The U.K. Financial Conduct Authority (FCA) announced on Wednesday that its analysis of the insurance industry’s use of big data “found broadly positive consumer outcomes” and that its concerns about possible risks for consumers have not yet come true.
For example, the insurance industry can use big data to help develop new products and streamline administrative tasks, such as the sales and claims processes, the FCA says.
Yet, the FCA also identified a couple of areas in which the use of big data poses a risk of negative consequences. Specifically, big data enhances the insurance industry’s ability to segment risks, which means that some types of customers may find it harder to obtain insurance, the FCA says. As well, the FCA is also concerned that big data might “enhance firms’ ability to identify opportunities to charge certain customers more.”
That said, the FCA also found that these concerns are not yet materializing. So, the FCA declared that it has decided not to launch a full-scale study on the issue. Instead, it intends to further engage with the insurance industry.
“To assess how different pricing factors are used, we will start a piece of work to look at pricing practices,” it says.
In addition, the FCA is reminding insurers of their responsibilities to ensure that they are in compliance with consumer data protection legislation; and, it announced plans for a roundtable later this year on the use of data in the insurance industry.
“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,” says Christopher Woolard, director of strategy and competition at the FCA, in a statement.
“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,” he adds.