Plans for an in-depth review of how the insurance industry works with big data have been scrapped by the Financial Conduct Authority (FCA).
The regulator has today published a feedback statement followings its call for input on big data in retail general insurance and has found what it described as “broadly positive consumer outcomes” from the use of big data. In particular, it highlighted how the data can be used to transform how consumers deal with insurance firms and how it can help companies develop new products, as well as reduce form-filling and streamline sales.
It did point to a couple of areas of concern, however. It highlighted that big data has the potential to leave some consumers worse off as it changes the extent of risk segmentation so that categories of consumers “may find it harder to obtain insurance”. In addition, it noted some concern that big data might enhance firms’ abilities to identify opportunities to charge certain customers more.
However, overall, Christopher Woolard, director of strategy and competition at the FCA, was satisfied enough to state that the FCA will not launch a market study at the present time but will instead take a number of measures forward to further engage with the industry.
“The general insurance sector is vitally important, impacting millions of consumers so it’s important that the market works well,” he 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 found that big data can improve consumer outcomes but its use could also affect pricing practices. The increasing amounts of data 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 prevalent. To assess how different pricing factors are used, it will start a piece of work to look at pricing practices in a limited number of firms in the retail general insurance sector later this year.
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