SKL consultants attended the “Impact of Big Data on the future insurance” session at the Actuaries Institute that was hosted by Jenny Lyon, the President of the Actuaries Institute. This Green Paper was authored by Deloitte and commissioned by the Actuaries Institute. The key speakers were Kaise Stephen, Paul Swinhoe and Marc Mer. They discussed the positive and negative impacts of Big Data on the future insurance and the potential opportunities for the government to intervene and tackle risks that are not controllable by consumers.
Our key takes were:
- The increasing volume, velocity and granularity of data set has given insurers the opportunity to understand individual consumers’ risk better. This essentially leads to higher precision in pricing and greater premium dispersion. It also promotes better consumer behaviour through greater risk transparency. The recent technology in telematics has allowed insurers to monitor risk and thus reduce risk. By improving driving habit, one can reduce the risk of having a car accident and thus lower car insurance premium. The AIA Vitality is also a good example of how Individual positive behaviours can reduce risk greater than genetic and uncontrollable risks.
- However, with greater premium dispersion, some people will end up paying less and some will end up paying more. In other words, people will pay a “fair” premium but not a “affordable” premium. Another controversial problem is the privacy concern. Consumers have the rights to know where their personal information might be used for and who it may be passed onto. However, there is other digital information that can be accessed from social network footprint and tracked internet browsing history.
- When a “fair” premium becomes undesirable, people who face the uncontrollable risks will face higher premiums. This is where the government can intervene to help tackle the uncontrollable risks. Government can help people who live in a flood prone area to reduce the risk by building mitigation infrastructure, raising building standards and putting a cap on insurance premiums.
- Whether “fair premium” is desirable or not, it is more of a social question. However, the increasing data availability has given insurers the opportunities to review benefits and costs, enhance business processes, deepen customer relationship, and improve management of insurance portfolio.
