The Financial Conduct Authority (FCA) has launched a ‘Call for Inputs’ in order to understand better how general insurance firms use Big Data. Although the collection and usage of data has been essential for the insurance industry for a long time, the FCA believes that the use of new data sources requires investigation in order to assess how Big Data will change the industry over the next five years. The Call for Inputs looks at four main areas and requests feedback from the industry and from customers:
- New sources of data. Data has historically been used to assess customers’ risk profile in order to understand the underwriting risk that they represent and the appropriate premium that should be charged. However, new sources of data are being used in general insurance (particularly home and motor) such as telematics boxes, data retrieved from shopping habits and personal devices and information sourced from third party providers such as price comparison websites and social media. The FCA is therefore keen to collect information from insurers on how the sources and types of data being used has changed and is likely to change further over the next five years.
- The impact of Big Data upon customers. The FCA wishes to review how usage of Big Data might affect consumer outcomes. In particular, the FCA seeks to understand how use of Big Data may result in the increased segmentation of risk pools. As more information becomes available and improved predictive techniques are used, insurers may be able to estimate risks on a more granular level. This ability to segment potential customers on the basis of greater information may have different outcomes for consumers who might previously been considered to fall into one generic risk pool. Depending on the decisions taken by insurers, greater ability to segment the risk pool may result in new lines of business opening up for specific customers who might otherwise have been excluded from coverage but may also result in some customers being unable to buy insurance. The latter outcome is a particular concern for the FCA in relation to vulnerable consumers.
- Competition. The Call for Inputs seeks information in order to help the FCA understand how consumers find, understand and choose products that best meet their needs and to understand how Big Data helps or hinders consumers’ ability to assess information and select products. They also wish to discover how Big Data affects the behaviour of firms in terms of the products that they offer to their customers and how firms interact with each other and third party providers. The FCA is also seeking feedback on market disruption and views on the barriers that businesses face when they try to enter Big Data-driven underwriting.
- Regulatory framework. Finally, the FCA is seeking feedback on whether the existing regulatory framework either constrains or fosters the use of Big Data and whether any changes should be made to support innovation in the products that can be offered in the interests of consumers.
The FCA is seeking responses to the questions included in the Call for Inputs on Big Data by 8 January 2016.
