Big data to impact insurance premiums, paper finds

The research paper, commissioned by the institute and prepared by Deloitte Australia, says improved data will produce winners and losers among insurance customers.

“The good news is that many customers will benefit from this new technology,” the Actuaries Institute said in a statement.

“Premium pricing will more accurately reflect risk behaviour – good young drivers will pay less than risky young drivers.

“However, there will be a smaller group of consumers who will have to pay more for insurance because they are considered higher risk, even though they may not be able to control the risk they seek to insure.”

The report said insurers will be able to provide closely tailored and more accurately priced products.

However, it also added that the insurer’s responsibility to disclose risk information to the consumer is unclear and may prove contentious.

Actuaries Institute president Lindsay Smartt said one of the significant challenges of big data will be around who will take responsibility for the uninsurable.

“The need to consider highly sensitive issues in the interpretation of data (such as genetic, racial or disability bias) also need to be acknowledged and addressed along with questions around what obligations may exist for insurers to inform policyholders when the data signals a change in their profile or health,” Mr Smartt said.

“How government and the industry could provide solutions for those who may be described as uninsurable also cannot be ignored.”

The Actuaries Institute said one of the major benefits of big data on the life insurance industry is through the increasing popularity of wearables, including smart watches, noting it can benefit both customers and insurers.

“Lifestyle and health data collected by insurers is being used to influence behaviour and to reduce the risk to which both the individual and the insurer is exposed,” the report said.

“Sharing data can lead to better pricing, more focused reward programs and incentives for consumers to pursue healthier lifestyles.”