Pilotbird Lifestyle Analytics

Any underwriter or actuary will say that insurance is a data-driven business. However, a large volume of personal information is quickly becoming available through third-party aggregators, sensors, and other alternative sources. The alternative data has not only bestowed an incredible bounty in the insurance industry, it has also raised a lot of red flags

Passed in 1970, the Fair Credit Reporting Act (FCRA) regulates how consumer credit information is collected to ensure accuracy, fairness, and privacy. FCRA also grants consumers the right to access their credit reports. Let us take a closer look at using alternative data in claims/fraud and insurance regulation.

More is not Always Better

Contrary to what people might think, having more information is not necessarily a good thing in the insurance world. It can be rather difficult for insurers to make sense of all the alternative data. Every state also has a unique regulatory framework that makes it hard for carriers and startups to comply.

In the insurance business, it is more about quality rather than quantity. According to experts at the ‘Data in the New – Transforming Insurance,’ insurers run the risk of drowning in a flood of data if they do not carefully consider how to utilize all the new information. For instance, a few members questioned whether alternative data have any return on investment in the auto telematics industry. What is the value received from all the costly data about driving behavior? The symposium was held at St. John’s University and ran by the Tobin Center for Executive Education.

The Consumer Financial Protection Bureau is currently trying to figure out a way of using alternative data to expand access to credit. The data items should include occupation, amount of time in a particular residence or job, behavioral data, and information about their associates and friends. Notice that evaluating these large volumes of data can be rather difficult

Privacy Concerns

There have always been privacy concerns on how alternative data is collected and used. For example, Let’s say a consumer indicates that they do not smoke in their life insurance application. Should the insurer check on their social media to look for evidence that may contradict the statement? Looking at it in this manner, makes everything seem much more complicated.

Insurers will have to address the potential ethical questions that come with using alternative data. Does it seem right for a compensation insurer to use a drone to determine whether a claimant is incapacitated? Such situations raise a lot of ethical questions.

The Validity of Data and Analytics

It is quite challenging to leverage the validity of analytical tools and alternative data. Insurance regulators will most likely want to examine the effects of alternative databased decisions on pricing, underwriting, and claims. Whether the automated systems are fair, valid, and unbiased will always be a massive concern to the regulators.Insurers should expect to see a four-part test to verify the legitimacy of alternative data:

  • Whether there is an actuarial basis
  • Whether there is reasonable and sound justification that links the assessed risks to the alternative data
  • Whether data pricing improves the profitability of the business
  • Does the information meet the bias and regulatory compliance?

Understand that the difference between winning or losing over customers and skeptical regulators will depend on how open and honest the insurers will respond.

What About Full Disclosure

Let’s say that the new alternative data is reliable, and the used analytical systems are deemed reasonable and fair. One fundamental question remains unanswered: how much disclosure should insurers be required to make or choose?

Insurers should, therefore, expect to collaborate with regulators to support the use of new sources of data to improve the overall insurance industry. According to a research paper on privacy by Deloitte: financial services and insurers need to be transparent about how they gather data, why they do it, and how sharing that information might benefit both the consumer and company.

Understand that proactive engagement is an excellent way of ensuring enhanced service options, improved customer experience, and cost-effective solutions.


Are you looking to explore the power of lifestyle analytics for insurance? Do you need to empower your insurance team on better customer engagement, score risk, and detect claims fraud? The good news is that regulation is growing acceptable to using alternative data sources.

Pilotbird is here to help navigate through the world of using alternative data for underwriting and prequalified customer engagement. Please contact us today, through email or call, to speak to a team of professionals in the industry.