Social Networking A Life Underwriting Tool? Report Stirs Debate

Insurers will increasingly use public shared data to inform pricing decisions and aid in fraud detection, predict researchers from Celent.

What’s more, says Mike Fitzgerald, a senior analyst in the Chicago office of Celent, insurers could use information gleaned from social networking websites, including Facebook, when deciding whether and how to underwrite applicants for life insurance.

For instance, an underwriter might notice on a social network that a certain applicant has indicated he or she is a “fan” of risky hobbies like skydiving or rock-climbing, or has a circle of friends who are active in these sports. That information might be interesting to the underwriter, he says, especially if the life insurance application indicates that the applicant does not do skydiving.

“The underwriter may decide to ask some follow-on questions about this to the agent or the client,” he says.

In another example, Fitzgerald says, a social network website might indicate that an applicant for life insurance is “very” involved in the American Cancer Society. Such active involvement might cause the underwriter to follow up to see if a close family member, such as the mother or father, has cancer, he says.

The answer could impact the underwriting decision, he says.

The comments were spurred by findings in a just-released report from Celent on how insurers are, or could be, leveraging social networking tools. In that report, two Celent researchers — Catherine Stagg-Macey and Craig Beattie — concede that insurer use of such information in pricing decisions is not without challenges.

“It is difficult to get a confirmed match between a customer’s account on a social networking site and the details the customers share with an insurer,” the two researchers write. So, “an insurer must then ask for the customer’s account name in order to get the match, and this clearly may not be offered if it becomes known that the information could increase the premium.”

Another challenge would be persuading customers to share their social network data and then using it effectively in producing new insurance products and improved pricing, the researchers continue.

Some customers may end up benefiting from preferential rates and better service, they allow, but “customers who associate with poor drivers, criminals and friends involved with fraud may find that they pay a higher premium or are not offered insurance.”

Fitzgerald predicts that insurers will initially seek out social networking data for applicants seeking high face value life policies. “It would be too expensive for underwriters to obtain this information on applicants for smaller policies because the searches are not automated,” he explains.

There are no information companies that currently provide this data to underwriters, but he says they could develop and become “a whole new industry.”