FS16/5: Call for Inputs on Big Data in retail general insurance

In this Feedback Statement we summarise the responses we have received to our Call for Inputs on the use of Big Data in retail general insurance (GI), and outline our responses to the issues raised.

Show FS16/5: Call for Inputs on Big Data in retail general insurance (PDF)

Why are we issuing this Feedback Statement?

We issued our Call for Inputs to gain a better understanding of how retail GI firms are using data and analytics, and the potential impact on consumer outcomes and competition in the market. Our focus was on private motor and home (buildings and contents) insurance.

We published a Call for Inputs in November 2015 and received 27 written responses and held meetings with a wide selection of stakeholders, including trade bodies and consumer groups. We also analysed data from two price comparison websites and surveyed a selection of brokers (specialising in consumers with non-standard risk).

Our key findings were:

  • Big Data is producing a range of benefits for consumers in motor and home insurance, by transforming how consumers deal with retail GI firms, encouraging more innovation in products and services and streamlining parts of the customer journey. As we consider firms’ use of data is broadly working well, we are not going to launch an in-depth market study. 
  • We also found some concerns about the impact on data protection, risk segmentation and pricing practices:
    • Some stakeholders expressed concerns about data protection rules and the use of data.
    • There is the potential for Big Data to increase risk segmentation and consequently lead to consumers with higher risks being unable to obtain affordable insurance. We carried out a further review of parts of the GI sector and this indicated these concerns were not yet materialising. However, we will remain alert to the potential exclusion of higher risk customers and will engage with government if concerns begin to develop because of how firms are using Big Data.
    • The increasing amount of data from a wider range of sources, alongside sophisticated analytical tools, might lead to factors other than risk and cost in pricing becoming more prevalent.  
  • The growing use of data is not currently limiting effective competition in motor and home insurance, although we recognise issues may evolve in the future.

Alongside this Feedback Statement, we are also publishing an Occasional Paper on price discrimination and cross-subsidy in financial services.

Next steps

We recognise the importance of data protection and the leading role that the Information Commissioner's Office (ICO) play in this area. We will therefore co-host a roundtable with the ICO to discuss data protection and the use of data in retail GI with relevant stakeholders.

To better understand developments in the market, we will also start a piece of discovery work to look at pricing practices in a limited number of retail GI firms later this year. A range of firms will be selected to engage with us across the retail GI sector, along with trade bodies and other relevant stakeholders during our review.