Data privacy in Insurtech: Why it matters more than ever

The insurance industry sits on a mountain of personal data – health records, driving habits, financial details. It’s the fuel for innovation in Insurtech, but without responsible use and robust security, it becomes a liability. Here’s a harsh reality. An eye-watering 37% of consumers have already walked away from companies due to data privacy concerns. And 81% believe how you handle their data is a direct reflection of how much you value them as a customer.

These statistics reflect a growing distrust. Policyholders are asking: how is my data being used? Is it secure? Does the company truly value me as a customer, or just my information?

With this in mind let’s examine why transparency and trust are paramount, and how prioritizing data security can become a competitive advantage in the Insurtech landscape.

The data privacy landscape today

Consumers today are more conscious than ever before about their data privacy – 69% report feeling more worried than ever about their personal information. This heightened awareness isn’t born in a vacuum. Recent years have seen high-profile data breaches like the Facebook-Cambridge Analytica scandal, where millions of users’ data were harvested without consent, the Equifax breach that exposed the sensitive information of 147 million people, and the Marriott International incident, which compromised the personal details of approximately 500 million guests. And popular documentaries like Netflix’s The Social Dilemma have peeled back the curtain on how our data is collected, used, and sometimes misused.

The result? Around 70% of adults globally are actively taking steps to protect their online privacy. They’re deleting unused accounts, tightening privacy settings, and demanding greater transparency from the companies they interact with. This shift in consumer behavior presents a stark reality for the insurance industry: data privacy isn’t just a regulatory hurdle, it’s a bridge of trust to your policyholders.

What types of data does the insurance & Insurtech industry collect?

The insurance and Insurtech industries collect a vast amount of data to accurately assess risk, set premiums, prevent fraud, and provide better services to their customers. This data is essential for creating tailored insurance products and for the efficient functioning of the industry.

Here’s a breakdown of the data Insurtech collects, and why it matters:

  • Personal information: Name, address, date of birth – the foundation for any insurance policy.
  • Financial data: Income, assets, credit scores – used to assess risk and determine premiums. It might also include property and asset information, including things like the square footage of your home, the year your car rolled off the lot, whether you have a security system, and so on.
  • Health information: Medical history, medications, lifestyle habits – crucial for health insurance and increasingly used for personalized wellness programs.
  • Driving habits: Telematics data (think connected car sensors) can track mileage, braking patterns, and even location – used for usage-based car insurance and potentially to incentivize safer driving.
  • Digital footprint: Browsing history, social media activity (with consent) – can provide insights into overall health, risk profile, and even potential safety hazards (like posting about extreme sports).
  • Behavioral data: This can include gym memberships, loyalty program participation, or even public records of traffic violations. This broader picture helps Insurtech create a more comprehensive risk assessment.
  • Claims history: Claims history can help insurance companies understand risk profiles and forecast potential future needs.
  • Geolocation data (with consent): Real-time location tracking (e.g., through telematics), travel patterns, and geographic risk factors (e.g., flood zones) help in risk assessment, underwriting accuracy, and providing location-based services.

Regulations alone aren’t enough

Insurance companies operate within a stringent regulatory framework designed to protect consumer data. For example, the Federal Gramm-Leach-Bliley Act (GLB) mandates that financial institutions (including insurers) must fully explain their information-sharing practices to customers and offer them the option to opt out of sharing their sensitive information. Similarly, the California Consumer Privacy Act (CCPA) provides California residents with the right to know what personal data is being collected about them, if it’s being sold (and to who), and the ability to access, delete, and opt out of the sale of their personal information. Then we have the Health Insurance Portability and Accountability Act (HIPAA) which sets national standards for the protection of sensitive patient health information.

All insurance companies will be aware of these regulations and more. However, compliance alone is not enough. It’s crucial for insurers to transparently communicate their data protection practices to build consumer trust. Let’s get into how in the next section.

Building trust through transparency: How to communicate your commitment to data privacy

Today, policyholders are demanding transparency and control over their personal data, and that means insurance companies need to do more to communicate how they handle consumer data. Failing to do this can result in consumers going to your competitors.

To effectively communicate your commitment to data privacy:

  • Be clear & concise: Don’t bury your data privacy policy in legalese. Craft clear, concise language that outlines what data you collect, why it’s necessary, and how it’s used.
  • Less is more: Resist the urge to become a data hoarder. Clearly define the minimum data required for each insurance product or service. This demonstrates respect for policyholders’ privacy and reduces the risk of exposure to a breach.
  • Data retention with a reason: Develop a data retention policy with clear timelines. Explain to policyholders how long you retain specific data types and the criteria for deletion. This builds trust and demonstrates responsible data management.
  • Education is key: Don’t underestimate the power of clear communication. Utilize blog posts, explainer videos, and even infographics to educate policyholders about data privacy practices. This empowers them to make informed choices and fosters a sense of partnership.

Lastly, we have cybersecurity. Collecting data allows for more accurate policies and fuels the development of innovative products, so it’s not something insurance companies want to give up. And let’s not forget, it benefits policyholders too. However, any data collected should be protected with stringent cybersecurity measures.

Insurance and Insurtech companies should prioritize advanced threat detection systems, implement the principle of least privilege (limiting user access to only essential data), and utilize firewalls and network segmentation to prevent unauthorized access. These measures not only prevent attacks but also limit the damage if one occurs.

Final thoughts

In today’s data-driven world, ignoring data privacy is a recipe for disaster. By prioritizing clear communication, responsible data practices, and top-notch security, Insurtechs can turn privacy concerns into a competitive advantage. The choice is clear: embrace data privacy or risk losing policyholders.

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