Insurers on track to use social media scores to measure customers’ risk

Neil Bartlett

Credit card companies, mortgage companies and banks routinely use your credit score to help determine whether you’d be a risk or a reward as a customer. In many states, insurers also rely on your credit history to determine how much you’ll pay for some types of insurance and whether you’ll get coverage in the first place.

In the not-too-distant future, though, insurers may be looking at another type of score when delving into your background — a social media score. Exactly what that score will look like remains to be seen.

Facebook to play role in pricing

Celent, a financial research and consulting firm, predicts that within the next three years, large insurance companies will start relying on information about you that’s gathered from social media sites to help set prices for your insurance coverage. That information also could come into play in settling insurance claims.

Your social media activity soon may help determine how much you pay for insurance.

Information mined from social media sites will become part of the underwriting process, when insurers evaluate your risks and figure out how much you’ll pay for auto, home, health, life and other kinds of insurance, according to Celent. For instance, if you’re in the market for a life insurance policy, life insurance companies may poke around on your Facebook page and find postings that indicate you’re no longer a marathon runner — you’re now a certified couch potato. That nugget of information may jack up the cost of your life insurance policy.

Celent predicts that insurers will turn to outside companies to develop tools that enable them to capture, store and analyze social media data — developing what, in essence, is a social media score. It’s similar to credit card issuers depending on companies like FICO to compute credit scores for consumers.

Celent forecasts that consumer information pulled from social media sites will be paired with CLUE (Comprehensive Loss Underwriting Exchange) reports, which lay out your history of property insurance claims, along with your driving records and reports that assess your life and health insurance risks to enable “more accurate” policy pricing.

“As with the use of credit scores in general insurance, it will take some time to determine what the boundaries are in use of this data for underwriting,” the Celent report says. One of the factors that will be used in setting those boundaries: state laws and regulations.

Social media snooping

By the way, insurers already are digging up information on Facebook, Twitter, LinkedIn, YouTube and other social media sites to investigate potentially fraudulent claims.

One insurance claims investigator is quoted in the Celent study as saying: “Facebook is now the first place we check when we get a new case. We not only look at the claimant, but their family, friends, and the companies that they follow.”

Is social media a reliable yardstick?

Tena Friery, research director at the nonprofit Privacy Rights Clearinghouse consumer education and advocacy group, worries about the prospect of a social media score being adopted by insurers, since social media data can be unreliable and sometimes untrue. She’s also concerned that the elements that would make up a social media score would be kept secret and, unlike a credit score, this new brand of score would be unavailable to consumers.

Amy Bach, executive director of United Policyholders, a nonprofit that helps insurance consumers, says insurers already are making decisions about consumers based on photos and posts on social media sites.

“If you post photos of yourself drinking at parties that get viewed by your car insurance company when your policy comes up for renewal, don’t be surprised if your rate goes up, even if you haven’t filed any claims,” Bach says. “Things you post, if publicly available, can affect how much you pay for insurance. And it gives your insurer ammunition to deny a claim.”

The American Insurance Association, a trade group that represents auto and home insurance companies, declined to comment for this story.

Michael Packer, an attorney with Marshall Dennehey Warner Coleman & Goggin, a law firm that represents insurers, recently told DailyFinance.com that at least some insurance companies already use social media and the Internet as part of their underwriting and claims-handling processes.

Bach believes that what you post on a social media isn’t a reliable indicator of your insurance risk.

“Pricing decisions that insurers make should be related to the likelihood of losses — period,” Bach says. “We don’t want to see insurance companies blowing the significance of social media data out of proportion just because someone has figured out how to make a profit selling that data to them.”

In the meantime, Friery of the Privacy Rights Clearinghouse recommends exercising “extreme caution” in posting anything on social media sites.

“If you don’t want the world to know, don’t post it,” she advises.