The UK’s Financial Conduct Authority (FCA) has published a feedback statement following its call for input on big data in retail general insurance.
The FCA announced in November 2015 that it wanted to better understand the use of data by firms and how this affected consumer outcomes and competition in the general insurance sector before considering next steps.
The FCA said it found broadly positive consumer outcomes resulted from the use of big data.
It said big data can be used by firms to transform how consumers deal with insurance firms, allowing firms to develop new products as well as reducing form-filling, streamlining sales and claims processes.
The FCA identified two areas where the use of Big Data had the potential to leave some consumers worse off.
Big Data changes the extent of risk segmentation so that categories of customers may find it harder to obtain insurance. The FCA is also concerned about the potential that Big Data might enhance firms’ ability to identify opportunities to charge certain customers more.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below formBy GlobalData
In light of the feedback received and evidence examined, the FCA has decided not to launch a market study at the present time, but will take forward a number of measures designed to further engage with the industry.
The FCA found that Big Data can improve consumer outcomes but its use could also affect pricing practices.
The increasing amounts of data from a wider range of sources, alongside sophisticated analytical tools, might lead to the use of reasons other than risk and cost in pricing becoming more prevalent.
To assess how different pricing factors are used, the FCA will start a piece of work to look at pricing practices in a limited number of firms in the retail general insurance sector later this year.
Christopher Woolard, director of strategy and competition at the FCA, said: “There is potential for Big Data to transform practices across general insurance markets, and some consumers are already seeing benefits but there are also some risks to consumer outcomes.
“While we have decided not to launch a full market study, we are undertaking further work in this area and with the Information Commissioner’s Office to ensure our rules and policies keep pace with developments in the market, but also do not prevent positive innovations."