Out-Law News 2 min. read

FCA looks into impact of big data on consumers and competition in retail insurance market

The Financial Conduct Authority (FCA) has launched an initiative aimed at deepening its own understanding of how insurers are using big data and how that use might evolve over the next five years.

The regulator said it wants to know whether insurers' use of big data affects consumer outcomes, fosters or constrains competition and whether its own regulatory framework affects how big data is deployed in the retail general insurance market. Its big data call for input (28-page / 289KB PDF) is particularly focused on the private motor insurance and home and contents insurance markets.

"Our focus on retail general insurance (GI) reflects how extensively data is already used in the sector and the significance of the sector for consumers," the FCA said. "We want to understand how the use of data by insurance firms has developed in recent years and how this might change in the near future. We recognise that the use of big data brings both benefits and risks for consumers."

In scrutinising big data's impact on consumer outcomes the FCA said it wants to find out more about the profiling insurers engage in and how "micro-segmentation of risk" impacts on consumers' access to insurance coverage.

The FCA said it also wants to gain a greater understanding of how insurers assess consumer characteristics and how that data affects "pricing practices", as well as how consumer behaviours, such as driving habits monitored in the context of telematics-based motor insurance policies, affect consumer outcomes, including where consumers are "unable or unwilling to generate certain types of data".

In looking at competition issues, the FCA said it would assess big data's impact on both the demand and supply side of the retail general insurance (GI) market.

Among the demand-side issues it will look into is how big data "affects or could affect consumers’ ability to access information about retail GI products in order to choose a suitable product and compare prices". Matters such as the question of data ownership and the portability of data are also of interest to the FCA as it looks to better understand how big data "could affect consumers’ ability to act and make effective choices about products", it said.

The ability of insurers to use big data to enter or expand their presence in the market will also be scrutinised, the FCA said. It said in particular that issues such as the cost of deploying big data solutions and the question of access to "critical data" would also be of interest to it as it assesses big data's impact on competition in the insurance market.

"We are interested in whether the use of big data increases or creates any market power that could result in competition being restricted," the FCA said. "For example, a certain type of data, such as shopping habits, could become a critical input to predicting risk. If a retail GI firm gained control of that input, it could give them the market power to prevent rivals from accessing that data. It is also possible that a firm with market power in one market could seek to extend or leverage this into a related market, for instance a data provider who would only supply data on one retail GI product if it is purchased with data on another."

The existing regulatory framework might also be impacting on insurers' use of data, the FCA said. It acknowledged that developments with big data are "evolving", but said it is "eager to understand" if its rules constrain or can foster big data innovation that is in the interests of consumers in the retail general insurance market.

The FCA outlined its intention to look at big data in the insurance market in its business plan earlier this year. It said it intends to issue a "feedback statement" on the findings from its call for inputs in the middle of 2016. Other European financial services regulators are also to scrutinise the way financial services companies use 'big data' next year.

The European Data Protection Supervisor (EDPS) recently said that businesses should provide people with an 'opt out' right to object to the processing of their personal data when they make an assessment that consent to that processing is not necessary as part of a big data project.

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