It's hard to deny that social networking sites will remain popular in the forseeable future. The personal-profile paradigm has rolled through Friendster and Myspace to the current platform of choice, Facebook, over the past decade or so. The amount of personal data users put on these profiles is astounding. Online photo cataloger 1000Memories caused a stir earlier this year when it released an infographic that compared the sheer volume of the 140 billion photos on Facebook to that of the Library of Congress, which 1000Memories estimated has far less than 1 percent of that amount of data.
When placed in public areas of users' profiles, these photos -- not to mention location information and personal statements in status updates -- represent data insurers can potentially use for claims and underwriting purposes. Boston-based consultancy Celent recently released a study, "Using Social Data in Claims and Underwriting: Creating a Social Risk Profile," that examines how insurers are using this data, and how policyholders and regulators could respond.
"It's still the Wild Wild West right now," Celent analyst Mike Fitzgerald tells I&T. "We're not quite sure how it's going to be handled by regulators."
Regulators are likely to respond to concerns from consumers, but consumers may not like what they hear, adds Celent's Craig Beattie, who notes that social network users often don't realize exactly what's in the terms and conditions of the websites to which they post. "People have typically already waived their rights to privacy if they've agreed to the terms and conditions of the website," he says. "If [information] is posted in the public, it's up for grabs and legal to use it."
Shades of Gray: Fraud vs. Underwriting
Regulators and the public are likely to have different views on various uses of social media by insurance companies, Fitzgerald contends. If an insurer uncovers an instance of claims fraud based off of publicly available information -- without using clandestine means to acquire it -- it's unlikely that regulators or the public would object, he suggests. "If it's used for claims to ferret out fraud, the initial case law is very favorable to using it," Fitzgerald says. "It's unlikely the regulators would stand in the way of it."
It's when insurance companies talk about mining social networks for underwriting that consumers and regulators are likely to get uneasy, Fitzgerald and Beattie agree. In addition to concerns around expectations of privacy, the quality of the risk profile created by such data could be called into question. "It's just not reliable enough to use for pricing," Fitzgerald argues. "It would be very difficult to actuarially base a pricing decision off social data."
However, there is a gray area, Fitzgerald notes. Social data might expose a risk against which a policyholder might want to be insured, but doesn't realize that his or her existing coverage does not apply. For example, Fitzgerald relates, a commercial insurer found a commercial on YouTube from one of its small-business customers, a contractor that was only insured as a general contractor. The commercial, however, touted the company's roofing services -- coverage for which was not included in its policy. The underwriter contacted the company and brought the coverage in line with the additional exposures related to roofing.
"How can a regulator object to an underwriter ferreting out a different operation and reclassifying a risk?" Fitzgerald asks. "If that contractor faced a liability suit related to roofing, who knows how big that could have been?"
Do Me No Harm
It is unlikely that consumers and regulators would accept the use of social data for underwriting purposes unless it was strictly beneficial, Beattie suggests. It would have to follow a model similar to most pay-as-you-drive programs that use telematics devices: If you turn data over to your carrier, your rate can only go down.
Right now, the practice of using social media content for fraud prevention and underwriting still is in its infancy, and so is its regulation. NAIC president Susan Voss tells I&T that her organization is "just starting" to look at the issue.
According to Celent's Fitzgerald, it could be some time before regulators catch up to insurers, which are just beginning to explore this themselves. "They're under a huge amount of stress with staffing and budget issues," Fitzgerald notes of regulators. "They don't really have the capacity to look at this when they have to keep up with rate change and other day-to-day activities."