Friday, September 19, 2014
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Can insurers use data mining to set your rates?

Life insurers are experimenting with using data typically mined for marketing purposes to evaluate policyholders' risks. Is that really less intrusive than blood and urine tests?

Can insurers use data mining to set your rates?

Life insurers are experimenting with using data typically mined for marketing purposes - such as your online purchases or social-networking-site disclosures - to evaluate potential policyholders, according to an article by the Wall Street Journal's Leslie Scism and Mark Maremont:

Life insurers are testing an intensely personal new use for the vast dossiers of data being amassed about Americans: predicting people's longevity.

Insurers have long used blood and urine tests to assess people's health—a costly process. Today, however, data-gathering companies have such extensive files on most U.S. consumers—online shopping details, catalog purchases, magazine subscriptions, leisure activities and information from social-networking sites—that some insurers are exploring whether data can reveal nearly as much about a person as a lab analysis of their bodily fluids.

In one of the biggest tests, the U.S. arm of British insurer Aviva PLC looked at 60,000 recent insurance applicants. It found that a new, "predictive modeling" system, based partly on consumer-marketing data, was "persuasive" in its ability to mimic traditional techniques.

The research heralds a remarkable expansion of the use of consumer-marketing data, which is traditionally used for advertising purposes.

This data increasingly is gathered online, often with consumers only vaguely aware that separate bits of information about them are being collected and collated in ways that can be surprisingly revealing. The growing trade in personal information is the subject of a Wall Street Journal investigation into online privacy.

A key part of the Aviva test, run by Deloitte Consulting LLP, was estimating a person's risk for illnesses such as high blood pressure and depression. Deloitte's models assume that many diseases relate to lifestyle factors such as exercise habits and fast-food diets.

This kind of analysis, proponents argue, could lower insurance costs and eliminate an off-putting aspect of the insurance sale for some people.

"Requiring every customer to provide additional, and often unnecessary, information" such as blood or urine samples, "simply makes the process less efficient and less customer-friendly," says John Currier, chief actuary for Aviva USA.

Other insurers exploring similar technology include American International Group Inc. and Prudential Financial Inc., executives for those firms confirm. Deloitte, a big backer of the concept, has pitched it in recent months to numerous insurers. ...

Making the approach feasible is a trove of new information being assembled by giant data-collection firms. These companies sort details of online and offline purchases to help categorize people as runners or hikers, dieters or couch potatoes.

They scoop up public records such as hunting permits, boat registrations and property transfers. They run surveys designed to coax people to describe their lifestyles and health conditions.

Increasingly, some gather online information, including from social-networking sites. Acxiom Corp., one of the biggest data firms, says it acquires a limited amount of "public" information from social-networking sites, helping "our clients to identify active social-media users, their favorite networks, how socially active they are versus the norm, and on what kind of fan pages they participate."

For insurers and data-sellers alike, the new techniques could open up a regulatory can of worms. The information sold by marketing-database firms is lightly regulated. But using it in the life-insurance application process would "raise questions" about whether the data would be subject to the federal Fair Credit Reporting Act, says Rebecca Kuehn of the Federal Trade Commission's division of privacy and identity protection. The law's provisions kick in when "adverse action" is taken against a person, such as a decision to deny insurance or increase rates.

Click here to find the whole story, which is part of the Journal's excellent series on online privacy intrusions.  Once again, it raises the good question of why Americans worry about Big Brotherish behavior by government but accept it from businesses?

Are reviews of your online purchases, or decisions that you deserve special scrutiny because you said on Facebook that you joined a breast-cancer walk, really less intrusive than asking you to pee into a cup?
 

Jeff Gelles Inquirer Business Columnist
About this blog

Jeff Gelles, who writes the Inquirer's weekly Consumer 14.0 and Tech Life columns, takes a broad look at the marketplace of goods, services, and ideas.

Reach Jeff at jgelles@phillynews.com.

Jeff Gelles Inquirer Business Columnist
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