Technology, Innovation and Calculating Risk
How a British Insurance Company Tried to Innovate When Calculating Premiums for New Drivers
Facebook has blocked a British insurance company from using its social media website to analyze whether a new driver or car owner is an acceptable insurance risk.
The company, Admiral, has an innovative initiative called Firstcarquote. The initiative is aimed at helping first time drivers or car owners procure insurance at rates they can afford. It also helps the drivers who have not yet purchased a car figure out which make and models will be the cheapest in terms of insurance premiums. As part of the process of applying for insurance, prospective policy-holders had to answer several questions, provide routine information, and provide Admiral access to Facebook accounts.
How Admiral planned on analyzing a prospective policy-holder’s propensity for good driving is interesting. The company planned on using a search algorithm focused on drivers’ Facebook posts with an eye toward grammar and syntax. The company averred that proper use of grammar, good syntax, and proper punctuation are indicia that a driver would be a good insurance risk. Conversely, the company averred that improper grammar, or overuse of certain words, phrases or punctuation marks, are indicia of an “overconfident” individual.
According to the company, it did not plan on using Facebook posts to determine eligibility. It is possible, though, Admiral planned on using Facebook posts to determine premium rates. It is also possible the company was simply gathering data to test the grammar to driving risk theory. Unfortunately for Admiral, Facebook will not permit the company to profile users in this way, as it alleges such profiling violates the site’s Platform Policy.
Admiral’s approach is worth investigating more. On the one hand, insurance companies need to gather as much data as possible for calculating risk. On the other hand, Facebook users could see data from their posts used in ways they never anticipated.
When a social media user posts something on a site, that post is public information unless the user designates more restrictive privacy settings. When users post content in the public domain, anyone can cull the data, regardless of whether they are friends of those posting the information. Social media users should be fully aware that social media companies use the content to collect information about users. The company either uses the data to sell targeted ads on its own site or may sell the data to third parties for other purposes.
What happens when Facebook users post things that interest them, and an insurance company analyzes those posts months or years later to determine the premium to be paid? Is this a good use of publicly available data, or a poor use of the data? On the one hand, insurance companies should be lauded for innovating in the sector. On the other hand, it seems there are confounding factors insurance companies may not contemplate when gathering the information. For example, can the companies tell whether the posts were from computers or mobile devices? Did the users copy text from another website or another friend?
Similarly, is grammar a good indicator of potential driving risk? Is it possible a well-educated individual, who expresses himself well through social media, is an aggressive driver? Is it possible for someone who uses poor grammar to be a very cautious driver?
Insurance companies are in the business of actualizing risk. That is to say, they are in the business of guessing whether someone is a good driver or not. The better a company can guess regarding risk, the lower premiums a safe driver pays. The more data an insurance company has about a prospective driver, the better the company can guess as to the quality of the driver.
For this reason, the automobile insurance industry craves data about prospective drivers. The industry has a decent system, here in the United States, for calculating relative risk with respect to age, gender, locale, and so on. But the industry, and the way to gather data for calculating risks, is changing. Millennials do not drive as frequently as Generation Xers or Baby Boomers. Millennials do not have as high a percentage of vehicle ownership. They are more dependent on public transportation and transportation networking companies such as Uber and Lyft.
The statistics are in flux as more Millennials travel outside of metropolitan areas and need cars. Perhaps a Millennial is moving to a city without a vast transportation infrastructure or Uber. Or perhaps a Millennial wants to take more weekend trips. Regardless of the purpose, an insurance company will need to know what type of risk the driver represents. What will be his or her driving habits?
As the way to gather data changes along with the landscape of who is driving, insurance companies such as Admiral should be permitted to experiment. The company should have the opportunity to test its theory that using good grammar correlates positively to good driving habits. If the theory is incorrect, Admiral will revise its practices.
Those who use social media should be aware of how their posts could be used in the near future. Public posts should not implicate privacy concerns, but social media users should be aware of how such publicly available data may be used.
Insurance companies need the freedom to innovate. Admiral’s ideas may not be off the wall. There may be a connection between writing habits and driving risk. There is only one way to find out. The attempt to innovate ought to be lauded. As society changes, insurance companies need the freedom to experiment, changing their products both to reflect ways of better calculating risk and to cater to the needs of society.