A report from the FCA contained a statement admitting it would have its hands tied in certain instances where personalised insurance risk data caused harm

Insurers are turning to data and analytics to better understand consumer risk (PixaBay)

The Financial Conduct Authority (FCA) admits the increased use of data and analytics to personalise risk in the insurance market could result in consumer harm that falls outside its control.

The UK regulator’s role is to intervene in financial markets where it feels practices across different industries are leading to unfair outcomes for customers.

But in its latest paper outlining current views in each sector, it stated that personalised risk could fall “outside our regulatory remit”, highlighting biometric or genetic data as two types that could result in pricing disparity if used to model risk.

The report said: “Misuse of customer data can compromise the wider social benefits of insurance, especially if it is used to single out vulnerable consumers.

“There are also ethical considerations around consumers consent to sharing their data with firms and their ability to negotiate what is shared and what they get in return.

“Additionally, increased use of data is leading to personalised risk modelling and pricing, which reduces risk-pooling across customer groups.

“This can have implications for harm that falls outside our regulatory remit.”

There’s been a long-term discussion within the insurance industry over the impact of personalised data, with Aviva general insurance CEO Colm Holmes urging regulators to look at the use of risk data in the industry and ensure it doesn’t go too far.

“If you get down to insuring the individual, you don’t have an insurance industry — you just create people who don’t need insurance and people who aren’t insurable,” he said at an industry event earlier this month.

The regulator added in its report that where data-led risk personalisation makes certain products unaffordable for “high-risk consumers”,  it will “clarify publicly why” this falls outside of its remit.


The FCA must balance the benefits of using data against potential harms

The FCA acknowledged in the report that the use of data to personalise risk can result in both benefits and harm.

The discussion around how data affects fair pricing is part of an ongoing probe into “sophisticated forms of price discrimination” that raise “complex questions of fairness”.

In a July 2019 feedback statement on fair pricing, it said: “We need to consider what is the appropriate level of protection and the role the FCA should play in issues that lie close to the perimeter.”