Insurance is one of those things we all need and pay a lot for the privilege of having – but also never think about, hoping we never have to use it and knowing that if we do, it will probably be a hellish experience. Unfortunately, as premiums for everything from home insurance to car insurance soar, more and more of us are being forced to deal with the opaque and convoluted insurance industry.
In the past year, property developers have reported price rises of up to 50%, and car insurance has risen by 17%. And the home insurance crisis is so bad that more people are forgoing cover every year.
For most people, private insurance is their primary source of security against the vast array of (un)known risks that threaten to turn their lives upside down. Even if you live outside the US and don’t rely on private health insurance, you still need private insurance for your car, home, income and life. In addition, there is a vast array of commercial insurance that underwrites finance, business, logistics, infrastructure, government and everything else in society.
But the industry we rely on as a bulwark against an uncertain world is also increasingly designed to screw us over. Instead of using new technologies like artificial intelligence to accurately calculate a customer’s risk and set a fair price for them to pay, insurers are innovating all sorts of new ways to undermine our security and boost their profits – all under the guise of convenience and objective risk science.
Insurance is supposed to make us feel safe
When I talk to industry insiders, they readily (too readily, in fact) admit that insurance is a grudge purchase. Consumers agree. Private insurers are among the least trusted industries by consumers, with health insurers being the most hated.
Yet insurance is a vital tool for making the world a safer place. By pooling risks among large groups, no one has to bear the full burden of health scares or random catastrophes alone. This sense of social solidarity is why many early forms of insurance were linked to unions, guilds and community groups. And it’s why insurance is often compulsory for things like driving a car or buying a house: It works better when everyone is in it together.
Today’s insurers say they sell ‘peace of mind’ and hawk themselves as neighbours who are always there when you need them. But that sense of security does not ring true for people who feel cheated when insurers use a morass of loopholes and exclusions to deny claims while continuing to raise premiums or cancel policies altogether. For insurers, the best case scenario is that they continue to get paid by customers who never face a disaster and therefore never need their insurance. So when the bills for a disaster come due, companies are not eager to pay. Not so neighbourly.
Behind the curtain
Insurance is an esoteric, Byzantine and secretive business, so most of us only see the tip of the iceberg – the denied claims, the increased costs, the cancelled cover. What we don’t see are the complex systems insurers have created to keep us in the dark, collect as much data as possible and squeeze profits out of the customers they are supposed to serve. And the further integration of technologies like AI only increases the industry’s ability to rip us off, while allowing companies to escape public scrutiny and accountability.
In the past, insurance policies were largely based on broad demographic categories such as age and gender. Now, with the vast amount of data that insurers have access to, consumers are being charged not only based on their objective risks, but also on how much they are willing to pay – a practice called price optimisation. To make these predictions, insurers collect and analyse data about individuals to create detailed personal profiles, looking at everything from whether you smoke cigarettes to your shopping habits to which internet browser you use.
This data is fed into proprietary models for analysis to determine how much to charge a particular consumer. The personalised prices the algorithm spits out are based not only on how risky a person is compared to other similar people, but also on metrics such as customer lifetime value – or the predicted net profit a customer will generate over their lifetime.
To come up with that magic price tag, insurance companies look at the minutiae of your life. They might look at the roof of your house using drones and automated image analysis, or where you’re driving based on data from a smart device in your car, or what kind of food you’re eating based on nutrition trackers. They can also look at your credit score, postcode, social media posts and battery charging habits. This data can then be used as proxies for social categories such as class and race, or to make moral judgements about your personal responsibility that inform decisions about prices and policies.
“Thanks to technology, including AI, we can now reveal things that in the past only God knew,” the president of Sompo Holdings, one of Japan’s largest insurance companies, said last year.
