In outlining its business plan for 2015/16, the FCA said it would conduct a market study to "investigate how insurance firms use big data". It will look at insurers' use of web analytics, behavioural data tools, including their "increasing use" of social media, and review their use of "other unconventional data sources" too, it said.
"We will identify potential risks and benefits for consumers, including whether the use of big data creates barriers to access products or services," the FCA said. "We will also examine the regulatory regime to ensure that it does not unduly constrain beneficial innovation in this area."
Financial services and technology law expert John Salmon of Pinsent Masons, the law firm behind Out-Law.com, said the FCA's study would help insurers get a better insight into the regulator's thinking on big data use.
"Insurers are already making use of big data technologies to get a better handle on customer behaviours," Salmon said. "This is perhaps best evidenced in the telematics market, where data from 'black box' recorders is helping insurers to personalise motor insurance premiums and reward good driving."
"With consumers leaving an increasing digital footprint, insurers want to make more of that information to glean insights and tailor products and services to individuals and identify fraud. However, at an industry forum organised by Pinsent Masons last week, we found that insurers believe legal compliance and regulatory issues pose the biggest challenge to operating in a digital environment. The FCA's study will hopefully provide insurers with greater clarity on how they can make innovative use of data whilst meeting their obligations to treat customers fairly," he said.
Salmon attended a round table event hosted by the European Commission last month on the use of big data in financial services. At the time he said insurers and other financial services companies have a lot to gain from sharing details with policy makers about their approach to big data. He said it could help "persuade the law makers that regulations must be crafted in a way that balances effective use of data against protection of consumer rights".
Earlier this year, Association of British Insurers (ABI) chairman Paul Evans called on the insurance industry to "anticipate regulators" and develop its own big data code of practice, according to a report in the Financial Times.
However, Out-Law.com found that plans for a code of practice are in their very early stages. A spokesperson for the ABI told Out-Law that it is not "actively working on a code of practice at the moment". Instead, the ABI is "at the planning and policy development stage in this area of work", the spokesperson said, adding that "industry use and management of data is a key emerging issue" and that the ABI is working with its members "to ensure we are on top of it".
The UK government defined 'big data' last year.
It said: "Big data refers to both large volumes of data with high level of complexity and the analytical methods applied to them which require more advanced techniques and technologies in order to derive meaningful information and insights in real time. Within this definition, there is a fundamental assumption about the power and importance of new techniques and technologies, which are often called ‘analytics’. The real value of analytics is that it can draw out new meanings, insights and value from bringing together individual datasets, which on their own might have limited value."