In Series: External data perception - Trust is key

Insurers guard their data sources and loss models closely. And contributory databases have the potential to help the insurance industry enrich existing data without damaging an individual insurer's competitive advantage.

The key question is how to structure data sharing - as a single industry database with competing resellers, or as a series of competing databases?

Insurers have a lot to gain from the effective use of personal data, but there are clear benefits for consumers too.

It is incumbent on the industry to make the general public fully aware of these benefits to help ensure that the appropriate use of personal data is not unduly restricted over time.

Use of personal data can streamline interactions. When insurers are able to access personal data electronically, it simplifies the quote process.

Not only are consumers spared the trouble of data entry, they gain time to shop more widely. In addition, customers will see there are fewer opportunities for error.

Immediate data verification helps to prevent errors, whether honest or intentional, and ensure that a consumer's cover is valid in the event of a claim.

Access to accurate data at the time of quote also helps insurers prevent fraud and eliminate the associated costs, lowering premiums for honest consumers.

While electronic databases can offer insurers a fast and efficient alternative to manual data verification, these streamlined processes mean lower administrative costs for insurers and, ultimately, lower premiums for consumers.

Finally, by allowing data to be verified at the point of quote, consumers can help ensure they receive accurate quotes that are less likely to change during the sales process.

However, despite these benefits, many stakeholders remain distrustful of the insurance industry's motives, and there is a real risk that governments responding to pressure groups could restrict the use of data in ways that adversely affect the majority of consumers.

To help mitigate this risk, insurers and data suppliers should take a number of positive steps now to build consumer trust.

Insurers need to adopt the highest data security and quality standards. Today's insurance market depends on secure and reliable access to large volumes of high-quality data in sub-second response times.

Data enrichment specialists can help insurers verify whether data is accurate and complete, and reject or improve it when it isn't.

At the same time, the market must improve data access and transparency. The public needs to be convinced that the information being used by insurers is accurate.

It is vital consumers have an opportunity to inspect their personal data and challenge its accuracy. This process should be quick, painless and ideally free, which has not always been the case in the past.

Insurers must also be prepared to justify their use of data and be able to produce statistically robust evidence to demonstrate how data being collected is relevant for refining risk predictions, detecting fraud or pursuing another business objective.

Finally, the insurance industry must proactively engage clients and educate consumers and other stakeholders to help ensure that the benefits of data use are widely understood.

Insurers deal with highly sensitive personal information, so consumers are right to be concerned about its use.

The challenge for the industry lies in demonstrating that the public has much to gain from allowing this data to be used in insurance underwriting.

Dan Marshall
Managing director of UK insurance, Lexis Nexis Risk Solutions