The use of big data by insurers could lead to some consumers effectively becoming uninsurable.
While big data can help insurers to make much more accurate estimates on types of cover, a report from the Chartered Institute of Insurance found that some types of cover may be completely unavailable if the consumer is deemed too risky.
Although this has always be a possibility the use of data may threaten the concept of pooling risk, moving the industry into individual pricing.
The concept of pooling risk has underpinned the effectiveness of insurance cover and helped to make it generally accessible.
The CII said: “Some people may be identified as such high risk to insurers that they are priced out of insurance altogether. Big data could, in effect, create groups of ‘uninsurable’ people. While in some cases this may be to do with modifiable behaviour, like driving style, it could easily be due to factors that people can’t control, such as where they live, age, genetic conditions or health problems.”
Insurers have been increasingly investing in technologies that would allow them to better understand the information that they hold on customers, and to collect more data.
The risk is that certain types of data may make people wholly uninsurable, such as genetic data.
Theoretically genetic data could be used in helping to decide the price of life or health insurance, the use of this data is currently restricted, thanks to a 2000 agreement between the Association of British Insurers and the government.
However, this agreement is due for review this year and it only runs until 2019.
Big data analytics may help to make insurance more accurate but it also threatens to alienate those deemed to be a higher risk based on factors that are outside of their control.
David Thomson, director of policy and public affairs at the CII said: “You could price people out of the market for health products. There’s a danger insurers will not offer health cover to some people. The government would intervene if people are doing social sorting.”
The increased use of data in areas such as insurance is forcing regulators to catch up and enforce controls over what types of data can be used when making these types of decisions.