LONDON (Reuters) - Britain’s financial watchdog has begun looking at how “big data” affects prices of home and car insurance to see if a formal market review is needed.
Big data refers to the use of new or expanded data on consumers from a wide range of internal and outside sources such as debit and credit card purchases, social media postings, mobile phone apps, and even from sensors in cars to show driving habits.
The Financial Conduct Authority (FCA) said it wanted to understand how this has developed in recent years and might change over the next five years.
The use of big data brings both benefits and risks for consumers, it said.
“We are keen to talk to both consumers and industry to understand Big Data’s impact on firms’ decisions, and in turn the effects that this is having on consumers,” said Christopher Woolard, FCA director of strategy and competition.
“We will then be able to consider what further steps may need to be taken.”
Big Data could be improving the way insurers assess risks and hence price their products, the FCA said. It will also look at whether Big Data has a different impact on customers who are not typical.
“For example, these could be consumers with an unspent criminal conviction trying to purchase home insurance or consumers with a disability who require modified vehicles,” the FCA said.
The watchdog said it was also aware that increased use of data could concern some consumers and affect their trust in insurance products.
The cost of investing in Big Data gathering could also become a barrier for new insurers to enter the market or existing ones to stay competitive, the FCA said.
“We are also interested in whether there is evidence that Big Data impacts on the number of firms that compete to provide retail general insurance products, in particular private motor and home insurance, and their market shares,” the watchdog said.
The FCA will publish a feedback statement in mid-2016 with its findings and an outline of its response.
Reporting by Huw Jones; editing by Jason Neely and Adrian Croft