Big Data comes with a big promise: the ability to “foresee” market changes before they happen and predict user behavior based on past experience. But as insurance agencies in Britain are finding out, with massive data resources comes at least some responsibility—improper handling of consumer data could spark a “regulatory crackdown.” So what does responsible use look like, and how do insurance companies stay the course while maximizing analytic outcomes?
According to a recent article from the Financial Times, insurers in the UK are leveraging Big Data to determine the likelihood that specific drivers will make insurance claims over time. To accomplish this task, they’re using several techniques including analysis of past claim history along with “telematics,” wherein insurers place data recorders in policyholder vehicles to monitor driving habits and performance.
For their part, insurance companies say the collection of this data will allow them to offer custom-made policies to customers—the city commuter, for example, might get a discount on her monthly premium with so few miles on her vehicle, while the seasoned traveler might be offered a reduction in price if no claims are made over a set time period. But Paul Evans, chairman of the Association of British Insurers, says that this trend will likely mean that “higher risk customers will see higher prices.” In other words, when an analytics tool suggests that specific drivers may have increased risk, premiums will increase to proactively compensate. But is this responsible use?
Evans believes that drifting too far and creating “sectors of society that can’t buy insurance” could prompt government backlash. In Australia, for example, the government has developed a guide for responsible data use across federal agencies, which includes the duty to ensure that analytic projects are in the best interests of the community, maintaining adequate records of objectives and methods while being transparent about what data is used, and the conclusions reached using this data.
And while governments are held to higher standards of data use and its interpretation, there’s actionable insight here for private industry as well. Replacing ROI with citizen approval doesn’t change the fact that stakeholders—in this case, customers—have a massive impact on the bottom line. If consumers believe their information is being improperly used, or in the case of insurance agencies to deny service, they’ll take their business elsewhere. And if governments see companies stray too far from established ethical guidelines, it could result in restrictions, fines or use sanctions.
To maximize profit and boost ROI, companies must be ruthless when it comes to finding and using the best analytics tools and data sources. But long-term success isn’t predicated on these predictions alone—irresponsible use of customer data could result in significant backlash from consumers and governments alike.