Minimising harm critical in big data era: actuaries

14 March 2022

Minimising harm and providing safety nets will be critical as the digital transformation of Australia’s economy shifts risks, the Actuaries Institute says.

A paper released last week looks at challenges around data integrity, artificial intelligence algorithms and the wholesale re-pricing of risk that has been made possible through the greater volume and granularity of data.

“The sophisticated analysis of large data sets will create significant issues of insurance access and affordability,” the paper written by Actuaries Institute CEO Elayne Grace says. “However, society is not always comfortable with individuals paying a ‘fair price’ for insurance if that means affordable access to insurance is not available to many.”

The paper says government may have a role to play when competitive insurance markets don’t deliver adequate cover at an affordable price, particularly when the underlying risk is beyond the consumer’s control.

“We are seeing this play out in home buildings insurance where premiums in Northern Australia have risen strongly in recent years due to a variety of factors and largely reflecting the deeper understanding of risk at very granular levels of address,” it says.

The Actuaries Institute says safety nets for vulnerable members of society are best considered proactively, especially for those who can’t act to mitigate their risks.

“The experience with the reinsurance pool for home buildings, re-emergence of mutuals and any other solutions on the horizon, should be informative for all sectors; safety nets must be in place,” the paper says.

The Actuaries Institute urges a review of the legal framework around the digital economy, mechanisms to ensure standards remain broadly aligned with social norms and expectations, and says care should be taken to guard against a digital world of haves and have-nots amongst businesses and consumers.