Who: Financial Conduct Authority (“FCA”)
When: November 2015
Law stated as at: 15 December 2015
At the end of November 2015, the FCA issued a call for inputs on the use of big data in the retail general insurance industry.
The FCA announced its intention to review how insurance firms use big data in its business plan for 2015/2016. While recognising that the use of big data is developing across financial services, the FCA’s call for inputs focusses on retail general insurance – in particular, private motor insurance and home and contents insurance – because of the significance of the sector, the importance of data to the sector, and the potential impact of data on the way that risk is assessed in the sector.
The purpose of the call for inputs is to deepen the FCA’s understanding of how insurers are using big data and how that use may evolve over the next five years. The FCA is seeking views in response to three main issues:
- Does the use of big data affect consumer outcomes?
- Does the use of big data foster or constrain competition?
- Does the FCA’s regulatory framework affect developments in big detail in retail general insurance?
In respect of each of those three main issues, the FCA’s call for inputs highlights areas where it would particularly welcome stakeholders’ views and examples and evidence of the potential benefits and risks to consumer and competition outcomes. The FCA emphasises that it is specifically interested in how big data might affect risk profiling, pricing practices and consumer behaviour. For example, will the ability to more accurately calculate risk have an impact on the availability of insurance for particular consumers? Will big data allow insurers to access consumer characteristics or consumer behaviour that do not directly affect the consumer’s risk profile, but are important for pricing provisions?
The FCA requires responses to its call to input to be submitted by 8 January. To supplement the information obtained through the call for inputs, the FCA is also meeting with firms, consumer groups, industry bodies and other interested parties to obtain as much information as possible.
The FCA expects to publish a feedback statement in mid-2016, which will set out the findings of the call to input, and next steps. The FCA’s next steps may include a market study, adjustments to policy or guidance, another form of intervention or, if appropriate, it may conclude that no further work is required.
Why this matters:
The FCA is not alone in its focus on big data…
In July 2014, the Information Commissioner’s Office (the “ICO”) published its paper on Big Data and Data Protection; in November 2014, the House of Commons Science and Technology Committee published a paper on the Responsible Use of Data; and in June 2015, the Competition and Markets Authority published The Commercial use of Consumer Data – Report on the CMA’s Call for Information. Finally, just days before the FCA issued its call for inputs; the European Data Protection Supervisor published an opinion on the challenges of big data, covered by Ben Dunham in his blog post.
Regulators are clearly aware of the potential value of big data and how it may help inform business decisions and activities. They are, together, tasked with pre-empting how big data may be used in the future (as well as understanding how it is used now), and ensuring that regulation strikes the right balance between fostering innovation and protecting the rights and interests of consumers.