Life Insurers Can Use Social Media Data in Underwriting. Should They?

The New York State Department of Financial Services recently issued guidelines for life insurance companies that plan to use social media, and other available online data resources, when underwriting new policies and establishing premiums.

While it's never been illegal to do so, new advances in technology and the proliferation of third-party data vendors have made checking the social feeds of perspective customers simpler and faster. For insurance companies looking to make well-informed choices social media data may eventually become as useful and easy to come by as credit scores and criminal records.

New York legislators are obviously prepping for this future and how it might potentially come to loggerheads with existing discrimination laws that protect consumers based on factors such as race, faith and sexual orientation. There's also the issue of consumer privacy legislation, which has been gaining more traction as the public comes to understand how their online information is being handled.

Up until now in the industry, monitoring social media accounts has usually come into play only when fraud is suspected. An Instagram feed filled with exciting skydiving pictures from a customer who otherwise appears to be a couch potato could raise some red flags. But now, as AI promises to speed up the process of accumulating and verifying such online data, social media feeds could potentially become part-and-parcel of the entire policy formulation process.

So what are the pros and cons of this?

Pros

An obvious pro is the speed and accuracy with which a policy could be issued, which is always a positive for the company.

And few will argue that information gleaned from a social media timeline will yield more authentic results than those coming from the industry's time-honored actuary tables. Suddenly high-risk activities like smoking, drinking and weekend racecar driving are identifiable and verifiable.

Cons

The cons begin where the New York guidelines start. It suddenly becomes the insurers responsibility to make sure judgement calls made from online data don't inadvertently cross into discrimination of protected classes. Eager for sales volume, that's a gray line that a broker might easily cross.

And then there's a chance, from a simply pragmatic standpoint, that social media data might not always be good data. A potential client who's been sober for 10-years but happens to work as a bartender might be pegged as a health risk only because the GPS on his mobile device pings him from a saloon every night. These kinds of false positives may actually lead to miscalculations, and potentially, liabilities for the insurer down the road.

The insurance industry itself has been slow to come up with internal regulatory guidance when it comes to using online data, so determining how your company is going to leverage the new tool essentially leaves you out on the frontier with an axe to blaze your own trails. Nothing's to say the industry, or worse, legislators like those in New York, don't eventually implement restrictions that could affect what you're trying to build.

And finally, as most of us know, incorporating new technologies like AI-enhanced algorithms into our legacy systems represents a challenge and a significant expense. It's a move where early adopters may find it takes longer to realize an ROI and might not be worth the risk until industry standards have jelled.

What Should You Do Now?

Since potential risk and liability aren't clearly spelled out, one useful strategy to consider is using transparency with the customer.

If the carriers you work with are already using social media data as part of their underwriting processes, or plan to in the near future, you might want to look carefully at their privacy protection disclaimers, and draw up an amendment to your own privacy protection rhetoric, to make it clear that the underwriters use data sets pulled from online resources. In your own disclaimer, you could explain what sorts of data you collect and how you use the information.

While transparency will have its limits with a public that's not yet aware how online data will affect any number of decisions made about them, it positions the insurer, and the producers, in a far more favorable light should the use of such data be questioned once regulatory action begins to take shape. So, think of transparency as a kind of reputation insurance.

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