Online platforms can foster insurance market transparency and reduce both transaction costs and information asymmetries, factors typically associated with increased competition and societal welfare.
However, online insurance platforms also give rise to challenges concerning consumer protection and competition that should be addressed by policymakers, according to a research report from insurance think tank The Geneva Association. The reports analyzes opportunities and challenges posed by platforms like digital comparison tools, peer-to-peer insurance; those that allow self-organization and self-administration of insurance; advertising services from search engines and social media platforms such as Google and Facebook.
The importance of platforms in insurance is likely to increase, according to the report, as Google, Amazon and Alibaba enter into agreements with insurance companies or consider entering the insurance space. While online platforms “provide an opportunity for insurers to differentiate themselves” in the market, there is also a risk that insurers could “become increasingly dependent on a relatively small number of platforms that may try to exploit a data-driven competitive advantage.”
The report “Virtual Competition: Online Platforms, Consumer Outcomes and Competition in Insurance” indicates that increased transparency via online platforms may help overcome behavioural biases against the purchase of insurance, as well as assist consumers in comparing complex insurance products and helping them find those that best meet their needs.
“Moreover, through the use of big data analytics, artificial intelligence and cloud computing, online platforms could enable the role of insurance to develop from one primarily concerned with loss indemnification to a broader advisory service for insureds on how to prevent, mitigate and manage risks,” the report says.
While online platforms offer benefits for consumers, they also introduce potential risks. For instance, consumers need to be assured that the information provided by online platforms is in their best interests.
Over-simplification and biased information would imply that search results, rankings or other information generated by online platforms may not necessarily reflect individual user preferences. Additionally, the use of large amounts of personal data by online platforms raises concerns about intrusiveness, fairness and discrimination, according to the rport.
“The need to reassess trade-offs between benefits and risks raises important policy questions,” said Anna Maria D’Hulster, secretary general of The Geneva Association. As an example, she cited the responsibilities and rights of consumers regarding the purchase of insurance, versus whether online platforms should be subject to regulatory transparency and fairness requirements similar to those advanced in the European Union.
Online platforms create new challenges in the areas of consumer protection and competition. Network effects and data-driven economies of scope may lead to large platforms that act as a gateway for consumers and such platforms could abuse their position by charging excessive prices or extending their dominant position to adjacent markets.
“In order to ensure a thriving and competitive marketplace, policymakers should consider the role of data as a production factor and data itself as a potential barrier to market entry when assessing market power and potential anti-competitive conduct,” the report advises.
The report highlights also the question of how insurance-specific market conduct requirements can be ensured when insurance is provided within complex digital ecosystems where different players perform different roles in the value chain.
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