Big Data, Privacy, and Insurers: Forget the web, Flo’s the one to watch.

    At least within the corner of the web that I frequent, it seems that I cannot go more than a few pages without running into articles discussing the never-ending growth of the Big Data industry, the death of online privacy, and how long it will be until we are all subject to 1984-esque surveillance.  These issues have been particularly interesting to me, given that, like many of us, I maintain a presence on a number of social media sites.  If at all possible, I would prefer to control who has access to the embarrassing high school yearbook photos that were posted to my Facebook wall, my Amazon.com browsing history, and the contents of the Christmas list I sent to my family.  Even when I have given my consent to certain entities to access this information, I'd like to restrict how they use this data, limit its transferability, and have some type of assurance that adequate securities measures have been put into place to protect my data.  While I recognize that the dissemination of this information would, in most cases, have little to no detrimental impact on my life, the ease with which third parties could aggregate data about me makes me quite uneasy. The public uproar that results every time Facebook changes its privacy settings establishes that my feelings are widely shared.  It is no surprise that the law’s regulation of web-based information has become one of the hotter topics in politics and legal academia (I've particularly enjoyed a forthcoming piece written by one of my colleagues: Prof. Bedi’s Facebook and Interpersonal Privacy).

    While there are good reasons that the data privacy discussion has centered on the Internet, I have found myself wondering whether this focus has diverted attention away from the rampant expansion of offline data collection.  Given my scholarly interests, it is unsurprising that the best example of this phenomenon that I can point to comes from the insurance industry.

     Insurance companies, by their very nature, have an insatiable appetite for data.  The more information they collect about their customers, the better they can estimate the odds that the company will have to pay out on its policies and set their rates.  While insurers have always been hungry for information, their data collection efforts (particular in casualty lines) have traditionally been limited to what the applicant discloses in the insurance application and public records. 

    Recent developments in the auto insurance industry may (at least in my mind) herald the beginning of a new era of aggressive approaches to data collection.  Over the past two years, Progressive has increasingly offered consumers the opportunity to reduce their premiums if they agree to allow Progressive to monitor their driving habits via wireless technology (the “Snapshot” discount).  While Progressive’s observation period is limited in both duration and amount of data collected (e.g., braking habits are recorded, GPS data is not), it is easy to see how market incentives will push auto insurers to try and collect increasing amounts of data about—or continuously monitor—their policyholders.  Further, if such programs are widely adopted throughout the industry, consent to monitoring could become a market-imposed mandatory condition for obtaining coverage.  Finally, there do not appear to be any reasons why this type of data collection would not spread to other lines of casualty insurance.

     While there are factors that will limit the expansion of this trend (collection and processing costs, state insurance regulations, social pressures), I anticipate that we have only seen the tip of the iceberg when it comes to insurers' taking an active approach towards data.  I will save my thoughts on why this type of data collection is particularly worrisome (as well as its potential upside) for another post.