Not so simple: data-sharing extension presents challenges
Greater choice, control and convenience have been promised to consumers under data-sharing reforms rolling out across the economy, but insurers have raised some red flags as the Federal Government forges ahead.
The Consumer Data Right aims to make it easier to compare offerings and could provide fresh insights that facilitate innovation. The roll-out started with banking, followed by energy and telecommunications, and Open Finance, which includes insurance, is the next cab off the rank.
King & Wood Mallesons Partner Scott Farrell, who has undertaken reviews on behalf of the Government, has described the CDR as a landmark in the development of Australia’s digital economy.
“It gives Australians more control over their information, more choice in their products and services, more convenience in managing their lives and more confidence in using their data,” he says.
“Consumers can now share the data they have, with the businesses they select, for use as they choose. The first stage of the CDR – Open Banking – is already helping Australians, but the journey has just begun.”
Superannuation, Financial Services and the Digital Economy Minister Jane Hume told a FinTech Australia event in December that better-informed decisions can be made with access to greater data, providing more tailored services, saving consumers precious time and money.
“From major life decisions such as finding a home, having a child or choosing the right retirement income product. All of these life-events and associated admin (paperwork, services) could be streamlined,” she said.
Insurtech Australia has said the CDR regime could help address the industry’s “major image problem with consumers” and tackle the challenge of underinsurance with greater transparency and clarity of options and understanding of what is being covered.
The Financial Rights Legal Centre released a report last year highlighting potential benefits for insurance consumers, while also pointing out the risks.
“As the insurance industry begins to use new data collection techniques, artificial intelligence systems and algorithms, we need to ensure that consumers’ personal information is kept safe, secure and not used against them,” CEO Karen Cox says.
Another report released by Financial Rights highlighted a practical beneficial scenario in cases where people have motor claims declined after they inadvertently didn’t reveal past claims or driving penalties. CDR could avert that problem by potentially automating disclosure of records and histories.
The Insurance Council of Australia (ICA) has said Australia remains at an early stage in understanding how insurance data can be leveraged for the purposes of the CDR.
But it has made clear that the sector’s unique issues and characteristics have to be considered as reforms are rolled-out across individual sectors and the wider economy.
“Product comparison use cases will be much more complex to apply within insurance, given the diversity of products on offer,” it says in a submission to the Strategic Assessment consultation paper released by Treasury last year.
“Any such use case will need to consider how to best capture product diversity and allow scope for innovation, as well as considering potential impacts on consumer behaviour.”
ICA says product switching will need to account for the fact that different insurers collect different data, and details transferred will require re-validation. It also questions suggestions that decreasing rates of non-insurance could be a CDR benefit.
In addition, intermediaries such as brokers, often small businesses, may hold relevant consumer data, and their readiness would need to be assessed, while details collected often relates to an asset rather than an individual, meaning it’s only relevant to the person while they retain the asset.
While the challenges are not “insuperable” it suggests deeper consideration is required.
“We are happy to work with Treasury to improve our mutual understanding of the potential uses – and limitations – of insurer data,” the ICA submission says. “We suggest that a path forward is to elaborate and test consumer use cases in light of the data actually possessed by insurers.”
Treasury says following the Strategic Assessment consultations that Open Finance, including insurance, emerged as a clear priority for expansion, and it’s moving forward onto the next phase.
“By prioritising a smaller mix of targeted datasets across these sectors, the CDR will unlock a broader range of higher value use cases, compared to expanding one sector at a time,” it says.
Further consultations will be undertaken with a view to completing the first phase of Open Finance “assessments and designations” this year. The process will also explore inclusion of relevant government data.
Much is at stake for consumers, insurers and potential financial services disruptors, and the proposed extension of CDR reforms is likely to be an increasingly hot topic.
