Insurance Regulators Exploring Ways to Protect Consumers in Age of Big Data

The incorporation of “Big Data” from Internet-based sources is a defining feature of underwriting and rating in today’s property/casualty insurance market.

In light of that, the National Association of Insurance Commissioners (NAIC), through its Big Data Task Force, is exploring what role that body should play in protecting consumers against abuses and in upholding rates that are fair, adequate, and not excessive.

Charles Angell, deputy commissioner and chief actuary for the Alabama Department of Insurance, recently told a gathering of actuaries that the Big Data task force seeks a clear understanding of what data insurers are collecting, how the data is being collected, and how it is used by insurers and third parties insurance operations.

Angell, a member of the task force, was addressing the 2017 Ratemaking and Product Management Workshop of the Casualty Actuarial Society, March 28 in San Diego.

The task force is also charged with ensuring that data collected by insurers is used in a manner that complies with state insurance laws and regulations.

To that end, he said, task force members are concerned that consumers be made aware of what data about them is being collected, and how they can exercise some control over the availability and cost of their insurance.

“How can consumers alter their risk characteristics if they don’t even know what data is collected?” Angell asked. “Should there be some kind of disclosure notice [required]?”

Once data is collected, task force members are concerned that it be used properly to make appropriate determinations regarding the potential cost of risk. To that end, the task force is considering whether automation vendors that develop statistical models should be examined like the insurance advisory organizations that develop loss costs.

Consulting Team

Given the complexity of contemporary rating plans and the high level of technical knowledge needed to evaluate them, the task force is charged with exploring the creation of a consulting team to assist state insurance departments in technical reviews of complex statistical models used in policy rating.

“This consulting team would not be a regulator,” Angell emphasized. “It would not be approving or disapproving any statistical models. It would simply advise [an insurance department] on any issues it found with the way a model is constructed.”

According to Angell, an NAIC technical team would simplify insurance department reviews of rating plans by providing expert, impartial reviews of proposed applications of data and statistical techniques. Determinations regarding compliance would remain with the states.

Insurers would benefit from this arrangement, he added, by having all technical objections to a proposal raised and addressed in a central forum, rather than in numerous jurisdictions.

About Joseph S. Harrington, CPCU, ARP

Harrington is a Chicago-area business writer and communications specialist. From 1994 to 2016, he served as director of corporate communications for the American Association of Insurance Services (AAIS). More from Joseph S. Harrington, CPCU, ARP

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