The Impact of Big Data on the Future of Insurance

The Actuaries Institute released this Green Paper on how Big Data is transforming the insurance industry and the implications for the cost and availability of insurance for all consumers.

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Commissioned by the Institute and prepared by Deloitte Australia, the report considers some of the public policy issues that will face society as insurers price policies on a more individualised risk basis.

The Impact of Big Data on the Future of Insurance

Key findings include:

  • Through better understanding of the consumer’s behaviour and risk profile, insurers will be able to provide closely tailored and more accurately priced products. They will better identify risks that individual customers may be facing and use price signals to change their behaviour. However, the insurer’s responsibility to disclose risk information to the consumer is unclear and may prove contentious.
  • Governments may have a role to play when competitive insurance markets do not deliver adequate cover at an affordable price for all, as is the case today for certain compulsory lines. This is especially so when the underlying risk is beyond the consumer’s control. A key issue is whether society wants individuals to pay a price for insurance that reflects their risk or should everyone have access to affordable insurance regardless of the risk? Policymakers will need to consider a balance between these two approaches, and one which will likely vary across different areas of the insurance market.
  • Questions for policymakers will arise around privacy issues, who owns the information, what personal data might be used for and to whom it may be passed
  • Improved risk pricing may also include “uncontrollable risks,” such as genetic make-up, where “the use of big data will raise unaffordability issues that cannot be mitigated by the individual modifying the risk”. These issues have society-wide and public policy implications.

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