Big Data in the Insurance Industry: Leeway and Limits for Individualising Insurance Contracts

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Cited authorities 2

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Author	Florent Thouvenin - Fabienne Suter - Damian George - Rolf H. Weber
Position	Professor of Information and Communications Law, Chair of the Executive Board of the Center for Information Technology, Society, and Law (ITSL), and Director of the Digital Society Initiative (DSI) University of Zurich, Switzerland - Ph.D. cand., University of Zurich, Switzerland - Ph.D. cand., University of Zurich, Switzerland - Professor of ...
Pages	209-243

Big Data in the Insurance Industry

2019

209

Big Data in the Insurance Industry

Leeway and Limits for Individualising Insurance Contracts

by Florent Thouvenin*, Fabienne Suter†, Damian George‡ and Rolf H. Weber§

Everybody may disseminate this ar ticle by electronic means and make it available for download under the terms and

conditions of the Digital P eer Publishing Licence (DPPL). A copy of the license text may be obtain ed at http://nbn-resolving.

de/urn:nbn:de:0009-dppl-v3-en8.

Recommended citation: Flor ent Thouvenin, Fabienne Suter, Damian George and Rolf H. Weber, Big Data in the Insurance

Industry: Leeway and Limi ts for Individualising Insurance Contracts, 10 (2019) JIPIT EC 209 para 1.

California law prohibit such individualisation based

on protected characteristics, in this way further re-

stricting the remaining leeway. While privacy laws in

the U.S. and California set some significant but rather

specific limits for the individualisation of insurance

contracts based on the use of personal data, the all-

encompassing Swiss (and European) data protection

law is clearly the most important barrier to individu-

alisation in Switzerland. Namely, it remains unclear

whether the processing of personal data for the pur-

pose of individualising insurance contracts may be

based on the legitimate interests of the insurer. As a

consequence, insurance companies are advised to al-

ways obtain their customers’ consent for making in-

dividual offers based on big data analytics. The au-

thors conclude that instead of indirectly hindering

the individualisation of insurance contracts through

data protection law, Swiss (and European) lawmakers

should initiate a dialogue involving all stakeholders

to determine which sectors of insurance should be

dominated by the principle of solidarity and in which

sectors and on what informational basis the individ-

ualisation of insurance contracts should be allowed.

Abstract: With the advent of big data analytics,

the individualisation of mass market insurance poli-

cies has become commercially attractive. While this

development would have positive economic effects, it

could also undermine the principle of solidarity in in-

surance. This paper aims to outline the different reg-

ulatory approaches currently in place for dealing with

this fundamental challenge by analysing the insur-

ance, anti-discrimination and data protection laws

of Switzerland and the U.S./California pertaining to

health, renters and automobile insurance. It will be

shown that the leeway for individualising insurance

contracts is vanishingly small for (mandatory) health

insurance on both sides of the Atlantic. By contrast,

the two legal systems pursue different regulatory

approaches with regard to the other two types of in-

surance. Renters and automobile insurance are pre-

dominantly governed by the freedom of contract

principle in Switzerland, whereas in California sec-

tor specific regulations significantly limit the infor-

mational basis of insurance companies, thereby lim-

iting the leeway for individualisation to a large extent.

While Swiss anti-discrimination law hardly restricts

the individualisation of insurance contracts, U.S. and

Keywords: Individualisation; Big Data; Insurance Contracts; Insurance Law; Discrimination; Data Protection Law

2019

Florent Thouvenin, Fabienne Suter, Damian George and Rolf H. Weber

210

A. Introduction

1 The individualisation of insurance contracts is not

an entirely new phenomenon, but it has long been

quite costly and, therefore, not very widespread.

By denition, insurance is a data-rich industry; the

insurance undertakings always had to base their

business on accurate and relevant data for risk-

based calculations.1 The growing amount of data

(big data), the increasing computing power and

novel technologies (big data analytics), however,

allow today’s insurance companies to individualise

insurance contracts in all sectors of the industry.

