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Report flags Consumer Data Right impact on insurance

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A study commissioned by the Financial Rights Legal Centre has outlined what it sees as the risks and opportunities from the extension of the Consumer Data Right (CDR) to the insurance industry.

CDR aims to give consumers greater say over the access and use of their personal information by businesses. It was introduced first to the banking industry in July - more commonly known as Open Banking - with energy up next, followed by other sectors such as telecommunications and insurance.

The Financial Rights Legal Centre says the study found implementation of CDR has the potential to provide consumers with many benefits including the ability to access specified data held about them by insurers, and to authorise the secure disclosure of that data to third parties.

“Increased access to and use of consumers' own data could improve disclosure processes when buying and renewing insurance,” CEO Karen Cox said.

“There is also the potential data can help consumers and insurers work together to produce improved personal and social outcomes in the face of increasing natural hazards borne of climate change.”

On the flipside “serious consumer harms and disadvantages” cannot be ruled out when CDR is applied to the insurance industry.

“More data could lead to granular risk segmentation, and inappropriate price optimisation practices,” Ms Cox said. “Large numbers of people may find themselves unable to access insurance, claim on their insurance, or contest their premium increases.

“As the insurance industry begins to use new data collection techniques, artificial intelligence systems and algorithms, we need to ensure that consumers’ personal information is kept safe, secure and not used against them.”

The Insurance Council of Australia says it will not comment on the study until it has seen and reviewed it.

The study, which is conducted by Sapere Research Group, identified a range of risks and issues with the implementation of CDR to insurance and made suggestions to address the challenges.

It says a lack of common definitions is one of the issues that need to be worked out before CDR is rolled out in the industry. With the exception of flood, there are no established common definitions for many key terms used in insurance contracts.

The study says consumer advocates should encourage industry development of standard definitions of key product terms and provide input on terms that may cause significant concern.

Other recommendations made by the study include collaboration among consumer groups, government and industry to look into how historical claims data is used and provided to consumers; consumer advocates monitoring the applications of CDR for claims investigation to ensure that it is being used in the consumer interest; and consumer advocates monitoring the effectiveness of the regulation of third-party claims management and the risk of greater use of the industry as a result of CDR.

The study believes CDR could lead to greater use of third-party claims management firms. This is because they can provide applications to allow consumers to more easily transfer their policy and claims details.

Drew MacRae, the Financial Rights Legal Centre’s Policy and Advocacy Officer, says the study aims to prevent the “misuse and abuse” of data and hopes to prepare the insurance industry for CDR.

“This examination is not necessarily an attack on the industry,” he told insuranceNEWS.com.au. “It’s actually looking to see how we can all work together to improve outcomes.

“We want insurers to use data in an appropriate manner that is safe, secure and beneficial to consumers rather than only using data that benefit their business models.”

Click here for the study.