The Insurance Council of Australia (ICA) has welcomed the Treasury Laws Amendment (Consumer Data Right) Bill 2022, particularly the Consumer Data Right’s (CDR) goals, though it has warned of insurance specific challenges down the line.
In its submission to the inquiry into the amendment, the ICA noted that the CDR currently applies to only the banking industry rather than the insurance industry. However, it welcomed the government’s aim to conduct a separate sectoral assessment and consult with the insurance industry before designating the general insurance sector.
“The ICA welcomes the opportunity to work with the government on this important reform,” the ICA said.
CDR enables Australians to share data with their chosen service providers by transferring information using secure automated data technology. The process is intended to provide Australians with better choice and control.
An opt-in service, CDR aims to help Australians:
While experience with CDR is mainly in the banking context, the ICA warned that the CDR’s extension to insurance will pose unique issues.
“In this regard, it will be important for the Minister to anticipate a comprehensive process of consultation with the insurance industry,” the ICA said. “Careful consideration will be needed as to what datasets are designated (under the current provisions of the act), given the range of data, including claims data held by insurers
“It will also be important for the government to consider the initial experience in applying the CDR to banking and allow sufficient time for the full implications of CDR to be apparent before extending CDR to insurance.”
As the insurance industry prices risks, insurers collect data from various sources, including personal information provided by consumers, natural hazard data, and claims history.
In its submission, the ICA noted that data types differ from other sectors. Therefore, the government must consider these differences when determining which datasets should be subject to declaration under the CDR framework.
According to the ICA, the following factors show some of the key differences with other sectors and potential implications for CDR:
“Consumers do not interact with their insurance policies on a regular basis,” the ICA said. “Compared to the sectors that have been designated to date, insurers generally do not possess ‘up-to-the-minute’ transactional consumer data.”
The ICA gave the example of banking data being frequently updated when consumers make purchases, pay bills, make mortgage payments and pay bills.
In contrast, insurance products can be “different”.
“After the product is purchased, insurers do not generally ask customers for additional data except in specific cases, such as via prompts at the time of renewal to review the accuracy of the previously provided information,” it said. “This may have implications for data portability use-cases as customers would need to re-validate data and be prompted to do so.”
“Different insurers will have different underwriting rules and, therefore, may collect different information from customers. As with the example above, this may have implications for portability as customers will likely need to provide additional information,” the ICA said.
Insurance products are usually more diverse, complex, and tailored than products in other sectors, the ICA flagged.
“This may pose challenges for some use cases, such as product comparison,” it said. “However, [we note] that some sub-sectors have standard or minimum coverage requirements, which of themselves diminish the utility of product comparisons.”
Insurer data is often related to the insured asset rather than an individual, so it remains relevant to that person only while they retain that asset.
“For example, in providing home insurance, an insurer will consider the location of the dwelling to assess natural hazard risks (such as riverine flooding, cyclones, [and] bushfires), among other factors,” the ICA said.
“However, the data would not remain relevant should the customer move to a new house.”
There could also be challenges where it comes to cover like workers’ comp and other compulsory products.
“In some instances, such as where data relates to workers compensation or compulsory third-party cover, insurers are merely custodians of the data to enable processing of outsourced claims or other services on behalf of [the] government,” the ICA said in its submission.
“Our view is that it would not be appropriate for insurers to be required to provide this data directly to consumers or other parties as they are bound by the terms of their engagement with the government,”
The ICA also raised concerns that some data sharing could impact on development, and made the case that some data should not be included.
“The insurance industry assesses, and prices risk based on a broad cross-portfolio understanding augmented with commercially acquired data,” the ICA said.
“As in other sectors, this information is the result of substantial business investment.
“Sharing of this data between competitors would stifle investment in product development and innovation and, hence, is not appropriate for inclusion within the scope of the CDR,”
The ICA warned that the data commonly gathered by insurers is usually sensitive and was collected in specific circumstances relevant to issuing policies, assessing claims, and assisting customers experiencing vulnerable circumstances.
“Our view is that this data is generally not relevant to the purposes of changing insurance providers or comparing the effectiveness of insurance policies and should be an excluded data set,” it said.
“We further note that this sensitive personal data, if shared incorrectly or de-contextualised, may inadvertently ‘red flag’ consumers,”
It also highlighted that it will be important to consider how vulnerable customers may be affected.
“Customers who are more digitally savvy will be better able to leverage the benefits of the scheme over those who are less able to use digital means to participate,” the ICA said.
“Consideration will need to be given to impacts on vulnerable customers, including pricing and coverage.”
