Insurers can make data privacy a competitive differentiator
Consumers are willing to make an array of additional data available to insurers and other financial service providers.
Instead of taking a defensive approach to consumer privacy by focusing mainly on data protection and regulatory compliance, what if insurers strove to become more transparent and proactive in communicating with policyholders about the new types of information they want, why they need it, how they intend to collect it, and what added value they could offer in return?
Might privacy policies be reimagined and turned into a competitive differentiator?
That was the main hypothesis prompting a survey of 2,000 U.S. consumers by the Deloitte Center for Financial Services, which found that most consumers would be willing to make a wide variety of additional data available to insurers, banks, and investment firms — but only under certain conditions, and only if lower costs or improved service might result.
The benefits of shared data
Digital technologies are permeating nearly every facet of daily life, providing insurers with more opportunities to collect information about policyholders to better inform their underwriting and claims decisions, from physical location and biometric data to real-time driving performance and social media activity. Yet privacy policies sent to insurance buyers and other financial services consumers examined for an earlier study by Deloitte’s 2019 “Reimagining Customer Privacy for the Digital Age“) made no mention of emerging sources of alternative data nor the new tools being used to collect and analyze all the additional information becoming available.
In addition, Deloitte’s study found that such policies rarely explain why sharing additional information might be mutually beneficial in terms of improved pricing, claims handling, and overall customer experience.
A change in approach is likely called for, given that Deloitte’s 2020 consumer survey found privacy concerns could present formidable challenges to insurers when it comes to earning consumer trust and convincing buyers to readily share more data. Sixty-four percent of respondents said privacy is always top-of-mind whenever they interact with financial institutions, and 57% said privacy had become even more important during the pandemic.
Consumers surveyed also made it clear they want some say over the types of data collected and how this information is used:
- 83% want the opportunity to opt-out;
- 80% want providers to be clearer about what data they are gathering; and
- 79% want an opportunity to verify information collected about them.
Consumers are largely on-board
Despite these concerns and heightened sensitivity about privacy, the trade-off exercise in our survey found respondents willing to provide access to more information, depending on the types of data collected and what is offered in return.
Sharing location data in exchange for a benefit appeared to be the least objectionable to respondents. More than half (56%) with auto insurance said they would be willing to provide live location data to help insurers better assess their driving risk factors if offered a premium discount and/or a deductible reduction.
On the other hand, respondents were much more skittish about sharing biometric data, even in exchange for a benefit. For example, only 25% of respondents said they would be willing to provide an iris scan or fingerprint to start their car, even though these technologies could help prevent theft. Yet, the acceptance rate rose to 38% if a driver’s physical condition (such as respiration, heart rate, or blood alcohol level) would be checked, suggesting that many consumers may consider health-related monitoring an acceptable personal safety feature.
Deloitte’s full survey report offers a detailed breakdown of responses by gender and age, and there are significant differences within and among such segments. However, rather than focusing on how insurers might improve micro-targeting of specific demographic and even psychographic groups likely to be more open to sharing data, our research indicated that carriers instead should be thinking about how to reinvent their privacy programs entirely. The bigger-picture goal would be to reach and convince a wider array of customers across all segments to establish a more interactive, symbiotic, and mutually beneficial relationship.
Shifting strategy
Insurers should start by reimagining the purpose and drafting of privacy policy statements. The survey revealed that only 54% of respondents had read the privacy policies of their financial institutions, while 28% had not read them, and 18% did not recall. Of those who read the policies, only slightly more than half said they understood them completely.
This suggests that privacy policies are likely not having what should be the intended effect —consumers reading and understanding how their data is collected, used, and shared. This is a fundamental problem and a lost opportunity, since our survey indicates a strong association between reading privacy policies and respondent comfort level in sharing data.
Imagine how much more might be achieved if insurers went beyond check-the-box regulatory compliance requirements with privacy policies. What if they worked to draft more transparent statements that make for a compelling read and are easier for customers to understand, particularly in terms of what’s in it for the buyer to make more data available?
At a minimum, insurers should be communicating more frequently and interactively with customers about what data might be collected and why while offering consumers more control in deciding what to share and offering clear value for their cooperation.
Multiple departments should play a key role in redesigning privacy as a value exchange and making privacy management a core competence — including marketing, risk, and compliance, as well as any third parties providing data. While specific roles may differ, privacy should be embedded in almost every customer-focused activity, with chief privacy officers or their equivalent typically serving as orchestrators of this new approach, in close coordination with chief marketing officers and chief compliance officers.
Creating a robust privacy program that allows insurers to partner with customers in mutually beneficial ways could be a competitive differentiator, engendering greater consumer trust, loyalty, and cooperation. And although the insurance industry is still grappling with significant pandemic-related issues, now may be an ideal time to reimagine and redesign customer privacy programs, given that most carriers have already been challenged to fundamentally change how they do business to adapt to a much more virtual business environment.
Click here for Deloitte’s full report, “Reimagining customer privacy programs to enable value exchange: How financial services firms can make privacy a competitive differentiator.”
Former NU Property & Casualty magazine Editor-in-Chief Sam J. Friedman (samfriedman@deloitte.com) is now the insurance research leader at Deloitte’s Center for Financial Services. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn.
Val Srinivas (vsrinivas@deloitte.com) is banking research leader at Deloitte’s Center for Financial Services.
This piece is published with permission from Deloitte. See www.deloitte.com/about to learn more about Deloitte’s global network of member firms.
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