“Premature intervention could hamper innovation and impair the effectiveness of the insurance market and could quickly become unfit for purpose due to technological advances and market developments.”
That’s the take of the Global Federation of Insurance Associations (GFIA) on the issue of supervision when it comes to big data analytics (BDA) and its use in insurance. In GFIA’s response to a consultation by the International Association of Insurance Supervisors (IAIS), it outlined why it thinks imposing limitations on insurers might not be a good idea.
“BDA, which is a tool that more accurately assesses risk than traditional underwriting and rating models, sends important financial signals to people and businesses that encourage them to change their behaviour and invest in measures to improve their risk profile,” wrote GFIA in its comments for IAIS.
“Supervisors limiting how insurers apply BDA to keep insurance affordable for high-risk customers in the short-term could lead to long-term adverse customer outcomes, such as encouraging development in high-risk flood and earthquake areas.”
The trade group added: “For decades, insurers have been working to refine their underwriting and rating practices to offer consumers insurance at prices that reflect their unique risk profiles. BDA is just another innovation to help insurers achieve that objective. Other innovations before it are actuarial science, statistical modelling, and telematics.
“While the previous innovations brought significant change to the market, consumers always benefited from more product choice and more pricing options. Very few people became uninsurable. Although there are indeed possible risks to the use of BDA, GFIA does not see any reason for the IAIS to assume, at this time, that the use of new techniques will cause detriment to consumers.”
In addition, GFIA believes that existing governance standards are sufficient to assure good governance of the use of the technology. It noted that most jurisdictions already have comprehensive data use and privacy laws and that, similarly, most insurance supervisors have comprehensive regulations governing insurer underwriting and claims practices that would apply to BDA.
“To avoid duplicative or contradictory regulation, GFIA advises that prior to the IAIS releasing its supervisory guidance on BDA, it document the main laws and regulations across the world,” recommended GFIA. “This way, any subsequent IAIS guidance on BDA would complement the existing laws and regulations which GFIA views as robust.”
