The use of sensitive personal information by insurance companies to execute underwriting decisions is expanding to include consumer marketing data. An investigation by The Wall Street Journal revealed a remarkable proliferation of the use of consumer-marketing data to create a “predictive modeling” system for insurance applicants.

With an inside view of Deloitte Consulting LLP’s new consumer assessment technology for life insurance companies, the Wall Street Journal reports that Deloitte designed predictive modeling software that uses data such as personal and family medical histories, as detailed on written insurance application forms, to categorize people into various risk categories.

Deloitte’s software also has access to industry-shared information from past insurance applications and motor-vehicle reports. Furthermore, the Deloitte software also uses consumer-level marketing data from Equifax Inc.’s marketing-services unit, since acquired by Alliance Data Systems Corp. The consumer files contained hundreds of data points on each person catalogued, including attributes applied to each individual, such as hobbies, TV-viewing habits, and income estimates. In Deloitte’s final predictive model, the nontraditional consumer-marketing data represented about 37% of the predictive ability, it says.

Life insurance provider Aviva and Deloitte judged the test largely successful. “The use of third-party data was persuasive across the board in all cases,” said John Currier, chief actuary for Aviva USA.

Read more about the use consumer assessment technology to predict and categorize risky insurance applicants and policyholders in the report, “Inside Deloitte’s Life Insurance Assessment Technology“.

Inside Deloitte’s Life-Insurance Assessment Technology
By Leslie Scism and Mark Maremont
November 19, 2010

Deloitte Consulting LLP’s effort to persuade life insurers that marketing data can size up people’s longevity faces an obstacle: How to know if the method works, when the proof – policyholder deaths – is years away?

So the company developed a test involving 60,000 insurance applicants at the U.S. arm of British insurer Aviva PLC. Deloitte detailed the findings this spring at an industry seminar.

Here’s how the test worked. Aviva used traditional underwriting methods—including costly blood and urine tests—to assess the 60,000 applicants. Aviva sorted those people into various risk categories. In addition, some of the individuals had been declined a policy.

Deloitte then took the 60,000 cases and tried to replicate Aviva’s traditional underwriting decisions with a new methodology not reliant on blood work.

First, it divided the 60,000 into two equal groups. (Names were withheld.) For the first 30,000, it studied the traditional underwriting decisions and set out to build a data-only “predictive model” that could reach similar conclusions.

Its model didn’t use the blood and urine tests. It would be designed to use data such as personal and family medical histories, as detailed on written insurance-application forms. Deloitte’s team also had access to industry-shared information from past insurance applications and motor-vehicle reports. On top of that, it used the consumer-marketing data.

The consumer data came from Equifax Inc.’s marketing-services unit, since acquired by Alliance Data Systems Corp. The data noted which of hundreds of attributes applied to each individual—likely hobbies, TV-viewing habits, income estimates.

In Deloitte’s final predictive model, the nontraditional consumer-marketing data represented about 37% of the predictive ability, it says.

Then came the real test: Running the predictive model on the second batch of 30,000 applicants, to see if it could accurately replicate the underwriters’ original assessments. Aviva and Deloitte judged the test largely successful. “The use of third-party data was persuasive across the board in all cases,” said John Currier, chief actuary for Aviva USA.

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