In an era of technological advancements and an increasingly connected world, the insurance market is witnessing a surge in the use of data collection from alternative sources. Insurers, alongside insurtech ventures, have traditionally relied on insureds’ information obtained through proposal forms to assess risks and set policy prices. However, the rise of wearable technology and other innovative data sources has enabled insurers to gather an unprecedented amount of information from prospective policyholders. While this evolution in data collection holds promising possibilities for product design and distribution, it also raises concerns regarding consumer protection and potential discrimination. Clyde & Co, a leading global law firm, predicts that regulators will step up scrutiny of insurers and insurtechs to safeguard consumer interests.
Traditional Data Collection Methods vs. Alternative Sources
Historically, insurers have heavily relied on proposal forms to gather essential information from their customers. These forms ask a series of questions regarding the individual’s health, lifestyle, and other factors that impact the risk associated with insuring them. However, the advent of wearable technology and interconnected devices has broadened the scope of data collection. Insurers can now access a wide range of information from alternative sources such as fitness trackers, smartwatches, and even smartphone apps. This shift from traditional methods to alternative sources presents insurers with more comprehensive and real-time insights into their customers’ behaviors and lifestyles.
Regulatory Scrutiny of Data Collection
Avryl Lattin, a corporate regulatory partner at Clyde & Co, warns that this increased reliance on alternative data sources is likely to attract greater regulatory scrutiny. While data-driven innovation can lead to more personalized and tailored insurance offerings, it also raises concerns about potential discrimination against certain individuals or groups. Regulators will be vigilant in ensuring that insurers and insurtech ventures don’t misuse collected data to discriminate or exclude insureds. By focusing on stringent oversight, regulators aim to strike a balance between encouraging innovation and protecting consumer interests.
Focus on Technological Data Points
As the insurance industry embraces an evolutionary shift in distribution models, regulatory attention will primarily be directed toward the increased provision of data through technology-based data points. This shift reflects the industry’s adaptation to changing customer behavior and preferences. With an abundance of data available through digital channels, insurers can enhance risk assessments, pricing models, and policy recommendations. However, the proper utilization of this data presents both opportunities and challenges to insurers and insurtech ventures.
Protection of Consumer Interests
Regulators are keen on ramping up their protection of consumer interests in response to the digitization of the insurance industry. They recognize the power that data holds and aim to ensure that collected information is not misused to discriminate against or exclude certain individuals. Data privacy, consent, and transparency are key factors in establishing a trustworthy relationship between insurers and policyholders. Regulators aim to strike a balance between the benefits of data-driven underwriting and the fair treatment of all insured individuals.
Regulatory Action on Mental Health Exclusions
Recently, Australia has witnessed a rise in regulatory action against insurers concerning mental health exclusions in insurance policies. This highlights the practical difficulties insurers face when complying with the partial exemption for discrimination in underwriting. The law provides that discrimination based on actuarial or statistical data, on which it is reasonable to rely, is not unlawful unless such data is not available. Insurers falling outside the scope of this exemption struggle to demonstrate to regulators that they relied on such data during the underwriting process.
Demonstrating Reliance on Actuarial or Statistical Data
Insurers grappling with the partial exemption face inherent challenges in proving their reliance on actuarial or statistical data during underwriting. The evolving landscape of data collection intensifies the burden on insurers to adequately demonstrate that they have used reasonable data sources. This requires insurers to adopt robust processes, documentation, and methodologies that ensure compliance with regulations. Failure to do so may result in regulatory action and reputational damage.
Warning for Insurers and Insurtech Ventures
The practical difficulties faced by insurers regarding compliance with the partial exemption serve as a warning for the insurance industry as a whole, including insurtech ventures. As the channels for data collection continue to evolve, insurers and insurtechs must establish efficient processes to ensure that data sourced from innovative technological channels is appropriately utilized in the underwriting process. Collaboration between industry players, regulators, and consumers is crucial for developing frameworks that foster innovation while safeguarding consumer interests.
As the insurance market embraces data-driven technologies, regulators are poised to intensify scrutiny to protect consumer interests. The emergence of alternative data sources presents insurers with new opportunities to refine risk assessment and policy offerings. However, a careful balance must be struck to avoid discriminatory practices and ensure fair treatment for all insureds. Insurers and insurtech ventures must proactively adapt their processes and methodologies to meet regulatory expectations. By doing so, they can confidently navigate the evolving landscape of data collection and deliver innovative insurance solutions that benefit both the industry and the insured.