|Big data analytics can encourage people and businesses to change their ways / Photo Credit: Jisrak (via Shutterstock)|
The Global Federation of Insurance Association (GFIA) said that “premature intervention” could hinder innovation and undermine the effectiveness of the insurance market, which could become unfit for purpose due to technological advancements and market developments,” according to Terry Gangcuangco of Insurance Business, a news platform for insurance professionals.
This is the GFIA’s stance “on the issue of supervision” with regard to big data analytics (BDA) and its role in insurance. GFIA responded to a consultation by the International Association of Insurance Supervisors (IAIS), outlining the reasons why imposing limitations on insurers might not be a plausible idea.
GFIA explained that BDA is a tool that can assess risk more accurately than traditional underwriting and rating models. It sends signals to people and businesses to prompt them to “change their behavior and invest in measures to improve their risk profile.” When supervisors limit how insurers apply BDA to keep insurance affordable to high-risk customers in the short-term, it could result in adverse customer outcomes in the long run.
GFIA added that insurers have been working for decades on finetuning their underwriting and rating practices to provide insurance at prices that reflect each customer’s unique risk profiles. “BDA is just another innovation to help insurers achieve that objective,” they added. There are possible risks in using BDA.
The group asserted, “While the previous innovations brought significant change to the market, consumers always benefited from more product choice and more pricing options.” However, GFIA does not see any reason for the IAIS to assume that employing new techniques in insurance will be detrimental to consumers.
The trade group believed that existing government standards are sufficient enough to ensure good governance of the use of BDA. Most insurance supervisors have implemented comprehensive regulations governing insurer underwriting. Moreover, similar data use and privacy laws are enforced in other jurisdictions.
GFIA recommended IAIS to document the main laws and regulations all over the globe before it issuing its supervisory guidance on BDA. GFIA said, “This way, any subsequent IAIS guidance on BDA would complement the existing laws and regulations which GFIA views as robust.”