Insurance 2023 - the year ahead
Regulators will step up scrutiny of insurers and insurtechs to protect consumer interests
Insurers have traditionally relied on the collection of information from insureds through proposal forms to assess risks and to set prices for policies. In an increasingly connected world, a significant amount of data is now collected from prospective insureds from alternative sources including wearable technology. While this may lead to innovation in product design and distribution by insurers and insurtech ventures, these forms of data collection are also likely to attract greater regulatory scrutiny, including potential anti-discrimination concerns from regulators.
Our expectation is that the increased provision of data from insureds through technology-based data points will be the focus of greater regulatory attention, as the evolutionary shift in distribution models in the insurance industry gathers pace. Regulators are likely to step up their protection of consumer interests to ensure that data that is collected from such sources is not misused to discriminate or exclude insureds.
In Australia, there has recently been a rise in regulatory action against insurers in the context of mental health exclusions in insurance policies, where some insurers have been found to have been non-compliant with Australian anti-discrimination laws. There is a partial exemption which provides that discrimination in underwriting is not unlawful if it is based on actuarial or statistical data on which it is reasonable to rely, unless there is no such data available.
Insurers who have fallen outside of the scope of the partial exemption have not been able to demonstrate to regulators that they reasonably relied upon such data at the time of underwriting. This trend illustrates the practical difficulties of complying with the partial exemption for insurers and can be seen as a warning for insurers and insurtech ventures as channels of data collection evolve. The greater access to and use of data as a result of technological advances will need to be managed carefully to meet regulatory expectations and legislative obligations under anti-discrimination legislation.
Insurers will need to implement processes which ensure that data being sourced from innovative technological channels is being appropriately utilised in the underwriting of insurance products to ensure it falls within the scope of exemptions under anti-discrimination legislation. Insurers will need to retain documentary evidence of reasonable reliance on data to justify the pricing and structuring of insurance products.