In July 2018 the European Insurance and Occupational Pensions Authority (EIOPA) undertook a thematic review into the risks and benefits of “big data analytics” in motor and health insurance. The purpose of the review was to understand the types and sources of data and the analytics tools used and to identify whether supervisory or regulatory actions were required at a time when data and security was at the forefront of regulatory development. EIOPA sought to gather evidence on the use of big data by insurance undertakings and intermediaries, whether in product development, sales/marketing, pricing/underwriting or claims management.
Data collection and processing is integral to the business of insurance undertakings, as is data-led statistical analysis. Insurance undertakings gather and process data in order to inform underwriting decisions, set premiums, assess claims and prevent fraud. Big data is the act of gathering and storing large amounts of information from a variety of sources and in a variety of formats for eventual analysis. The aim of big data analytics is to reveal patterns, trends and associations, particularly relating to human behaviour.
Earlier this month EIOPA published the results of its thematic review. This covered a total of 222 insurance undertakings and intermediaries, representing over 60% gross written premiums of the motor and health insurance markets in each of the 28 member states and therefore provides a good basis on which to draw conclusions from.
Broadly, EIOPA made the following interesting conclusions:
- there was a strong trend towards increasingly data-driven business models across the member states
- increased combination of traditional data sources (such as demographic data or exposure data) with new data sources (such as online and telematics)
- increased use of data outsourced from third-party data vendors
- prevalence of artificial intelligence (AI) and machine learning (ML). 31% of firms were already actively using them, with another 24% considering using them
- prevalence of cloud computing services. 33% of firms were already using them, with a further 32% intimating a move towards it over the next 3 years
EIOPA considers that there are many opportunities for the insurance industry and consumers arising from big data analytics, with stakeholders agreeing that, provided the key risks are addressed, it offers consumers a better quality of products and services. With the recent data protection regulations in mind, EIOPA was keen to stress the importance of developing sound data governance arrangements in light of the explosion of big data. Although firms will already have in place adequate measures, the advent of big data exacerbates the risks and implications arising from big data, particularly regarding accuracy, transparency and auditability. EIOPA would like to see more transparency towards customers and for firms to contribute towards public awareness, including in relation to consumer rights relating to the collection and use of big data by firms.
Following from the results, EIOPA and its InsurTech Taskforce will look into various other big data analytics initiatives, such as the supervision of algorithms relating to the AI and ML, the ethics and fairness in respect of the use of big data analytics by the market, guidelines on outsourcing of cloud computing services by insurers and cyber insurance and security.
A copy of the results of the thematic review can be accessed here.