Can Social Networking Aid Underwriting?

Mike Fitzgerald
Insurance Experts' Forum, April 15, 2010

My colleagues, Catherine Stagg-Macey and Craig Beattie, released a research report today titled "Leveraging Social Networks: An In-Depth View for Insurers." They predict that “insurers will increasingly use public shared data to inform pricing decisions and aid in fraud detection.” They cite several situations where data held on social networks has already been used in court cases in the United States. So, how could social networking be used in underwriting, and where might we see it emerge first?

Consider a low-frequency, high-severity line of business such as high-limit personal umbrella. Improving selection on $5 million liability policies can have a significant impact on results.  

How would these connections be established? Will the application process include a link to a person’s social networking page? Will insurers offer incentives such as rate decreases or coverage extensions to incentivize potential insureds to link their personal data to insurers? (I am sure that state insurance commissioners will want to weigh in on the legality and acceptability of this!)

Even if an insurer cannot gain access directly to someone’s page, the publically available information might provide useful underwriting information. For example, if someone checks the “no” box next to the “Do you skydive?” question on the application, but they are a “fan” of a skydiving equipment company, this will likely cause an underwriter to ask a follow-up question. Or, alternatively, this may result in an automatic decline by a rules engine applying eligibility rules.

Finally, even if there is no direct information available via social networking pages, it will be straightforward to construct relationship networks for an applicant and at least identify if they are linked to anyone for whom an insurer has in depth information about. To continue with the skydiving example, if several skydivers are linked to a prospective insured, it should create underwriting concern. Additionally, expect to see information vendors provide products that scan social networks for data that can be used to inform the underwriting process. Expect to see social networking reports alongside CLUE and MVR data.

Up to now, a good deal of discussion around social networking has been about how to use these tools for marketing and branding. Thanks to Catherine and Craig for extending the discussion into these other important areas of the insurance process.

This blog has been reprinted with permission from Celent. Mike Fitzgerald is a senior analyst in Celent's insurance practice, and can be reached at mfitzgerald@celent.com.

Readers are encouraged to respond to Mike using the “Add Your Comments” box below.

The opinions posted in this blog do not necessarily reflect those of Insurance Networking News or SourceMedia.

Comments (2)

Seeing how this use of social media evolves will be fascinating and hopefully not frightening. We should look at how to underwrite these new seas for other purposes as well - advising youth, families or anyone on how navigate the risks identified - to health, wealth or reputation.

Posted by: CHRIS K | December 27, 2010 4:06 PM

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Using social networks as an underwriting tool is a natural extension of information sources such as magazines, newspapers, television media etc. An example would be high end personal umbrella underwriters having the current copy of the Forbes 400 issue and other business periodicals at their fingertips. The problem comes with the accuracy of the information and how easy it is to obtain. Who actually believes everything they read on the internet? There are websites with the sole purpose of gathering personal information from all social network websites and dumping them into a central repository for easy viewing by anyone including underwriters. Does anyone have the right to obtain your personal information and transfer and manipulate that information to a website and into a format you know nothing about. But the most dangerous scenario is an underwriter incorporating moral conclusions or personal likes/dislikes when making underwriting decisions. It is inevitable this will happen if it hasn't already.

Posted by: Robert R | December 23, 2010 4:30 PM

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