Frankfurt, 8 May 2019 – Today, the European Insurance and Occupational Pensions Authority (EIOPA) published its report on Big Data Analytics in motor and health insurance.
Data processing has historically been at the very core of the business of insurance undertakings, which is rooted strongly in data-led statistical analysis. Data has always been collected and processed to inform underwriting decisions, price policies, settle claims and prevent fraud. There has long been a pursuit of more granular datasets and predictive models, such that the relevance of Big Data Analytics for the sector is no surprise.
In view of this, and as a follow-up of the Joint Committee of the European Supervisory Authorities cross-sectorial report on the use of Big Data by financial institutions, EIOPA launched a thematic review on the use of Big Data Analytics and associated benefits and risks focusing on motor and health insurance business lines.
The review revealed a strong trend towards increasingly data-driven business models throughout the insurance value chain. Traditional data sources such as demographic data or exposure data are increasingly combined with new sources such as online or telematics data, providing greater granularity and frequency of information about consumer’s characteristics, behaviour and lifestyles. There is an extended use of data sourced from third-party data vendors.
Big Data Analytics tools such as artificial intelligence or machine learning are already actively used by 31% of firms, and another 24% are at a proof of concept stage. These tools enable the development of more accurate assessments, without or with limited human intervention, increasing the efficiency and speed of decision making and therefore reducing operational costs. However, biases inherent in the data being used can be reinforced through machine learning algorithms if firms do not have adequate governance arrangements in place. This issue becomes more significant where certain outputs reached by ‘black box’ algorithms cannot be specifically and adequately explained.
Cloud computing services, which reportedly represent a key enabler of agility and data analytics, are already used by 33% of insurance firms, with a further 32% saying they will be moving to the cloud over the next 3 years. Data security and consumer protection are key concerns of this out-sourcing activity.
The evidence gathered shows many opportunities for Big Data Analytics for both the insurance industry as well as for consumers. However there are also risks which need to be addressed if this potential is to develop in a sound way. Some of these risks are not new, but their significance is amplified in the context of the use of Big Data Analytics. This is particularly the case regarding issues linked with fairness and principles for responsible behaviour in a digital age, as well as with the accuracy, transparency, auditability, and explainability of certain tools such as artificial intelligence and machine learning.
In 2019, EIOPA’s InsurTech Task Force will conduct further work to address in particular the highlighted risks in collaboration with the industry, academia, consumer associations and other relevant stakeholders and in the context of work conducted by the Joint Committee of the ESAs, other international fora and of the EU-US insurance dialogue.
Gabriel Bernardino, Chairman of EIOPA, said: „European insurance firms are implementing ambitious digital transformation projects to embrace the opportunities offered by artificial intelligence and machine learning and to remain competitive in a globalised economy. Besides the benefits arising from the use of Big Data Analytics insurers have to adapt their governance frameworks to address the challenges posed by these new technologies, in particular issues with the fairness of the use of Big Data Analytics and the accuracy and explainability of “black-box” algorithms. EIOPA will closely work together with all the relevant stakeholders to address the challenges and by that responsibly supporting to harness the multiple benefits for the consumers.“