Credit the regulator for seeing the big dangers in big data

Outlook

“Big data” is creating a big fuss in commercial circles, but it shouldn’t be forgotten that it has the capacity to create big problems. So the decision by the Financial Conduct Authority (FCA) to launch a study of the impact it is having on the general insurance (home, motor etc) market is a welcome one.

Big data could, of course, provide insurers with the tools to tailor products to their customers’ needs. This might be of great benefit to certain groups – disabled drivers with adapted cars, who tend to be rather careful with them, are one example.

On the other hand, it may also give the industry the opportunity to indulge in big discrimination.

People have, of course, always been rated to reflect the risk they pose to an insurance pool. It is inevitable that those who, say, live in areas of car crime, park on the street and don’t have anti-theft devices will pay more than people living in low-crime areas with cars that screech at anyone walking within three feet of them.

Big data has the capacity to make the process of rating far more subtle and selective than it is today and there is, therefore, a danger that those who find themselves in the wrong parts of the big database could find obtaining affordable cover all but impossible – leading to the creation of an uninsured underclass. It goes without saying that many of those affected would likely come from vulnerable groups.

It isn’t only consumer wellbeing that may become an issue. As big data becomes an integral part of the industry, it could make the cost of entry for newcomers prohibitive.

I’ve taken some big shots at the FCA in recent weeks, and not without cause. But credit where it is due.