The only reason this works now is that people behave naturally (or at least natural enough) when posting on social media. If social media profiling becomes more prevalent (like this article suggests), everyone is going to be much more careful when it comes to what they're posting. All their real activity is going to be driven into pseudonymous (or at least private channels) that can't be easily monitored, and their "real" accounts is going to be so carefully curated that the signal to noise ratio is abysmally low. Or at least, this is my hope. I could be overly optimistic, and people will continue posting their true selves against their own interest.
It's helpful to contrast what sorts of information people will put on LinkedIn to see a nice demonstration of this... some people are a bit odd but most people keep the "social" portion of LinkedIn to a minimum since they are aware what sort of effect it can have on their livelihood.
Social media is just _super weird_ and I think as a societal experiment we're closing in on the realization that it doesn't have any value, people like to communicate but - just like in real life - people generally like to partition their lives. Social media companies gain no value in allowing a partition of activity, the only social media-ish company that seems to make an effort to actively support it is reddit and that's mostly because the focus is never on you as an individual.
There’s another side to this though, why should a low risk person be in the same risk tranche as somebody who has lots of guns in plain sight, is out drinking 3 nights a week or has high-risk hobbies?
Life insurers have pretty transparent interests. A middle aged guy with guns and heavy alcohol use is a more expensive risk for death. Right now they only use age, occupation, specific medical and smoking status.
It operates by taking events that are unpredictable individually and grouping them together such that they are predictable in aggregate. The larger the groups are, the better this works.
At the same time, there’s a competitive advantage to using smaller groups, if you can reliably discriminate. Except that once you take it too far, you approach the individual case again and insurance ceases to have a point.
A life insurance company that buckets everyone together will lose out to one that divides people up into groups based on their risk. That one in turn would lose out to a company that has an accurate death clock they can use on every customer to provide perfectly individualized coverage. And yet the death clock company won’t be able to sell any insurance at all, unless they can keep it a total secret, because people could accomplish the same thing on their own.
I think you're missing something important in this.
If you make the fundamental assumption that what happens to people has a level of randomness to it (don't think we'll ever be able to escape this assumption) then insurance always will have a point even if your bucket size is the size of the individual.
This is because insurers provide a hedge against a certain amount of negative randomness over a time peroid. They calculate the risk on a policy as if they provided it to you a million times and then base their pricing on that. Since they do this across a body of customers the pooling system still functions, it just is more accurately priced.
So as long as there is a risk instability over time they eill have the ability to provide a service worth paying for.
You're right that there's always some utility as long as there's randomness, but that utility decreases the more accurate your predictions get.
Rather than a magical death clock, let's say that actuarial science gets to the point where it can figure out an individual's life expectancy ±5 years with a 90% hit rate. The possibility of being hit by a bus or having some unknown wild-card disease means you could die much younger, and you might beat the odds and die much older, but 90% of people die within their predicted range.
Now, Bob goes to sign up for life insurance and he's predicted to die at age 50. He really wants this insurance to ensure his family can survive without him, but the premiums are completely outrageous, so he passes. Alice is predicted to die at age 100 so her premiums are cheap, but she sees little point in it, so doesn't sign up.
In this world, I see a lot of accidental death insurance being sold, but almost no general life insurance. Some people would buy it, as it would have some utility, but not a whole lot.
I wasn't able to read the entire story because WSJ wants me to subscribe, but it starts saying they can use the information as long as it doesn't unfairly discriminate. I wonder what that means? The fact that it reduces the pool size at all seems like a negative.
That’s referring to things like racial discrimination, which is definitely illegal. Insurance companies sometimes try to use proxies for race or other protected classes to get around such restrictions, and that has resulted in a situation where any technique for evaluating people needs to show that it’s not being used as such a proxy. The goal isn’t to keep pools large, but rather to keep pool assignment fair in some sense.
Let's not forget about malice. If social media profiles become more important, they'll be broken into more often. The people doing ransomware can make threatening to raise your insurance rates a feature of their software.
Of course. In my country, the following is mostly common knowledge:
- Don't showcase more wealth on Facebook than your tax reports suggest you should have, in particular if you're behind on taxes or otherwise in debt to the government. It's been confirmed that (our equivalent of) the IRS looks at Facebook profiles to determine whether a debtor isn't lying about being poor.
- Don't post photos (or get yourself tagged on them!) that imply you were anywhere but in your bed, if you have a medical leave with "stay in bed" clause. Since the insurance is paid by the government (out of social insurance), officials do check whether or not you're lying to them - especially because medical leave abuse is a common phenomenon in this country (in big part because of many, if not most, companies that are abusing their employees, forcing them to go on fake medical leaves just to catch a breather).
People I know are extra careful about the two things above, and no doubt there will be more things like this to come.
