Reforms powering up Consumer Data Right raise red flags

The Insurance Council of Australia (ICA) has warned expanding the Consumer Data Right (CDR) to the sector could have adverse consequences if key issues aren’t considered, as a Senate Committee considers a parliamentary bill to power up the information-sharing regime.

An ICA submission says insurance poses a range of unique issues around information sharing, the bill’s reform implications could impose heavy costs for brokers, and extensive consultations are needed before CDR is introduced into insurance.

“It will also be important for the government to consider the initial experience in applying the CDR to banking and to allow sufficient time for the full implications of CDR to be apparent before extending CDR to insurance,” ICA says in the submission to the Senate Economics Legislation Committee.

The committee is reviewing a bill to enhance the existing CDR framework, which operates in banking, by introducing “action initiation” reforms to facilitate processes such as making payments, opening and closing accounts, switching providers and updating personal details.

The Government plans to roll out CDR to other areas including financial services and insurance, and has previously indicated that it will conduct separate assessments for various sectors.

ICA’s submission says data collection is different in general insurance, products are often more diverse, complex and tailored, data may be focussed on the asset rather than an individual, and in workers’ compensation or compulsory third party, insurers are custodians of information on behalf of governments.

“Our view is that it would not be appropriate for insurers to be required to provide this data directly to consumers or other parties as they are bound by the terms of their engagement with government,” the submission says.

Sharing of pricing and risk management data could stifle investment in product development and innovation, while sometimes sensitive personal data is collected, such as around medical or vulnerability issues, that should be excluded, it says.

“We further note that this sensitive personal data, if shared incorrectly or de-contextualised, may inadvertently ‘red flag’ consumers,” it says.

ICA doesn’t see a compelling case for expanding CDR to professional indemnity and other commercial lines of insurance, where brokers provide regulator comparisons that enable business clients to easily switch policies.

It also warns that the application of CDR and the reforms in the bill are expected to require brokers to become Accredited Action Initiators, which could involve a substantial cost.

“This may be particularly acute for brokers that become Accredited Data Holders and/or Accredited Action Initiators, as they are often small businesses,” it says.

“The cost of accreditation could be beyond the capacity of some of these businesses and may result is some brokers leaving the insurance industry reducing competition and access to risk advice, especially in regional areas.

“The committee may wish to consider how the cost of accreditation can be minimised for intermediaries such as brokers.”

The bill explanatory memorandum says the reforms allow consumers to direct accredited persons to send instructions to initiate actions on their behalf, and expand the CDR from a data sharing scheme to a scheme that allows consumers to act on information they receive.

The committee is due to report by March 23.