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Why the insurance tech industry needs to lead the way on privacy

Pandora's box is now open

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Peter Colis
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Peter Colis

Co-founder & CEO, EthosPeter Colis is the CEO and Co-founder of Ethos, the company building a wholly new model for life insurance, redesigning a broken system – from top to bottom – to close the nation-wide coverage gap and… (show all) Peter Colis is the CEO and Co-founder of Ethos, the company building a wholly new model for life insurance, redesigning a broken system – from top to bottom – to close the nation-wide coverage gap and give millions of families the protection they need. Peter is a member of the Forbes Finance Council and holds an MBA from Stanford University’s Graduate School of Business.

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Technology is woven into every aspect of our lives, from the fitness data on our Apple Watches to the automatic brake sensors in our cars. As a result, there are massive amounts of readily-available data that have intensified debates around data privacy and protection. Now, there’s a movement in the insurance industry to leverage new forms of surveillance to assess risk during the underwriting process of life insurance policies (the process of assessing a potential customer’s risk).

Naturally, conversations on what that means for consumers have followed, touching on the clear privacy concerns of using social media and other implicit data. However, there are important questions that remain unsettled concerning how the use of the data will impact consumers’ life insurance policies. 

The life insurance industry strives to protect consumers from unfair discrimination. As new forms of data become accessible, we need to continue to avoid discrimination and bias. Big data is shaping the next wave of technology, and the industry will harness its power to create better products and experiences.

However, we need to innovate in a way that puts the public good first. There are more factors to scrutinize as we continue to have conversations about using various types of online data to assess an individual’s risk, particularly as more laws and guidelines surrounding data sharing and privacy are implemented.

It’s Silicon Valley’s responsibility to turn the tides and put the good of the user first

We live in a world where incidents like Cambridge Analytica are becoming the norm — which is why I’m an advocate for consumer privacy. The insurtech space — and the life insurance space specifically — should question any practice that interferes with fostering customer trust.

This steps away from traditional life insurance practices that don’t have the customer’s best interest in mind, such as upselling consumers on expensive policies. As the industry evolves and adapts more advanced technology and analyzes more complex data, we need to take note from other industries hit with privacy scandals to avoid the same mistakes.

It is increasingly common for life insurance companies to use “non-traditional” sources of public data, like credit scores, court documents, and motor vehicle records, but the use of that data still needs to be ethical. It should be used to inform insurance underwriting decisions only, while still protecting the consumer first.

Insurance will always be a data-driven industry — it’s how we make informed decisions on anything from marketing to underwriting — but consumer protection has to be at the forefront. 

The California Consumer Privacy Act will go into effect on Jan. 1, 2020, which will enhance privacy rights and consumer protection for residents of California by giving them improved control of their data. This new privacy regime will eventually become a widespread standard.

Instead of viewing California’s act as an obstacle, insurance companies should look at it as an opportunity to improve their privacy practices and get ahead of future legal changes. Ultimately, the industry needs to continuously champion privacy practices that will set the groundwork for innovation and consumer trust. 

Opting in to share fitness data can cause adverse selection if companies aren’t careful

While sharing fitness tracker data could benefit some people applying for life insurance policies, it poses the risk of creating inaccurate data pools. The nature of an opt-in program could negatively impact those who choose not to participate. Additionally, the data from those who do opt-in may not provide an honest representation of health status. 

Studies have shown many fitness trackers have error rates of 10 to 20 percent and that one in three users stops wearing the device within six months of buying it. This would suggest fitness tracker data hasn’t quite yet proven to be a reliable source of health information.

On the other hand, a recent analysis found “there is strong evidence that physical activity, as measured by steps per day, is a powerful predictor of mortality.” This indicates there is still a great opportunity to use fitness data to benefit the customer, if we can overcome certain hurdles and prove it’s possible to avoid adverse selection. 

Incentivizing customers by giving them discounted premiums in exchange for their fitness data encourages people to maintain good health. Unlike the health insurance space, which profits off of bad health, the life insurance space is aligned with finding ways to keep people healthy and thriving.  

We need to ensure future practices don’t become invasive

Information derived from people’s social media profiles, like Instagram (in most cases), is likely not substantive or actionable enough for underwriting. On top of that, analyzing Instagram data for life insurance could create biases and get in the way of fostering customer trust. It’s high risk, low reward.

Using the Fair Credit Reporting Act as a standard, today’s social media data sources don’t pass with regard to ensuring that risk assessments are noninvasive and anti-discriminatory. 

The insurance industry is ripe for innovation — as long as it’s ethical 

We’re seeing various states in the US move at different paces in terms of leveraging genetic data, and there are two sides of the argument as it stands today. Using genetic information can lead to adverse selection and could negatively impact some customers. On the other hand, just the existence of usable genetic and healthcare data could usher in an era of product innovation that hasn’t been seen in decades. 

MIT Technology Review predicts more than 100 million people will be part of genetic databases within the next two years, and the consumer genetic testing industry is expected to be worth $45 billion by 2024,  so it’s likely such information will be used in various parts of our lives.

The question is, how will it be used ethically? Existing laws are not up to par for protecting the privacy of this massive database of genetic information, so there’s not a clear moral path for insurers to follow — right now. 

While these forms of data aren’t perfect sources of information right now, there will be legislative protections put in place to make better use of implicit data. It’s also important to understand the rationale that life insurance companies go through during the underwriting process and ensure that it’s for good reason: to provide consumers with the best policy for their needs.

The life insurance space has a strong track record of the ethical usage of data because of its commitment to avoiding discrimination and will continue to do so.

Published October 16, 2019 — 17:00 UTC