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Could Your Social Media Posts Make Insurance More Expensive? Yes and No

Michael Naylor, a senior lecturer in finance and insurance at Massey University, in this article says people should expect insurers to mine their social media accounts in the future to determine how much they will charge for insurance premiums and if they will pay out on claims. He predicts it will be one to three years away in New Zealand and says it may not come from existing insurers but new entrants to the market who will use personal data to cut insurance premiums for less risky customers.

Our view? Yes, and No. 

We know of an insurer that already conducts web searches for public information relating to clients seeking substantial cover amounts for context and additional information to that contained in financial statements provided alongside the application. In one case that resulted in a decline. So, less than a year - say, now!

On the other hand most insurers are so slow to properly automate application processes that a three year time-frame to switch to underwriting based on social media information appears depressingly short. The only chance of making Michael Naylor's prediction come true would be a new entrant.  So, probably no. 

To be fair to insurers, there are a number of obstacles that are beyond their control: 

First: capital. Most insurers in New Zealand are owned by organisations based somewhere else. Almost all of those places are bigger than here. That matters. For all that we might be a 'great test market' if you spend x million on a completely new way to underwrite (using social data rather than traditional application forms does count) then you need to recover that investment, more people to buy helps a lot.

Second: government and regulatory obstacles. New stuff needs new rules. There is an amazing database of health tests and prescription data that exists here in New Zealand. The data should be available for applicants for insurance to send to insurers - an amazing short-circuit of the error-prone lifetime memory test that we currently subject applicants to - but no... Next time someone from MBIE starts to talk about how inefficient the New Zealand life insurance industry is compared to international peers you should say "I'm glad you raised that..." and explain how they could fix it. 

Third: reinsurance. Most NZ insurers reinsure a large proportion of their exposure. To try completely new ways of underwriting requires the agreement of that insurer or the willingness to take on more risk (which requires more capital - see above). It probably requires both. 

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