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Big data? No problem for current insurance regulations, researchers say

Posted On: Apr. 4, 2017 7:00 AM CST

The insurance industry’s current regulatory system is well-suited to address concerns about big data, and creating additional regulations would unnecessarily delay its beneficial effects on insurance markets, according to a recently released study.

The report, “Big Data and Regulation in the Insurance Industry” was written by Lawrence Powell, executive director at the Alabama Center for Insurance Information and Research, at the University of Alabama in Tuscaloosa.
 
Mr. Powell said he wrote the study to assist the National Association of Insurance Commissioners as it evaluates the need for additional regulation or regulatory resources to protect consumers from insurers’ use of big data.

He said that he was surprised by the lack of complaints regarding big data, noting in the report that “big data applications are less biased than any other potential method of claims handling; in fact, big data can mitigate problems of bias if they exist in the claims process.”

“If big data is treated by regulators as more of a threat than an opportunity, consumers will not realize the potential benefits of big data in insurance markets,” the report said. “However, by applying current rules and regulations, regulators can maintain the high level of consumer protection while ushering in a new wave of consumer-friendly innovation.”

Mr. Powell wrote that he noted the scarcity of consumer complaints related to concerns voiced in the NAIC big data task force. He said he collected complaint data from the NAIC’s Consumer Information Source website for 2015 in three categories: number of complaints by coverage type, reasons why complaints were submitted, and final decisions regarding complaints.

“You would think that if this was a problem that required a large, new regulatory apparatus you would see people speaking out about it and that’s just not the case,” Mr. Powell said. “The complaints and problems that do show up in the insurance industry are few and far between.”

Among other things, Mr. Powell said big data applications offer insurance companies an opportunity to make pricing more accurate, improve customer satisfaction, improve efficiency, and identify and reduce insurance fraud. big data can also improve the online customer experience, he said, and to create new insurance products to meet consumer demands.

“The most intuitive role for big data in insurance operations is to more accurately match premiums and losses through pricing and underwriting,” Mr. Powell wrote. 
 
Telematics is an early example of big data in insurance pricing, Mr. Powell said, where devices collect real-time data about the driving behavior of policyholders and record such variables as mileage driven, speed, time, location, braking, cornering and lane changes. A driver’s premium can be tailored through the use of this information for a pay-how-you-drive plan.

“In many cases, these devices provide immediate feedback to drivers on their driving behavior,” the report said. “By providing feedback, or even just the knowledge that the insurer is monitoring the driver, automobile crashes, and attendant injuries and fatalities are sure to decline.”

The report said that using data from telematics devices, insurers can charge prices that reflect risk of automobile crashes much more accurately than by using historical loss and demographic data. 

“This type of application has the additional benefit to society of decreasing frequency and severity of losses,” the report said.

Ken Wright, head of broker development for Axa S.A., said in an email that “big data “can make sense of patterns.” 

“It can help insurers understand what issues individual customers face time and time again so that we can better educate, mitigate and protect,” he wrote.

In order to simply to maximize the data, Mr. Wright said, “you need to invest in new technology and people — data is their oxygen.”