In most insurance markets, companies have long

operated with categories of insured for which

they calculated the risks and the corresponding

premiums. But due to big data analytics, it has

recently become commercially viable to create

risk proles for individual customers and make

them corresponding individual offers.2 At least

from today’s perspective, this applies above all to

insurance premiums. Individualisation of other

contractual conditions is unlikely to be commercially

attractive in the near future.

3 The individualisation of insurance premiums raises

fundamental legal questions. Given that one of the

basic concepts of insurance has always been (and

* Professor of Information and Communications Law, Chair

of the Executive Board of the Center for Information

Technology, Society, and Law (ITSL), and Director of

the Digital Society Initiative (DSI) University of Zurich,

Switzerland.

† Ph.D. cand., University of Zurich, Switzerland.

‡ Ph.D. cand., University of Zurich, Switzerland.

§ Professor of Law emeritus, Member of the Executive Board

of the Center for Information Technology, Society, and Law

(ITSL), University of Zurich, Switzerland.

1 Rolf H. Weber, ‘Big Data in the Insurance Industry’ (2016)

Jusletter dated 12 December 2016, para 3.

2 Cf. IBM Corporation, Harnessing the power of data

and analytics for insurance (White Paper, 2015) 2;

PricewaterhouseCoopers, Der Insurance Monitor:

Operational Excellence - Analytics als Grundlage für ein

digitales Geschäftsmodell, June 2016,

ch/de/28303/studie-der-insurance-monitor-operational-

excellence-analytics-als-grundlage-fur-ein-digitales-

geschaftsmodell/> accessed 25 September 2018, at 18 ff.;

BearingPoint Institute, ‘The smart insurer: more than

just big data‘,

The-smart-insurer.pdf&download=0&itemId=389133>,

accessed 25 September 2018, 58; Philip Bitter and Steffen

Uphues, ‘Big Data für die Versichertengemeinschaft’, in:

Thomas Hoeren (ed) Phänomene des Big-Data-Zeitalters:

Eine rechtliche Bewertung im wirtschaftlichen und

gesellschaftlichen Kontext, (Westfälische Wilhelms

Universität Münster 2019) 147, 153 f.; Weber (n 1) para 8ff.

For times when such individualisation was not yet possible

cf: Willy Koenig, Schweizerisches Privatversicherungsrecht:

System des Versicherungsvertrags und der einzelnen

Versicherungsarten (Herbert Lang & Cie 1967) 172.

continues to be) the solidarity of the insured,3

the law will need to strike an appropriate balance

between the opposing concepts of solidarity and

individualisation. Different legal systems will come

up with different solutions and these solutions will

likely not be the same for all types of insurances.

This paper aims to outline possible solutions to

this fundamental challenge by analysing the legal

situation on both sides of the Atlantic using the

jurisdictions of Switzerland (incl. partly the EU)

and California as examples of two quite different

approaches.

For both systems, three bodies of law need to

be analysed: First, we will clarify if and to what

extent the applicable insurance regulations allow

for an individualisation of insurance contracts

(C). Second, we will assess whether and under

what conditions the individualisation of insurance

contracts is compatible with the requirements

of anti-discrimination law (D). Third, we will

investigate whether the processing of personal

data, which is carried out to calculate individual

premiums, complies with the requirements of data

protection law (E). In order to gain a broad picture

of the phenomenon, we will analyse three types of

insurances: (mandatory) health insurance, renters

insurance and automobile insurance. At rst,

however, we will briey outline the rationale behind

the individualisation of insurance contracts (B).

B. Individualisation of

Insurance Contracts

Insurance contracts – and in particular insurance

premiums – can essentially be individualised with

regard to two aspects: the risk prole, dened by

factors such as age, gender, health, work activity,

place of residence, driving behaviour, etc., and the

willingness to pay.4 These two aspects can easily

be combined in the individualisation of an offer.

