The Ethics of Modern Insurance—From Telematics to Driverless Cars
Picture this: A driverless car with one passenger is flying straight toward a broken-down bus full of people. The car has to make a split-second decision—hit the bus and risk injuring several passengers or swerve off the road, risking more serious injury to the car’s passenger. What’s the right thing for the robot at the wheel to do?
That’s just one of the many ethical dilemmas those in the risk management and insurance industry are currently exploring. And with every new invention or technological advancement that shapes how people live, get from place to place, or work, new ethical situations arise.
While many industries are working to address these situations, the risk management and insurance industry is at the forefront. But why is that?
Maybe it’s because the stakes are so high—insurance is all about spotting risk and helping people prepare for worst-case scenarios. People pay big bucks for the peace of mind of being covered in case something goes wrong; they depend on agents, underwriters and adjusters to do right by them.
Insurance pros don’t take that responsibility lightly. In 2015, The Institutes conducted a survey that found that 92 percent of industry insiders consider insurance professionals to be largely ethical. Ethics are so important, in fact, that the industry has dubbed March Ethics Awareness Month, which makes it the perfect time for future industry pros to take a step back and figure out what doing the right thing on the job really means in today’s world.
Like most things in life, ethics aren’t static. Changes in society constantly tweak how we define right and wrong. Future leaders in the insurance industry have the crucial task of tackling the emerging ethical issues of today’s insurance world. Let’s dig in to a few they’ll have to face.
According to IBM, 2.5 exabytes of data are created every day. To get an idea of how much information that is, consider this: The Library of Congress has more than 38.6 million books and other print materials in its collection, which is about 10 terabytes. And just one exabyte equals 1,000,000 terabytes! As time goes on, our appetite for ones and zeros will only increase.
This overflow of data is causing a huge shift in the insurance industry. For hundreds of years, when an insurer wrote a policy, he or she relied on self-reported information. Take car insurance—the applicant provides details like the make and model of the vehicle, how many miles he drives a day, where he parks the car, etc. Agents and underwriters plug that information into algorithms and compare it with relevant data and statistical trends about all drivers—people under 25 and older than 65 are more likely to get in an accident, men are more expensive to insure, etc. Then they come up with a policy that reflects the likelihood of an accident or other risks.
That whole system is changing, thanks to telematics. With telematics, insurance companies receive information directly from a black box or another device inside a driver’s vehicle. That gives insurers access to information like how often policyholders drive, how fast they go and how hard they brake. All this data has already led to a number of new models for insuring drivers—usage-based insurance, pay-as-you-drive, pay-how-you-drive, etc.
Other insurance lines are seeing similar changes resulting from new data. Before, employers and insurers could use only a person’s word and the occasional physical to determine their overall health. Now, people can wear fitness trackers, providing a real-time picture of their daily activities and habits. The much-hyped Internet of Things and sensors on all kinds of household items have the potential to give home insurers access to a similar wealth of information, from home security camera footage and thermostat data to information from sump pumps, fire alarms and rain gutters. As this story goes to print, some insurers are even beginning to offer discounts to people with connected home devices.
Real ethical dilemmas emerge with these new models. More data may mean more accurate predictions and risk modeling, but how much data is too much? Where will data collectors and analyzers draw the line? The industry will have to grapple with policyholders who want to opt out of providing this data. Others will debate how accurate the information really is (just like people question Fitbit accuracy today).
And there are ethical concerns about privacy. Who should insurers be able to share this data with? Should it be shared with—or sold to—partners? Can regulators demand access to this information? The tech industry is already grappling with the question of whether to share information from smart phones—a telematics device we almost all have on us all the time—with authorities.
Climate change is also presenting very real ethical challenges for the insurance industry. The costs associated with natural disasters are staggering. In 2012, Hurricane Sandy caused $18.75 billion in insured property losses. This is not a looming ethical issue; the industry is already figuring out how to handle the huge costs stemming from these increasingly unpredictable—and expensive—risks.
The debate is currently being played out in the flood insurance sector. Since the late 1960s, the United States government has subsidized flood insurance for people living near the coast in high-risk areas. Now, recent legislation is pushing the trend toward having private insurers write homeowners policies with flood coverage. The move offers the industry a new line of products to sell, but it brings ethical complications as well—floods can cause extremely expensive damage. How will regulators, insurers and the general public share this unpredictable and costly risk?
Looking a little further into the future, driverless cars are sure to pose ethical dilemmas for the insurance industry. Who’s at fault in an accident involving two driverless cars? What about an accident caused by a glitch in a driverless car’s programming? Will the burden of car insurance switch from the consumer to the car manufacturer? If driverless cars become the norm, should people have to pay more if they choose to drive on their own?
Take the example of the bus and the driverless car. Does the safety of the passenger who owns the car and (in today’s model) holds the insurance policy take precedence over that of the bus’s passengers? It’s a question sparking much debate in the insurance world because the decisions will directly affect their customers.
Insurance pros will undoubtedly have to deal with ethical issues that aren’t even on the industry’s radar yet. How will the wants and needs of individual policyholders be addressed in light of such vast amounts of data? It’s not an easy question for an industry built on sharing risk and preparing for worst-case scenarios. As the data continues to pile up, future industry leaders will need to find innovative ways to best identify and limit emerging risks, wherever they may come from.