Big data – a cost-benefit analysis


A new report from the Geneva Association analyses the benefits and potential risks of the use of big data analytics in the provision of insurance. The report, Big Data and Insurance: Implications for Innovation, Competition and Privacy, says that individuals, businesses and regulators will all be faced with ‘complex trade-offs’ when it comes to the large-scale harvesting of personal data for the calculation of insurance premiums.

“In many instances, better data makes it possible to better align premiums and risks and to reduce the overall cost of insurance,” said Anna Maria D’Hulster, Secretary General of the Geneva Association, an international insurance-based think tank. “This has great economic and societal benefits. New approaches to encourage prudent behaviour can be envisaged through big data, thus new technologies allow the role of insurance to evolve from pure risk protection towards risk prediction and prevention.” However, she said, using big data also involves trade-offs in terms of competition, product individualisation and, of course, customers’ privacy. It is essential to balance the potential benefits of tailored products and risk assessments conducted on an individual basis with consumers’ right to privacy, as well as avoiding discriminatory practices. It has been suggested that using big data and automated decision-making processes when dealing with risk behaviour could constitute interference with individuals’ right to self-determination.

“The challenges with big data usage demonstrate the importance of building trust to enhance consumers’ willingness to share their personal data with their insurers,” said Benno Keller, Special Advisor on Digital and Innovation, who authored the report. “Regulation, in particular regarding access to and use of personal data, should strike a difficult balance between ensuring privacy and promoting competition, innovation and welfare for individuals and society.”