Nevertheless, the rationale for individualisation

in terms of the willingness to pay differs from the

rationale for individualisation with regard to the

risk prole. Each aspect will therefore be discussed

separately.

3 E.g. Weber (n 1) para 16.

4 Moreover, prices might be individualised based on the

likelihood that a policyholder will change carriers, see: Rick

Swedloff, ‘Regulating Algorithmic Insurance’ (2019)

dx.doi.org/10.2139/ssrn.3346753>, accessed 8 April 2019, 4.

Big Data in the Insurance Industry

2019

211

I. Risk Profile

Insurance premiums are generally calculated

based on the risk prole of the insured. Most often,

however, insurance companies do not calculate

the risk for each customer but form groups of

customers and offer premiums corresponding to

the risk assessment of that group. This serves two

important policy goals; namely, the reduction of

adverse selection and the avoidance of moral hazard.

The notion of adverse selection5 refers to the

phenomenon that more attractive suppliers or buyers

are driven out of the market due to information

asymmetries. If insurance companies were to insure

a certain risk for all potential policyholders at a

uniform price, taking out such insurance would be

particularly attractive for persons whose individual

risk is above the average risk on the basis of which

the uniform premium was calculated. The offer

would therefore attract comparatively unattractive

customers. If only these customers were to take

out the insurance offered, the insurance company

would either have to accept losses because the

risks associated to its customers are higher than

anticipated, or it would have to increase the

premiums in order to reect the higher risks of its

actual customers. Over time, this mechanism would,

theoretically, increase the premiums to a point

where it would no longer be worthwhile for anyone

to take out insurance. In reality, however, this effect

is unlikely to be observed because policyholders

are unable to assess their risks accurately; rather,

they are prepared to take out insurance against a

risk that cannot be precisely calculated. Even if the

mechanism described is hardly observed in practice,

a uniform premium for all policyholders would still

attract comparatively unattractive customers and

may thus lead to a race to the bottom. The formation

of risk groups can prevent this effect by offering

insurance to members of different risk groups at

different prices. This is all the more true if the offers

are individualised according to the risk prole of the

individual policyholders.

Moral hazard6 occurs when people behave

irresponsibly or recklessly due to false incentives.7

The standard example of moral hazard is a change in

5 On adverse selection see also: Ronen Avraham and others,

‘Understanding Insurance Antidiscrimination Laws’ (2014)

87 S.Cal.L.Rev 195, 204ff. with further references; Bitter and

Uphues (n 2) 155.

6 On moral hazard see also: Avraham and others (n 5) 206ff.

with further references; Bitter and Uphues (n 2) 156.

7 Cf. N. Gregory Mankiw and Mark P. Taylor, Grundzüge der

Volkswirtschaftslehre (7th edn, Schaeffer-Poeschel 2018)

363; for a more restrictive denition see Peter Zweifel and

Roland Eisen, Versicherungsökonomie (2nd edn, Springer 2003)

295f., according to which moral hazard exists when persons

adapt their behaviour due to the existence of a contract.

behaviour following the conclusion of an insurance

contract for a particular risk.8 The risk of such

behavioural changes can be reduced if premiums

are increased after a claim and thus incentives are

created for policyholders to prevent the occurrence

of a claim despite the existence of an insurance

contract. The individualisation of insurance

contracts – and in particular of insurance premiums

– opens up further possibilities for combating moral

hazard. In particular, insurers can create incentives

for risk-reducing behaviour by collecting data about

the behaviour of their policyholders, for example, by

granting discounts if an insured person demonstrably

is a cautious driver or exercises regularly.

These

effects are positive, not only for policyholders and

insurers, but also for society as a whole, since they

prevent the occurrence of damage and promote the

health of policyholders.10

9 In addition to ghting adverse selection and moral

hazard, adjusting insurance premiums to the risks

of individual customers or groups of customers

promotes fairness by avoiding or at least limiting

situations in which individuals have to pay for the

risks created and the damages caused by others. It

seems, however, that this only holds true for risks

that can be controlled by the individual customers,

e.g. by adjusting their driving behaviour. With

regard to factors beyond the control of individuals

– such as their genetic disposition – it would seem

rather unfair if individual customers were treated

differently.

