News | April 28, 1998

Data Access, Confidentiality Emerging as Issues Among Insurers, Regulators

The demand for insurance data collection has shifted from regulators and statistical agents to business managers from within individual insurance companies, panelists said at a recent seminar on rate-making, hosted by the in Chicago.

In the past, the requirements of regulatory agencies and statistical agents often drove the data collection process of the companies, said Gary Noble, vice president, data management, Hartford Financial Services Group. "Within the past few years, the decisions on what data is collected are being made by the business managers of the individual companies," he said. "And that shift, more than anything else, is changing the way we collect data."

By gathering the data to meet those internal business needs, "we need internally, we will have more than enough to satisfy the stat agencies and regulators," added Noble.

William E. Burns, vice president and actuary, PHICO Insurance Company, divides the data collection issue between internal and external requirements. "In my experience, I've never had anyone at a company challenge requests for data from stat agents," he said. "At the same time, people don't know why the stat agent wants the data and what they do with it."

Within the company, Burns noted, the competitive forces of the soft market makes it difficult to convince business managers that they need to collect additional information because "it really doesn't change the way the underwriters and marketing people make decisions a lot of times."

He said it is difficult to convince people internally that "actuaries need certain information from a rate-making perspective. That's a much harder sell."

Noble acknowledged that often people in the company don't really know what data they need to make the right business decisions. "That's the role that actuaries and data managers play," he said. "Where we need to focus is not on what other people want, but what we want. It is a challenge to do that."

Alan E. Wickman, chief of the actuarial division of the Nebraska Insurance Department and chairman of the NAIC Statistical Task Force, said that the issue of access to insurer data and its confidentiality is now under discussion at the NAIC.

"The question is how much insurer data in the possession of regulators should be open to public inspection," he said. "The public being insurer competitors or consumer groups."

Within the next six to nine months, it is likely the NAIC will pass a change to the model rating laws regarding access to data, according to Wickman.

"I expect the NAIC will come up with something that will restrict access from current laws, probably protect individual privacy and individual insurer loss data, but provide for significant disclosure of insurer specific premium and exposure data," he said.

Wickman claims that whatever the NAIC does, it probably will be a few years before the issue comes before state legislatures where the proposals are likely to be challenged by consumer groups.

He also points out that the NAIC already is encountering opposition from insurers who feel that the regulators are not going far enough in restricting access to company data.

Noble said two fundamentally different points of view exist on this issue. "There are some who believe that total, uncontrolled access to total information produces perfect competition," he said. "And there are those who believe that total access to total information inhibits competition."

He noted that there are some different positions even within companies, which vary by line of business. For example, people in the workers' compensation line are less concerned about restricting competitors' access to their data than those in personal lines. He terms consumer access to insurer data more of "an annoyance" to companies-because information can easily be misinterpreted-than a subject of serious concern.

Wickman said that among personal lines carriers, at least, he believes "fear of consumer groups are a bigger factor" than losing trade secrets to competing insurers. Wickman observes that he has not heard an insurer representative explain what additional advantage a competitor's data would provide beyond the aggregate information now available.

Burns said that the ongoing soft market has shaped a lot of companies' concerns about data sharing. "Companies are saying: 'We're tired of losing business and tired of people knowing what we're doing, so we don't want to keep sharing data.'"

He added that he is more worried about losing key employees to competitors than the competition getting hold of his data.

Burns expressed concern about who in the company is responsible for the data and its quality. "It is not the actuary's responsibility to clean up data," he says. For example, if the claim people are responsible for loss data, they are responsible for the quality of that information, according to Burns.

"Internally, there is a difference between being sure the data is right and going in to clean it up," he said. "As a profession, I think actuaries have to start throwing it back into the other departments' courts, and make sure they are responsible for the data and cannot put something in that the system accepts and move on to the next account."

Moreover, with computer hackers capable of breaking into the most secure computer system, "it is a fact of life that some data will be accessed for the wrong purposes," said Burns

While data access and confidentiality are important issues today, ultimately, said Noble "the companies that succeed will be the ones that get good data and learn how to use it."