Insurance Risk? Let an Algorithm Decide
August 7, 2018
Perhaps Big Data will save us from the vexing problem of credit reports, in one industry at least. The SmartDataCollective posits, “Is Big Data Causing Insurance Actuaries to Move Away from Using Credit Scores?” For twenty-some-odd years, insurance companies have relied on credit scores to assess risks and set premiums. Whether bad credit really means someone is more likely to, say, get into a car accident is debatable, but no matter. It seems some actuaries now think predictive analytics will provide better gauges, but we suggest that could lead to a larger and more complex can of worms. What data do they consider, and what conclusions do they draw? I doubt we can expect much transparency here.
Writer Annie Qureshi explores why the use of credit scores by insurance agencies is problematic, then describes:
“This is why insurers are using big data to make more nuanced decisions about the credit risks that their customers present. They may find that certain variables that are incorporated into credit scoring algorithms overstate a customer’s dependability. A customer could have a high credit score, because they have made the vast majority of their payments on time over the past seven years and have used little of their debt. However, they may have recently started using or if their credit card debt and missed three of the last seven payments on their existing insurance policy. This could be an indication that they have recently suffered a job loss or other financial setback, which is not reflected in their current credit score. There are other reasons that insurers are skeptical of using credit scores in the age of big data. One analysis shows that big data has helped insurers recognize that credit-based insurance policies are increasing the risk of unjust racial profiling.”
Indeed, but at the moment the data analytics field is suffering its own bias crisis (though a solution may be at hand). It will be interesting to see where this goes. Meanwhile, many of us would do well to be more careful what details we share online, since we cannot be sure how any tidbit may be used against us down the line.
Cynthia Murrell, August 8, 2018
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