'Potential inaccuracy': Choice says insurtech AI is leap of faith

Consumer group Choice is warning Australians to consider the data privacy risks of data-driven insurance offered by insurtechs before switching policies.

Choice highlights concerns over the extent of data collected by insurtechs, and the accuracy of algorithms used to set premiums.

“We’re putting a lot of faith in insurers that they have good machine learning programs that can actually test if these behaviours affect driving performance and safety,” CHOICE consumer data advocate Kate Bower said.

“A lot of things go into these algorithms that are meant to assess future behaviours or riskiness where things haven’t been proven to be a factor.”

Choice notes the insurer will receive detailed information about how far a car travels and that acceleration, braking and cornering data may all be used, and a profile of the driver is formed based on how smoothly – or erratically – they drive.

“Does listening to the radio increase your likelihood of an accident? Who knows? Once they start including more factors and data points, the more potential there is for inaccuracy, but the insurers would have you believe that more data points equates to greater accuracy,” the Choice article said.

Choice says privacy of driver data is a critical question for insurtech customers and that with no clear Australian standards, it is up to individual insurers to make commitments to customers. Ms Bower says in future, technology could detect whether a phone is in a holder or not, or if several phone calls are made, loud music is on, or passengers are smoking.

“These all might feed into risk factors which can then affect pricing and your ability to claim into the future,” Ms Bower said. “Certainly, the sophistication of these devices can enable that.”

With real-time data, an incident can be flagged automatically and a claim process actioned, and Ms Bower says this “does put a question mark over how protected you are” – and may create a new difficulty for the consumer in how to navigate such a claims process.

“What if a different driver is in the car? What if it’s been stolen? What options do you have if the insurer has made a mistake? Or what if you’d prefer to fix your car privately and not make a claim?” she said.

Choice is calling for more transparency over data privacy and use and says to read fine print carefully and stay on top of changes.

“Expect to see the privacy policy change and the product disclosure statement change quite a few times in the first couple of years,” Ms Bower said.

Choice also says to expect more insurtech entries to the market – including from traditional insurers – very soon.

“Insurtech is set to make big waves in the insurance industry in coming years, with the potential for positive changes across policy options and prices as competition increases, but with any new product category it’s important for consumers to be aware of the risks.”