A view from a regulatory perspective
When German financial-services giant Allianz began to think about future forays into digital ecosystems, it considered regulatory aspects from the start. There were good reasons for this. The European Union (EU) strictly regulates digital commerce – of which the General Data Protection Regulation (GDPR) is the most prominent example. Allianz has not regarded such regulation merely as compliance costs. It has recognized an opportunity to shape the evolving regulatory framework for the digital economy and to help set quality and ethical standards for new business models.
“Digital transformation must include regulatory considerations at its core. Only companies where strategy, regulatory, and business functions work together can gain a holistic view on the transformation of their business model,” says Henning Schult, Senior Manager of Regulatory Affairs at Allianz.
At Allianz, these integrated efforts have resulted in a regulatory strategy based on three pillars: platform fairness rules, access to data, and big data & artificial intelligence.
Platform Fairness Rules
“Platforms should be understood as marketplaces in the digital economy and, like any exchange, they should follow certain rules,” explains Schult. The economics of platforms work differently. Platforms compete for the market, not in the market. Winners capture most or all value. Schult also points to the potential shortcomings of anti-trust law, with its lengthy proceedings and the need to prove an abuse of market dominance or damage to the consumer.
“A new framework is required if you want to ensure innovation and choice in the digital economy.” To that end, Allianz advocates “platform fairness rules” based on the conduct principles of neutrality, no self-preferencing, and non-exclusivity.
- Platforms should be neutral. Comparison websites and search engines often pretend to deliver neutral comparisons. Their rankings, however, are often influenced by how much money they receive from various providers.
- Platforms should be transparent about the criteria they use for listings. They should update listings regularly and avoid giving preference to their own businesses.
- Platforms should not force businesses to commit to exclusivity or best-price guarantees. “Such practices are not in the best interest of the customer and they prevent innovation, variety, and fair choice in the digital economy”, argues Schult.
Access to Data
Another one of Allianz’s regulatory interests is to prevent or break up unwarranted data monopolies. Data monopolies can prevent other businesses from developing and deploying intelligent products and services for their customers.
Take the automotive sectors as an example. Although the GDPR has introduced a data portability right, there is still some way to go to make this actionable and effective. At present, the data collected by sensor-packed cars stay with the car companies. Allianz would like to see a framework that allows insurers to offer intelligent insurance products as well as new services to drivers. For this, data sharing is required. While customers would decide how their data is shared between firms, the insurer and automotive manufacturers would agree on how to exchange data in real-time and in a secure manner. Allianz has proposed a shared server platform for data generated by vehicles, to be operated by a neutral third party.
Big Data and Artificial Intelligence (AI)
Allianz also supports the development of ethical guidelines for the use of big data and AI. Insurance has always been a data business. Big data and AI allow insurers to price risk more precisely, for example through telematics, where a little black box in the car gives clues about how safely someone drives. These new technologies also have the potential to expand access to insurance, for example to patients with diabetes as it is now possible to much better understand this illness and offer recommendations to patients.
Self-learning algorithms, however, also raise difficult issues, such as a lack of transparency and the potential for discrimination against certain groups of people. In highly regulated industries, including insurance, the regulator has already addressed many of these issues. But society as a whole may have to go beyond this. In a world of ubiquitous information, society will have to decide which information should NOT be available. Such ethical judgements must apply to all sectors.