In the ‘80s classic Raiders of the Lost Ark, German army Major Anrold Toht achieves his life dream and finally gets his hands on the mythical Ark of the Covenant. “It’s beautiful” he exclaims after opening the Ark and watching spectral creatures emerge. His belief that it will grant him unparalleled powers that will push the Germans to victory is about to be finally confirmed. Then his face melts and everyone dies.
Is this apocalyptic ending an allegory for the use of data in insurance? Of course not. But there might be some parallels and these are worth exploring. Hence the ABI embarked on a quest of our own recently - to find out what Britain Thinks about how insurers use data. The end product provided a great deal of insight into a subject that, while not top of the political agenda right now, is under increasing focus from regulators and has all the ingredients for a significant debate about where the usage boundaries should lie. If you don’t believe that, just ask Facebook, Google, Apple or any other tech giant.
So what are the parallels with a Harrison Ford film? Well the pursuit of insightful data that allows insurers to pinpoint risk is for some in the industry akin to the lifelong quest for the Ark of the Covenant at the heart of Raiders. There are good reasons for that too, such as the potentially massive benefits to low risk customers in the form of cheaper premiums and of course a competitive advantage for any firms who can price risk better than their rivals.
There is a flip side to this, though. What about those who are high risk? Would ever greater knowledge lead to a group of people facing significantly higher premiums than others and potentially becoming uninsurable? This drastic outcome seems highly unlikely and ignores the ability of some to change their risk profile through their own behaviour (the obvious example being telematics that uses data to incentivise safer driving) and the wider levelling up benefits that come with greater knowledge. A rising tide raises all boats, as they say.
This risk pooling debate is a live one and is likely to continue. But what do the public think? That is perhaps the most striking finding from the Britain Thinks research. Two thirds of respondents supported more accurate pricing, believing it is right in principle that consumers pay premiums based on their own individual level of risk. This is a significant (but not overwhelming) majority in favour of people ‘paying their own way’ and being responsible for their own risk. It should, however, be noted that among 18-24 years olds the majority in favour of risk pricing slips down to 52% (no Brexit jokes please). Further evidence of generation snowflake eschewing personal responsibility? I couldn’t possibly comment, but it is interesting to consider whether attitudes will change over time on this issue.
The research doesn’t stop there in how it sheds light on peoples’ perceptions. Encouragingly, there is widespread recognition of the value of insurance – with 82% saying that they would feel vulnerable without it. This is a heartening reminder of the crucial role insurers play in helping people get on with their everyday lives. But worryingly, though perhaps not surprisingly, there is a very poor understanding of how insurers use data and how insurance is priced – only 29% feel confident that they understand how their premium was calculated. To be honest this was the thing that struck me the most when I attended a fascinating workshop in Canterbury last year that formed part of this research. Even then, given the time to explain how pricing worked to a captive audience, most people couldn’t wrap their heads around the mechanics of insurance pricing and risk factors. We must never lose sight of how complex and opaque our industry feels to most people. Insurers go to great lengths to explain how their policies work but there is no easy solution here.
One other important finding is that customers are generally comfortable with insurers using data collected from them directly, but are more uncomfortable with the use of data collected indirectly. Only 9% are comfortable with insurers collecting aggregated information from data suppliers (often referred to as data brokers). This reveals a key tension between wanting accurate pricing and the willingness to consent to what is needed to make that possible.
Certainly there is a great deal of food for thought in this report and it is in order to consider these difficult questions that we commissioned this work. Having taken this first step the ABI is now setting up an expert group with members to consider what to do next. We know opinion is mixed and there are no easy answers but we are listening and we are committed to doing what is best for our customers. While we are optimists about the power of technology, the amount of data we hold ensures we have a special responsibility to innovate with safeguards and in compliance with all appropriate regulations.
I hope in the end the most likely outcome won’t be either apocalyptic face melting death scenes, or unlimited power driving us to victory. Rather I would like to see a reasoned, step by step evolution of the relationship between the industry and its customers based on a shared understanding of what is in all our interests. That would be a rubbish movie though, wouldn’t it…