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How insurers use your data to set the price of your insurance

How insurers use your data to set the price of your insurance

September 1, 2018


We understand that your data is important. What is done with this data, where it is stored and who has access to it is, too. With the GDPR (General Data and Protection Regulation) having recently come into force during May, insurers have had to be more clear about how they use your data, and for good reason! Your privacy should be protected. In this article we will find out how your data is used to calculate insurance and why.


Your information is in good hands.

If you have a home insurance policy you may be wondering why insurers need to collect information about your area, from address to whether or not you live next to a body of water! The same goes for car insurance—why is age so important when calculating a quote?
Whether it’s an organisation, business, church or charity asking for your personal details, you have every right to ask why this information is needed and how it is used. In the case of insurance, the details you provide- even including living next to a pond!- will be necessary to calculate an accurate and fair quote. You don’t have to worry about where this information is going, either—the Data Protection Act, enforced by law, ensures that any personal details are used only for specific purposes, in a relevant manner and are not kept for longer than necessary.


Why some quotes are higher than others; the weigh-up of your info.

An accurate and fair quote is calculated when insurers assess the information you provide and, because a variety of questions are asked and data needed, there is a a lot to consider in the process.

Whilst the information required does differ depending on the policy/cover you need, for this example we will use buildings insurance to give you an idea of how premium is calculated and why it can vary so much. Amongst other variables, you will be asked about the building’s location, materials, what it is used for, construction and as mentioned earlier, proximity to water.

Even if we had two houses built in the exact same method—the same materials, construction and age—but they were in different areas, the premium could differ enormously. For example, insurers will look at an area and assess whether it is prone to experiencing criminal activity. If one area has a higher risk of burglary, then the premium will be higher as the risk of a claim being made is greater. Insurers may also ask further questions about the security of this building, such as whether there are locks in place, the whereabouts of these locks and if there are any alarms—or they may ask that these measures be enforced.

But what if two houses reside in the same area, with a low chance of criminal activity? Let’s go back to our living-next-to-water example and consider two houses, one built from timber and the other from brick. Whilst these might both have a chance of flooding, the house built from brick may have a lower premium as the material is less vulnerable. Insurers use their own data on the number of claims and the value of those claims to determine how much they expect to pay out in 1 year for each type of material.

Insurance companies calculate premiums with all of these factors considered, on the likelihood and size of a claim being made. The higher the risk of a claim being made, or the more expensive a claim might be, then the premium goes up with it. By using your data, insurers compare you with statistics of other clients’ in order to calculate the likelihood that you will make a claim- so your claim history, or the history of what you are insuring, is also considered.


Still not sure? Speak to us...

Your personal information is required, by law, to be used fairly and handled/stored safely and securely. It cannot be used by insurance companies for any reason other than insurance, such as and including statistics, averages and surveys. You have rights that allow you to contact either us or your insurers and find out what personal details are stored about you. If you are still unsure about how or why your data is being used, or why your quote/premium is the price it is, feel free to contact us for a discussion.