In the CfI, the FCA noted that there is no one definition of big data, but explained that it uses the term to mean using new or expanded datasets and data, including data from unconventional sources such as social media; adopting the technologies required to generate, collect and store these new forms of data; using advanced data processing technologies; using sophisticated analytical techniques such as predictive analytics; and applying this data in business decisions and activities.
The FCA noted that big data is increasingly used across the financial sector, but it is focusing on retail GI in view of the sector’s significance, the importance of data in this sector, the potential for big data to alter the way risk is assessed, and the possibility to focus on a small and manageable number of products – in this case private motor insurance and home and contents insurance – to frame the analysis. The FCA will look at the impact of big data across the value chain, including product design, underwriting, marketing and distributions and claims assessment and processing.
In the retail GI sector, the FCA noted that big data could include data generated from devices, such as telematics boxes or mobile phone apps; data obtained in the provision of other products and services by the same or a related provider, for example applying home insurance claims data to motor insurance pricing, or applying insights from grocery shopping behaviour to pricing insurance products; data sourced from third-party data providers, such as price comparison websites or credit reference agencies; data from publicly available sources such as social media, for example using information taken from photos or tweets; and data from consumer and civil society organisations regarding consumers in vulnerable circumstances.
Analytical techniques mentioned by the FCA include advances in data processing technology and using more sophisticated data analytics, such as using machine learning to predict which consumers are likely to make a claim or switch to other providers, or which claims might be fraudulent.
The FCA is investigating the impact of big data in retail GI in relation to three topics:
- Does the use of big data affect consumer outcomes?
- Does the use of big data foster or constrain competition?
- Does the FCA’s regulatory framework affect developments in big data in retail GI?