“Data and analytics are fundamentally reshaping the relationships between insurers, consumers, and the public.”

London based Duncan Minty is an independent ethics consultant, specialising in the insurance sector. He’s worked with a range of insurers over the past 20 years, helping them turn a commitment to ethics into practical improvements. He has written extensively on the ethical issues raised by data and analytics in insurance and was a member of the Chartered Insurance Institute’s Digital Ethics Forum. He’s currently co-writing two academic papers on data and insurance. Duncan is also a Chartered Insurance Practitioner, having worked in the UK insurance market for 18 years.

Praveen Gupta: When I started with the industry, conceptually the nearest insurers got to ethics was Utmost Good Faith and Moral Hazard. What made it formally tip towards ethics?

Duncan Minty: Problem with both of these concepts is that they were created by and controlled by insurance people, with little input or influence from policyholders, so the tip they gave to ethics was a marginal one.

For example, UGF was invariably portrayed as an obligation on the insured, when it was in fact an obligation on both parties, something which insurance people did little about.

With moral hazard, research by the legal scholar Tom Baker has shown how insurance’s handling of moral hazard evolved over time and the picture that emerges is one of its use being one of adaptation and evolution. Concepts and principles have been made to serve the needs of the market as it evolved to meet both opportunities and threats.

This process is still happening, but this time more in terms of concepts such as actuarial fairness and behavioural fairness. Again, these are all concepts controlled by and imposed by the sector on consumers. They are expressions of the power of the financial sector, over consumers and the like.

The key realisation that insurance strategists now need to take on board, is that that power situation is changing, and digital is the force behind it.

The key realisation that insurance strategists now need to take on board, is that power situation is changing, and digital is the force behind it.

The UK’s leading scholar on ethics and information, Professor Luciano Floridi, says this…

“What we’re seeing today is the very beginning of another switch, from power over things, to power over information, to power about the questions that shape the answers that give the information about things…”

Insurers think they’re in the second phase – ‘power over information’ but what the digital era is now evolving into the third phase – power over the questions that shape the answers.

The forces that have brought about this tipping are…

• The shift from ‘tell me’, to ‘show me’, to now ‘prove to me’. Deference to the professional is no longer a given – some sectors earn it well (doctors), while other sectors (insurance) are struggling with this shift.
• The shift in power – digital may be revolutionising insurance (a good thing) but it is also revolutionising much wider things, and many scholars are seeing this.

PG: To what extent have Data and Tech necessitated this?

DM: Digital technology is a central force in this. It is revolutionising many things in our society, but in sectors like insurance, there is a lack of perception that digital is revolutionising power relationships, and that as a result, the sector’s decisions, performance, and outcomes are all there to be scrutinised.

In sectors like insurance, there is a lack of perception that digital is revolutionising power relationships, and that as a result, the sector’s decisions, performance, and outcomes are all there to be scrutinised.

To give you an example, for many years, insurance pricing was seen as nothing to do with ethics, and everything to do with the market. And the courts were broadly supportive of this. Now, however, as a result of the super-complaint, that perception has completely changed. You saw a civil society organisation with the special power to issue a super-complaint, doing so, forcing a regulatory review on its allegations, and finding the regulator conclude that price walking was fundamentally unfair. As a result, the most common approach to retail insurance pricing is about to be banned. Here you have the shift in power, and the use of digital technology facilitated it.

Data and analytics are fundamentally reshaping the relationships between insurers, consumers, and the public. The insurers who are recognising this are the ones designing their data and analytics to reflect those new relationships.

PG: What’s been the influence of regulatory unification? 

DM: We are definitely seeing great coordination between regulators. I think of this as a grid – you have horizontal regulators in the UK like the Equalities and Human Rights Commission, and the Information Commissioner’s Office, and you have vertical regulators like the FCA with its focus on financial services, and say, the Solicitors Regulation Authority.  Each are feeding into each other’s work.

Ethical issues don’t stay within regulatory boundaries, so this coordination between regulators is just a reflection of reality. Now there’s even a regulatory coordination group in the UK that has formalised this working together.

What regulated firms like insurers need to really tune into, is the increasing use of data and analytics by the regulators themselves. This is called supervisory technologies.

What regulated firms like insurers need to really tune into, is the increasing use of data and analytics by the regulators themselves. This is called supervisory technologies. The FCA here in the UK have been a leading proponent on this and we are seeing SupTech used in recent regulatory investigations. The FCA has even boasted about their SupTech capabilities to a Parliamentary committee.

The affect of SupTech is that it will do two things:

• Provide the hard evidence for misconduct, potentially as a granular level – that firm in that place is making these poor decisions.
• It will increasingly be used to identify misconduct as it occurs, rather than after the damage has been done.
• It will provide the evidence for individual accountability being enforced with more confidence, so individual insurance executives being held to account for the decisions they’ve made, and the outcomes generated.

We’ve seen this in the UK with insurance pricing. I now expect this to increasingly happen with regard to claims. There are some claims practices that I believe will be judged as fundamentally unfair, such as claims optimisation and settlement walking. And in fact, when practices such as these come to be judged by regulators and parliamentary committee, I foresee the public’s reaction to be much worse than with price walking. Reputations in insurance have a very uncertain future.

PG: Do you expect the evolving practices across the reinsurance world influencing the conduct of insurance overall?

DM: I think that reinsurers are in a unique position. They are caught between what here in the UK is referred to as a rock and a hard place. They think in more ‘long term’ terms than the typical insurer, and so invest in trends that have the potential for revolutionising insurance. Yet the problem they often have is that some of those trends are seen as positive and some as negative. Reinsurers have to follow up on their ethical commitments and make difficult decisions around whether to step back from the negative ones or continue to invest in them.

Two examples of this are facial and emotion analytics, and the use of genetic data. The global reach of many reinsurers means that they cover markets where use of these types of analytics and data are seen as very normal, and other markets where such use is forbidden.

Two examples of this are facial and emotion analytics, and the use of genetic data. The global reach of many reinsurers means that they cover markets where use of these types of analytics and data are seen as very normal, and other markets where such use is forbidden.

So, they have to be good at handling complex ethical dilemmas, and to be honest, they’ve some way to go on this. I’ve listened to very senior reinsurance people publicly say that they couldn’t do practice A or B, while several levels down in their organisation, that is exactly what they’re doing. I’ve been on reinsurance conference panels to discuss how analytics X or Y should be deployed with great care, when the host reinsurer is already deploying it.

There is debate, but it is still too controlled by the market. Remember my earlier comments in relation to power. It’s something that reinsurers need to be very aware of, for if the powerful actors that digital has brought forward, are not then engaged with on equal terms, the result will be challenge rather than support. Many insurance people don’t realise just how much political support those powerful new actors can draw upon.

PG: Thank you very much Duncan – for sharing these critical developments in the UK. There is much to be learnt by other common law jurisdictions, sooner than later.