Liability for Incorrect Client Personalization in the Distribution of Consumer Insurance

Piotr Tereszkiewicz,Katarzyna Południak-Gierz

doi:10.3390/risks9050083

Abstract

The use of personalization mechanisms should allow the insurance distributor to reduce exploration costs and adjust the offered insurance product to the needs, features, and situation of each individual client. This study seeks to examine how liability should be allocated when the process of the personalization of an insurance product does not result in the client’s choice of an optimal product. First, we identify the typical uses of new technologies allowing for an adjustment of insurance contracts. Second, we analyze the interplay between their application and the legal obligations of insurance product distributors. Subsequently, the paper discusses the scope of factors the insurance distributor is liable for when using personalizing tools in contacts with clients. We submit that offering an online personalization of insurance products ought to be regarded as being equivalent to providing advice under Art. 2, Sec. 1, Point 15 of the European Union Insurance Distribution Directive (IDD). From the consumer’s perspective, our analysis makes the case for the insurance distributor’s liability for mispersonalization of an insurance contract.

Highlights

IntroductionOne of the crucial concerns in insurance law relates to how insurers deploy modern technological devices to explore the needs of prospective clients (consumers) and the risks that those clients present
When personalization mechanisms applied by insurers function improperly, how should risks resulting from their imperfection be allocated? Second, if one assumes insurance distributors are obligated to provide advice to each prospective client, how could the fact that insurance distributors are under the duty to advise their clients with respect to the prospective transaction influence the outcome of this risk allocation? In other words, we examine the relevance of the insurance distributors’ duty to advise their clients on the allocation of risks resulting from the malfunctioning of any personalizing tools they deploy
It follows that it should not matter whether the insurance contract was concluded via a third-party website or whether the insurance was distributed by an agent, broker, ”bancassurance” operator, travel agent, car rental company, or directly by the underwriting insurance undertaking itself. Should this principle be interpreted to mean that regardless of who is profiling the client, errors at the personalization stage, including those made during adjusting an insurance product to the individual needs of the client, should have the same effects? Before we offer a conclusive answer to these questions, a brief overview of typical classes of reasons for mispersonalization should be provided

Summary

Introduction

One of the crucial concerns in insurance law relates to how insurers deploy modern technological devices to explore the needs of prospective clients (consumers) and the risks that those clients present. The use of online tools enables insurance providers to profile prospective clients as regards personalizing any content (insurance offers) subsequently presented to them, that is, to adjust the said content to the individual characteristics, needs, and situation of a person to whom this content is addressed When personalization mechanisms are applied at the precontractual stage to assure that offers reach the target audience only (e.g., clients who potentially can be interested in a given product or who may become profitable customers) at the time these persons are most prone to conclude a contract, in a manner and form that matches their individual preferences. Personalization tools can be used during the contract formation in order to place appropriate clauses into the text of the contract that is being generated for an individual person

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