Big Data and Insurance: Implications for Innovation, Competition and Privacy

Advances in big data analytics, artificial intelligence and the Internet of Things promise to fundamentally transform the insurance industry and the role data plays in insurance.

New sources of digital data, for example in online media and the Internet of Things, reveal information about behaviours, habits and lifestyles that allows us to assess individual risks much better than before.

In many instances, better data makes it possible to better align premiums and risks and to reduce the overall cost of insurance. This has great economic and societal benefits in that it allows premiums to signal risks, reduces the cost of informational asymmetries in insurance markets, and enhances efficiency, thereby boosting insurance protection.

But arguably the greatest societal benefits come from the potential to reduce risks through better data and new digital technologies. The ubiquitous availability of vast amounts of data and the ability to analyse it allow for individual and dynamic risk assessment and a continuous feedback loop to policyholders, with no or limited human interaction. By providing risk insights to policyholders, such ‘digital monitoring’ encourages behavioural change to reduce risks. Moreover, new data sources allow for the implementation of advanced risk management systems that use predictive analytics as a basis for early intervention and risk prevention. Ultimately, these technologies allow the role of insurance to evolve from pure risk protection towards predicting and preventing risks.

These benefits do not come without a cost, however. In the public debate, many concerns have been raised. These can be grouped into concerns about privacy, concerns about individualisation of insurance, and concerns about competition.

Privacy concerns include concerns about fairness and discrimination, intrusiveness and contextual integrity of personal data. Concerns about individualisation of insurance refer to affordability and exclusion, implications for solidarity and risk pooling as well as premium volatility. Finally, concerns about competition include potential abuse of market power, the level playing field and market transparency.

Download the full report

Written by The Geneva Association