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'Big data' could leave some insurance customers worse off, says regulator

Published 21/09/2016

The FCA plans to look into the pricing practices of a number of general insurance firms later this year
The FCA plans to look into the pricing practices of a number of general insurance firms later this year

Some insurance customers could be left worse off financially by firms using "big data", including information gleaned from shopping habits and social media postings, the City regulator has said.

The Financial Conduct Authority (FCA) said last year that it wanted to better understand how general insurance firms' use of big data affects consumers. Big data is information brought together from a range of sources including store cards, loyalty cards and social media postings.

After looking into the sector, the FCA said on Wednesday that big data provides a "range of benefits" for customers taking out motor and home insurance, by encouraging more product innovation and reducing form-filling. As it considers firms' use of data is broadly working well, it has decided not to launch an in-depth market study.

But the regulator also raised concerns that use of big data may enhance firms' ability to find opportunities to charge certain customers more. Some customers considered a higher risk may also find it harder to obtain insurance, the regulator said.

The FCA said the increasing amounts of data available from a wider range of sources, alongside sophisticated analytical tools, might lead to the use of reasons other than risk and cost in pricing becoming more of an influence.

It plans to look into the pricing practices of a number of general insurance firms later this year.

The regulator said it will "remain alert" to the potential exclusion of higher risk customers and will engage with Government if concerns begin to develop because of how firms are using big data.

The FCA has also reminded firms of their responsibilities to consumers, particularly ensuring that use of data is in line with data protection legislation.

Christopher Woolard, director of strategy and competition at the FCA, said: "There is potential for big data to transform practices across general insurance markets, and some consumers are already seeing benefits, but there are also some risks to consumer outcomes.

"While we have decided not to launch a full market study, we are undertaking further work in this area and with the Information Commissioner's Office to ensure our rules and policies keep pace with developments in the market, but also do not prevent positive innovations."

The FCA said a review into parts of the general insurance sector had indicated that concerns that some customers with higher risks could be left unable to obtain affordable insurance were not yet materialising.

James Bridge, head of conduct regulation at the Association of British Insurers (ABI), said: "Insurers believe that big data can make insurance work better for customers, improving the claims experience and creating personalised and innovative products.

"It's good to hear that the FCA's findings are in line with this, with the call for input concluding there are 'broadly positive consumer outcomes'.

"Insurers take their responsibilities regarding data very seriously and we will continue to work with the FCA and ICO to ensure that approaches to data work well for customers."

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