As we will see, this distinction is already

mirrored in the law to a large extent as the leeway to

individualise insurance premiums is very limited for

health care,

while it is predominantly permitted for

other types of insurance such as renters insurance13

and automobile insurance.14

8 Zweifel and Eisen (n 7) 295; see also Felix Walter Lanz, Adverse

Selection und Moral Hazard in der Privat- und Sozialversicherung,

Luzerner Beiträger zur Rechtwissenschaft, vol 77

(Schulthess 2014) 39; Martin Nell, Versicherungsinduzierte

Verhaltensänderungen von Versicherungsnehmern (VVW GmbH

1993) 4.

9 So called “Pay How You Drive”-Model, cf. Allstate

Corp. ‘How Telematics May Affect Your Car Insurance’,

December 2018

telematics-device.aspx> accessed 4 June 2019; Rick Swedloff,

‘Risk Classication’s Big Data Revolution’ (2014) 21 Conn.

Insurance L.J. 339, 342 ff; Peter Maas and Veselina Milanova,

‘Zwischen Verheissung und Bedrohung – Big Data in der

Versicherungswirtschaft’ (2014) 87 Die Volkswirtschaft,

23, 24.

10 In more detail: Maas and Milanova (n 9), 24ff.

11 Cf. Swedloff (n 4) 8ff. For a discussion on the fairness of

(individualised) risk classication: Avraham and others

(n 5) 203ff. and 214ff.

12 See below, for Switzerland: C.II.1; for California: C.III.1.

13 See below, for Switzerland: C.II.2 ; for California: C.III.2.b).

14 See below, for Switzerland: C.II.2; for California: C.III.2.c).

2019

Florent Thouvenin, Fabienne Suter, Damian George and Rolf H. Weber

212

II. Willingness to Pay

Individualisation according to the willingness to

pay is based on the fact that policyholders with

a uniform risk prole may have a different need

for insurance coverage and different nancial

resources for concluding an insurance contract.

Insurance companies can take this into account

when determining premiums by offering higher

premiums to customers with a higher willingness

to pay and cheaper offers to the others. When doing

so, however, insurance companies will have to bear

in mind that many people nd the individualisation

of prices according to the willingness to pay unfair.

This fact signicantly limits the ability to price

customers according to their willingness to pay, also

in the insurance industry. From a purely economic

point of view, however, aligning prices with the

willingness to pay has positive effects, both for the

insurance companies and their customers.

In economics, the individualisation of prices to

absorb maximum willingness to pay is referred to

as rst-degree price discrimination or perfect price

discrimination.16 In insurance, this type of price

discrimination has two main effects: On the one

hand, all insurance policyholders can skim off their

full willingness to pay, which allows the insurer

to increase his turnover and maximise prot. On

the other hand, the insurance can also be sold to

customers whose willingness to pay is below the

uniform price that would be chosen by the insurer

if he could not or did not wish to discriminate

15 Empirical studies have shown, in particular, that price

discrimination will often be regarded as unfair if it exceeds

a certain level, is clearly disadvantageous compared to a

reference price, or if other consumers pay signicantly

less; cf. Martin Fasnacht and Jochen Mahadevan,

‘Grundlagen der Preisfairness – Bestandesaufnahme und

Ansätze für zukünftige Forschung’ (2010) 60 Journal für

Betriebswirtschaft, 295, 302ff., with further references;

