The growth of fintech and the wider use of big data will revolutionise insurance but could create an uninsurable ‘underclass’, according to new research.
The Financial Technology Risk Report, published today by the Chartered Insurance Institute (CII) and Cicero, concludes that big data is providing insurers with a level of individualised data that could lead to expensive insurance for higher risk individuals, raising the fear they could be priced out of the market completely.
The research identifies the huge opportunity for big data to give insurers more individualised data to assess risk. British consumers like risk-based pricing and also like the idea that they can cut the cost of their insurance through better behaviour, such as safer driving or adopting a healthier lifestyle says the report. But this also means those who have inherited medical conditions or have a higher propensity to claim may pay more for cover.
The report argues insurers are faced with a dilemma to determine where the tipping point is between pooled risk and individualised pricing.
CII director of policy and public affairs David Thomson says: “The volume of consumer data, or ‘big data’, has grown exponentially over recent years. 90 per cent of all the world’s data has been created in just the past two years. It has the potential to be immensely valuable to businesses for numerous reasons, but it also raises serious questions about the personalisation of risk versus the principle of pooled-risk. Insurance professionals have a key role to play in recognising the wider impact on society when applying big data and ensure in the need to embrace the new opportunities the social value of insurance is not undermined.”
Cicero Group executive director John Rowland says: “The emergence of fintech is both a threat and an opportunity to the sector. This presents a challenge for both the industry and regulators. Accurately identifying the difference between the two will be one of the key on-going challenges in the years ahead.”