Concerns Over Data Mining
Google has been sued by the Attorney General of New Mexico. The state is accusing the search engine of data mining through its low-cost educational software, in particular of siphoning information about children under the age of 13, including their passwords, Internet history and location. Google denies the allegations, but the case reveals two basic realities about the modern world: Companies are devouring the data of consumers, and consumers are not happy about it.
While the companies insist they only have cost reduction and customer experience in mind, comparisons to Big Brother or Brave New World are hard to avoid. As the insurance world steps further into the realm of data analysis, it could be positioning itself for a gold mine of information or a public relations disaster.
The Availability of Data Mining
The truth is that consumer data is available everywhere. Credit cards, Internet browsers, smart phones and fitness trackers gather and store information every second they are in use. Customers voluntarily give their phone numbers to the cashier at the store, and almost everyone is using Facebook. These services, usually free, make their money by selling the data of consumers to analysts who produce usable intel for insurers and other industries. The level of analysis and prediction that can be reached with this flood of data is staggering, and the optimist will point out that this leads to lower costs and a more personalized experience for the customer.
Attempts by Insurers to Influence the Insured
Insurers in particular are interested in purchase history and genetic information. Before the data revolution, insurance companies had to rely on broad rules of thumb and, in some cases, intuition, when setting premiums and evaluating risk. Now everything is being whittled down to numerical data. Insurance companies are buying data from customers’ DNA analyses and evaluating their credit card statements to gain a better understanding of the risks involved.
It goes beyond setting prices, too. These insurers are trying to “nudge” their clients by sending them strategic messages or paying for certain advertisements to be sent their way – to get them to quit smoking, say, or recommend a mental health support group. Already the process has moved beyond observation and into the realm of influence, or perhaps manipulation.
Potential Backlash
The danger of such methods, despite their obvious utility, is that consumers routinely poll against the use of such information. In one poll, only 15% of those surveyed said that insurance companies should be allowed to use data mining. With increased public scrutiny on big tech companies like Google and Facebook for the way they use consumer data, insurance companies may not be far behind.
These are the Wild West days of low regulation when it comes to this issue. It could be that when laws and public consensus have finally caught up to the technology, insurance companies will feel the sting. However, for now, insurance companies are using all legal available technology to their advantage.
Sources:
https://www.statnews.com/2015/12/15/insurance-big-data/
https://www.exastax.com/big-data/top-7-big-data-use-cases-in-insurance-industry/