving and claims scores created with algorithms by third party data vendors has grown.
- The use of Big Data Analytics is leading to a greater number of smaller risk pools.
- 3% of firms are now using tools such as artificial intelligence or machine learning; while 24% are at proof-of-concept stage in applying such tools.
- Cloud computing services represent a key enabler for data analytics and agility and are now used by 33% of insurance firms. Data security and consumer protection is a concern for firms using such outsourced services.
- Robo-advisors and chatbot applications are gaining momentum in the market. The ‘Internet of Things’ will drive greater use of usage-based insurance products.
- No evidence that an increasing granularity of risk assessments causes exclusion risks for vulnerable customers but this is an anticipated outcome as use of Big Data Analytics develops.EIOPA’s InsurTech Task Force will conduct further work in respect of the amplified risks posed by the use of Big Data Analytics, namely ethical concerns and transparency, accuracy, auditability and comprehension.
EIOPA’s InsurTech Task Force will conduct further work in respect of the amplified risks posed by the use of Big Data Analytics, namely ethical concerns and transparency, accuracy, auditability and comprehension.