How insurers could use 'big data' to charge you more

Woman working in home office hand on keyboard close up. Photo / 123rf

British financial regulator, FCA, has warned that insurance companies could start charging higher premiums to customers who are less likely to switch by using "big data".

In a speech to the Association of British Insurers, Andrew Bailey, chief executive of the Financial Conduct Authority, suggested that big data could be used to "identify customers more likely to be inert" and insurers could use the information to "differentiate pricing between those who shop around and those who do not."

However, the availability of more personal information gleaned from social media and devices such as "telematics" boxes, which monitor driving habits, means that the industry is moving towards quotes based on observed behaviour of individuals.

James Daley, founder of Fairer Finance, the consumer group, said that to some degree big data was already being used to punish inert customers.

He said: "Insurers already know how their own customers are behaving. Those who don't switch are penalised for their loyalty with higher premiums. Inert customers will be priced partly on risk and partly on what the insurer can get away with."

"Big data" is a controversial topic in the insurance industry, which uses model statistics to assess risk and calculate pricing.

Mr Daley said he did not think that mainstream lenders would place the details of non-switching customers on a "suckers' list" to be targeted with the worst deals.

However, he said he wouldn't be surprised if fringe providers were involved in this practice.

Insurance companies and big data

Earlier this month British insurer Admiral announced that it planned to use Facebook status updates and "likes" to help establish which customers were safe drivers and therefore entitled to a discount.

Campaigners called the proposal it intrusive and the social media giant then blocked Admiral's technology just hours before it was due to launch.

Just last week a telematics provider, Octo, launched an app that that shares customers' driving data with insurers so that they could bid for custom. It claimed that the safest drivers would get the lowest premiums.

However, Simon Morrissey, head of data and privacy at law firm Lewis Silkin, expressed concern.

He said: "It appears to be all about empowerment, but the privacy policy makes it clear that by signing up you're consenting to your data being used, including [in the assessment of] your suitability as an insured person."