Matt Cullen, Assistant Director, Interim Head of Data & Analytics, ABIThe CII published last week their second report on ‘Disruptive Influences: The Fintech Revolution’ which looked at a range of issues raised by the increasing amount of data available to insurers.
This was a good, wide ranging analysis of the benefits and challenges but inevitably media coverage focussed on the part of the report that needs the most nuanced analysis – the potential creation of an ‘uninsurable underclass’ that would be too risky to insure in a world of increasingly granular risk assessment and pricing.
In this regard, the CII report makes the mistake of implying that ‘cross-subsidisation equals fair’, where in reality fairness remains a hotly debated concept. Many, both within and outside the industry, would subscribe to the principle of actuarial fairness – individual policyholders paying for the risk that they bring to the table. Others would support the CII implication that fairness means cross-subsidising to make sure that anyone can access insurance, irrespective of their risk.
As an aside, it’s worth noting that talk of ‘risk pooling’ in this conversation is unhelpful. While the CII report uses the term to refer to cross-subsidisation across customers through more homogenous pricing, the reality is that insurance is all about pooling risk – i.e. smoothing individuals’ loss experience across the insured population - irrespective of whether it is cross-subsidised or priced individually.
Use of genetic information by insurers was suggested to be a contentious one, but it is in fact frequently misrepresented.
Use of genetic information by insurers was suggested to be a contentious one, but it is in fact frequently misrepresented. It is common for the self-regulatory agreement (for that is what it is) between the ABI and the Government – called the ‘Concordat and Moratorium on Genetics and Insurance’ (a name which, admittedly, does not roll off of the tongue) - to be portrayed as Government stopping insurers from using genetic data. This is far from the truth.
The self-regulatory agreement is lauded by insurers, government and genetic charities alike as providing the flexible framework that can move with a changing environment whilst offering confidence to those taking out genetic tests on how they will be treated by insurers.
Far from some perceptions, genetics is in fact a case of insurers acting fairly in the interests of customers.
Rather than stopping insurers from using genetic tests, the agreement sets out how insurers will fairly treat genetic data and the moratorium element is an offering by insurers to not use or ask for predictive genetic tests that they are happy not to use as they see family history as a more accurate predicator of risk. Far from some perceptions, genetics is in fact a case of insurers acting fairly in the interests of customers.
These concepts of fairness have not been publically resolved by either regulators or the Government. As a result the CII report is likely to overstate the inevitability of regulatory or Government intervention, particularly when the industry is showing it can work with government effectively through self-regulatory agreements to ensure consumer confidence.
This is not to say legislation won’t ever happen of course. And so there is even more reason for accuracy in reporting of current practices and an open discussion of what fairness is. In a data rich world, it is a challenge for us all to rise to.
Matt Cullen is Assistant Director, Interim Head of Data and Analytics at the Association of British Insurers (ABI)