Social Networking, Meet Underwriting

Social Networking, Meet Underwriting

Our esteemed social networking guru, Craig Beattie, circulated a blog posting that he found at http://itmanagement.earthweb.com/features/article.php/12297_3905931_1/Pre-crime-Comes-to-the-HR-Dept.htm

It describes an internet company, Social Intelligence that monitors social networks to help companies with hiring decisions. Their data mining tool collects information from the major sites looking for behavior-based information about job applicants and summarizes what is found in a report. It uses only publically shared data and includes a review by humans to eliminate any “false positives”. There is also a service for continual monitoring of existing employees. According to the blog posting, the company makes the point that with the emergence of social networks, shareholders will expect companies to use such services to evaluate new and existing hires and reduce the liability of the company from lawsuits, damage to reputation, etc.

Celent has not reviewed this company or its solution. However, in discussing what this approach might mean from an insurance perspective, several questions arose. Will such monitoring be considered a mainstream risk management technique one day? Would an insured using such a tool be rated a lower risk than one that does not? Should the shareholders of an insurance company reasonably expect the underwriting process to include the monitoring of social networking sites, especially for the general liability, disability and workers compensation lines of business? In the past, such data mining has been blocked by regulators based on privacy issues, but if all this information is willingly made public will those objections still be valid? Social networking, meet underwriting.

Underwriting Using Social Networking Tools

Underwriting Using Social Networking Tools

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 US. 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/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 which scan social networks for data which 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 for Catherine and Craig for extending the discussion into these other important areas of the insurance process.