Companies using social capital data for betting on people’s lives

Flickr photo by idletype

The Wall Street Journal recently noted  how insurance companies (Aviva PLC, Prudential Financial, AIG) bet on whom to insure at what rates through data mining.  Much of the info gleaned from online purchases and other digital traces is more lifestyle: is the insurance applicant an athlete? a TV addict? a hunter?

But some of the information is social capital-related:

Increasingly, some gather online information, including from social-networking sites. Acxiom Corp., one of the biggest data firms, says it acquires a limited amount of “public” information from social-networking sites, helping “our clients to identify active social-media users, their favorite networks, how socially active they are versus the norm, and on what kind of fan pages they participate.”

For insurers and data-sellers alike, the new techniques could open up a regulatory can of worms. The information sold by marketing-database firms is lightly regulated. But using it in the life-insurance application process would “raise questions” about whether the data would be subject to the federal Fair Credit Reporting Act, says Rebecca Kuehn of the Federal Trade Commission’s division of privacy and identity protection. The law’s provisions kick in when “adverse action” is taken against a person, such as a decision to deny insurance or increase rates. The law requires that people be notified of any adverse action and be allowed to dispute the accuracy or completeness of data, according to the FTC.

The article also notes that Celent, an insurance consulting division of Marsh & McLennan, indicates that such online social-network data could be mined for policing fraud and in making pricing decisions: “A life insurer might want to scrutinize an applicant who reports no family history of cancer, but indicates online an affinity with a cancer-research group, says Mike Fitzgerald, a Celent senior analyst.  ‘Whether people actually realize it or not, they are significantly increasing their personal transparency,’ he says. ‘It’s all public, and it’s electronically mineable.’  ”

We’ve written earlier about other life insurers using social capital data in making insurance decisions, but in those cases, the individual was being asked directly about his social and civic involvement.  [See also this blog post about social capital and healthcare.]

We applaud the life insurers for coming to the late realization that social capital data is strongly related to health, but strongly believe they should be more transparent about what they are doing.  Then it wouldn’t violate privacy concerns and it would have the added benefit of making the insured better aware of the positive health impact of being more involved civicly and socially, which might actually induce those who are less engaged to become more so.

See earlier blog post on loss of digital privacy and digital traces left online.

Read “Insurers Test Data Profiles to Identify Risky Clients” (Wall St. Journal, 11/17/2010, by Leslie Scism and Mark Maremount)

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