How Insurance Companies Use Big Data

During any moment, we can look at a smartphone and find out what hundreds of our acquaintances are doing. Whether someone is just eating lunch or traveling through Southeast Asia, today’s way of experiencing the world often involves sharing it on social media. An injured person who recently made an insurance claim for an accident might post a picture from months before their injury showing them in perfect health. An insurance company might use this as evidence that they are well enough to have their claim denied.

Now, insurance companies are taking modern data collection to a new level. They are using information collected online and through advanced technology, also known as big data, to influence their policies and their customers’ claims.

What Is Big Data?

Big data is a term that describes a large volume of information that is so dense it cannot be analyzed with traditional methods or software. Companies use complex algorithms and other technologies to sort big data. According to insurers, big data helps them become more efficient and make cost-effective decisions. Big data is gathered include search engines, emails, social media, buying trends, and other common online activities.

How Are Insurance Companies Using Big Data?

Insurers are exploiting consumer data built from our online lives. While insurers in some states have limited access to data, other states are struggling to regulate the industry to ensure that claimants have a fair chance at insurance coverage. As companies expand on how much data they collect about customers, regulators are struggling to make policies which prevent insurance companies from using big data to deny valid claims.

According to a report from CBS, insurance companies are overstepping their boundaries and using big data at a rate that regulators are failing to keep up with. In addition to online activity, insurers want to know about lawsuits customers have been involved in, their credit history, education, and employment history. Some insurers have already snooped through the digital fingerprint of many customers to accomplish what they refer to as “price optimization.” This process describes an insurance company’s estimation of how much they can raise a person’s rates before they end up shopping for a new provider. This practice uses assumptions to arbitrarily raise the rates of customers as much as possible. With price optimization, insurers provide the highest prices possible instead of the best.

Now customers might have to pay for factors they cannot control such as their natural appearance. In his piece for CBS, Ed Leefeldt points out the efforts one global insurance company, Gen Re, makes to collect data on customers. The insurer released an app which uses facial analytics to purchase life insurance and other types of policies. With just a photo of a customer’s face, the app estimates a person’s gender, age, and BMI.

Gen Re uses this information to design a custom policy for an applicant in minutes. While this sounds convenient, it makes consumers vulnerable to being refused coverage based on information in the photo, including weight, age, gender, and even race. Now, a healthy person might be considered unhealthy and offered a higher insurance rate simply because of their facial qualities. Insurance companies might use a person’s natural appearance to deny claims or charge more for coverage. Facial recognition is just one of countless new data points companies have access to, and it’s an issue for those who need fair insurance coverage.

The Problem with Big Data in the Insurance Industry

The problem with this technology and style of information gathering is multifaceted. First, it makes assumptions that are not entirely accurate for all policyholders and enables companies to go overboard with this price optimization techniques. It creates a whole new way for any already profits-focused insurance industry to increase their bottom line by denying or delaying claims and charging more for less coverage.

Next, the usage of big data is not regulated enough to protect consumers. While some states, such as California, ban auto insurers from using information other than driving records and mileage to determine insurance rates, others have no regulations. This means that a company might be able to overreach and collect data on consumers to unfairly inflate their rates. Before a possible customer even asks for an insurance estimate, companies will prejudge who they are by their gender, race, income, online habits, and other personal data points.

"These models could have 1,000 factors and are very sophisticated," said Birny Birnbaum, director of the Center for Economic Justice (CEJ). "So, we can't tell if they're fair."

Insurers Hide Their Underwriting Standards

In January, the New York Department of Financial services started investigating how insurers underwrite claims. Underwriting is the term used to describe the process of accepting liability and providing a payment to claimants. The NYDFS started this investigation out of concern over how insurers are using big data to underwrite policies. It’s worried that those applying for life insurance might experience gender, race, or age discrimination because of big data’s role in determining costs.

Notably, insurance companies don’t want outsiders, or even others in the industry, to know how they underwrite policies. The industry is notoriously secretive about its methods, and companies claim that they have a right to keep them a secret to protect themselves from competitors. To make matters even more difficult for regulators, insurance companies obtain their big data from third-party companies. Because of this, regulators don’t even attempt to examine how insurance companies use big data. Because of the insurance industry’s secretive methods, its usage of big data remains alarmingly and largely unregulated—and customers are paying for it the most.

Big Data Harms Policyholders

Some leaks have hinted at just how much policyholders pay because of big data use. As mentioned above, price optimization helps insurance companies determine how much they can raise rates before a policyholder searches for a new company. Price optimization has little to do with providing fair coverage, and everything to do with raising prices on policyholders as much as possible without losing their business.

One similar, and equally unfair practice, insurers use is one known as “claims optimization.” Claims optimization describes a process in which insurers use data points to determine the lowest payouts that claimants will accept. Insurers hope to offer as little as possible without the hassle of an upset claimant. Their hope is that claimants will remain complacent with a low settlement and will not pursue a larger payout with the help of an attorney.

These processes prey on the desperate situations of policyholders. Claimants need money and will accept low offers out of desperation. The use of big data should be concerning to consumers and the regulators who are supposed to protect them. Meanwhile, the $1.2 trillion insurance industry hopes we don’t notice and that we keep paying.

Call an Attorney from Clayton, Frugé & Ward For Help

For decades, Clayton, Frugé & Ward has been representing families and individuals who need help with insurance claims. Based on our experience in the courtroom and at negotiation tables, we know that insurance companies do not always have the best interest of their policyholders in mind. We are not willing to accept this behavior and have dedicated our career to fighting this bad business. Just because insurance companies are large and powerful does not mean that a regular person cannot fight back with their own tactics. When you call our firm, we can examine your case and develop a comprehensive claim designed to defeat the tactics frequently used by insurers.

Consultation is free when you call Clayton, Frugé & Ward right now at (225) 209-9943.