Data Privacy: The Insurance Industry’s Next Obstacle

Insurers are investing in data, but insurance customers are worried about privacy. Before insurers can reap the full benefits of data, artificial intelligence and machine learning, consumer distrust needs to be addressed.

Why Are Consumers Worried About Data?

According to a report from KPMG¹, 86% of consumers say that data privacy is a growing concern. Consumers are specifically worried about the data that businesses gather about them, with 68% of consumers says they are concerned about the level of data being collected by businesses, and 40% saying they don’t trust companies to use their data ethically.

Consumers know that their personal data is valuable, and the constant push to collect more data can feel invasive. To get a sense of how data collection can feel to the average consumer, consider how people react to eerily accurate targeted ads. As discussed in many articles and online posts in recent years, many people have questioned why they start seeing targeted ads for an item soon after mentioning it in conversation.

According to USA Today², Jamie Court, president of Consumer Watchdog, says that companies aren’t listening through a microphone as some people fear, but they are using sophisticated demographic and location data to track consumers. This explanation isn’t enough to alleviate privacy concerns. KPMG found that 47% of people surveyed still think their smart devices are listening to their conversations. Regardless of how companies obtain their information, many people find it unnerving when a company obviously knows more about them than they should.

Consumers Don’t Want Their Data Sold or Stolen

Beyond the general discomfort that consumers have with data collection, there are more practical concerns, as well. KPMG’s survey also found that 47% of consumers are worried that their data could be hacked, and 51% are worried it could be sold, both of which are reasonable concerns. KPMG says that 17% of business leaders say their company sells data. That’s not the majority, but it’s enough to make it a real concern for consumers who don’t want their data sold. Hacking is also a real threat. According to the FBI’s Internet Crime Complaint Center (IC3)³, there were 45,330 reports of personal data breaches, and 43,330 reports of identity theft in 2020. Total identity theft losses came to more $219 million.

How Are These Concerns Holding Back Data Innovation?

Insurance programs that use telematics and smart home devices have the potential to manage risks, prevent claims, reduce losses and lower costs. That seems like a win for both insurance companies and insurance customers. However, if policyholders don’t trust their insurers to manage their data responsibly, they might not be willing to participate in these programs moving forward.

Insurance search engine and comparison site Zebra⁴ conducted a survey to see how comfortable people are with the idea of sharing their data with auto insurance companies. Among people ages 18 to 24, 45% say they are uncomfortable sharing driving data, and 60% say they are uncomfortable sharing location data with auto insurers.

Consulting firm Capco⁵ conducted a similar survey to see how policyholders feel about sharing data from smart home devices. Only 40% of Gen Y policyholders and 47% of Gen Z policyholders said they would be willing to share their smart home data.

What Can Insurers Do to Win Customers Over?

Insurers have big plans for big data, but they need their customers to be on board. There are four objectives that insurers can embrace in order to win customers over.

Transparency
Policyholders want to feel in control of their data. When they discover a company has collected more personal information than they realized, or their information has been sold, they feel their privacy has been invaded. Insurers may be able to alleviate their concerns by being transparent about what data they collect, how they collect it and what they do with it.
Rewards
Customers know their data is valuable, so they might not be willing to give it away for free. Nationwide⁶ found that 62% of customers have privacy concerns regarding telematics. But they also found that this barrier can be overcome, since 65% of respondents say they would allow telematics devices to capture their data in exchange for a discount.
Compliance
Insurers can show that they value data privacy by complying with new state data privacy laws and industry best practice standards. The NAIC⁷ has two model laws dealing with consumer data privacy, and the NCSL⁸ says that at least 38 states have adopted consumer data privacy laws.
Security
Data breaches can erode consumer trust. Beyond compliance with data privacy laws, insurers need to demonstrate that they take security seriously, and that they are investing in technologies designed to keep data safe.

Are You Taking Data Privacy Seriously?

Consumers want convenient insurance payments, but not if that means letting their payment data fall into the wrong hands. At One Inc, we adhere to industry-leading security requirements that reduce your risk of exposure, simplify your network security and compliance practices, and protect your policyholders from payment data theft. As a Nacha Certified Third-Party Sender, we have met rigorous standards for risk management and compliance, demonstrating the strength of our corporate controls.

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