Advances in big data promise personalization, challenges for insurers

February 21, 2018 By Rob Burgess
The Indiana Lawyer

The science behind insurance is far from new. Actuarial tables were developed centuries ago, leading to an industry whose core business model has remained relatively stable as times change.

But what happens when technology threatens to not only disrupt the market, but completely reshape it? This is the question facing insurance industry experts as “Insurtech” — a portmanteau of the words “insurance” and “technology” — continues to rise.

Regulation vs. innovation

It’s a challenge firms such as Frost Brown Todd are looking to tackle head on. Last month, the firm hosted InsuranceConnect at Bankers Life Fieldhouse in Indianapolis, bringing together experts to discuss the promise and challenges inherent in Insurtech.

One of the moderators at the event was Frost Brown Todd attorney Matt Schantz, who, before his legal career, worked for a time at the National Security Agency.

He said with the advent of large-scale data collection, it’s now possible to write insurance policies calculated on an individual’s own risk rather than relying on statistics from large populations.

He said one of the hurdles to implementing these changes, though, was the “balkanized” nature of the industry. There are different regulations in each state, and they generally require data to be submitted in advance before an insurance product is sold.

“(It) doesn’t really work with the new model,” he said. “Letting an insurance company adapt their prices to the actual risk that individuals present ahead of time, that makes for an efficient market.”

Greg Mitchell is the chair of Frost Brown Todd’s insurance industry group. He said the Midwest — and Indiana in particular — could be a testing ground for such modernization.

“If we allow the regulation over top that would make sense” then there would be an “opportunity kind of in a safe harbor to make adjustments (to) allow innovation,” he said. “It would also allow (for) a better form of regulation.”

For its part, the National Association of Insurance Commissioners formed the Innovation and Technology Taskforce in late 2016. According to an NAIC spokesperson, the group was meeting regularly to address these concerns.

“Consumers are demanding it,” an NAIC spokesman said in an email. “Our job is to be sure it’s done the right way and compliant with regulatory requirements that are there for the protection of consumers.”

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