Werner Reinartz and others, Preisdifferenzierung und

-dispersion im Handel, (White Paper, 2017)

uni-koeln.de/sites/marketingarea/user_upload/171130_

Whitepaper_Preisdifferenzierung_und_-dispersion_

im_Handel.pdf> accessed 25 September 2018, 11; Florian

Engelmaier and others, Price Discrimination and Fairness

Concerns, Munich Discussion Paper No. 2012-7 (Ludwig-

Maximillians-Universiät München 2012)

ub.uni-muenchen.de/12735/1/Englmaier_Gratz_Reisinger-

Price_Discrimination_and_Fairness_Concerns.pdf>

accessed 3 June 2019; Simon Lee and Abdou Illia, ‘Perceived

price fairness of dynamic pricing’ (2011) 111 Industrial

Management & Data Systems 2011, 531; Kelly L. Haws and

William O. Bearden, ‘Dynamic Pricing and Consumer Fairness

Perceptions’ (2006) 33 Journal of Consumer Research 2006,

304; Matthew A. Edwards, ‘Price and Prejudice: The Case

against Consumer Equality in the Information Age’ (2006)

10 Lewis & Clark L.Rev., 559.

16 Lars A. Stole, ‘Price Discrimination and Competition’,

in: Mark Armstrong and Robert Porter (eds) Handbook of

Industrial Organization (Elsevier 2007), 2221, 2224 ff.

against prices.17 If it is assumed that people with a

higher willingness to pay will not forego purchasing

insurance despite higher individual premiums, price

discrimination will also contribute to an expansion of

insurance coverage in the population. The economic

effect of the individualisation of insurance premiums

is therefore positive.

C. Insurance Law

I. Preliminary Remarks

In Switzerland, the business of insurance is regulated

by the Federal Constitution (FC)18 and several federal

acts. The insurance landscape is divided into two

sectors: the social or public law sector and the

private law sector. In the public law sector, there are

ten social insurance branches that form the basis for

social security;19 mandatory health insurance is one

of them. Mandatory health insurance is guided by the

principle of solidarity of the insured persons20 and

its benets are determined by statutory catalogue.

Anyone wishing to take out insurance cover in excess

of benets granted by the statutory catalogue must

assume supplementary health insurance governed

by private law. Swiss health insurances are conceived

as individual insurance plans, in mandatory health

insurance and in supplementary health insurance,

as well as in all other types of private insurance.

Automobile insurance and insurance on contents

are part of the private law sector. The supervision

of mandatory health insurance is exercised by the

Federal Ofce of Public Health,23 whereas supervision

17 Florent Thouvenin, ‘Dynamische Preise’ (2016) Jusletter IT

dated 22. September 2016, para 5ff.

18 E.g. Art. 98 para 3 Federal Constitution (Bundesverfassung

der Schweizerischen Eidgenossenschaft vom 18. April 1999,

SR 101) for private insurance or Art. 117 para 1 FC for health

and accident insurance (Rolf H. Weber and Rainer Baisch,

Versicherungsaufsichtsrecht (2nd edn, Stämpi Verlag 2017),

41ff.).

19 Stephan Furrer, Schweizerisches Privatversicherungsrecht

(Schulthess 2011) point 2.31.

20 Gertrud E. Bollier, Leitfaden schweizerische Sozialversicherung,

vol I (15th edn, Kantonale Drucksachen- &

Materialienzentrale 2018) 411.

21 Stefan Felder, ‘Ökonomische Überlegungen zum

Kontrahierungszwang in der Obligatorischen

Krankenpegeversicherung’ (2018) 62 Schweizerische

Zeitschrift für Sozialversicherung und beruiche Vorsorge,

95, 95.

22 Ueli Kieser, ‘Art. 3 KVG‘ in: Ueli Kieser and others (eds) KVG/

UVG Kommentar: Bundesgesetze über die Krankenversicherung,

die Unfallversicherung und den Allgemeinen Teil des

Sozialversicherungsrechts (ATSG) mit weiteren Erlassen (Orell

Füssli 2018) para 1.

23 Art. 56 in conjunction with Art. 34 of the Federal

Act on the Supervision of Social Health Insurance

Big Data in the Insurance Industry

2019

213

of private insurances pursuant to the Insurance

Supervision Act (ISA)24 is exercised by the Swiss

Financial Market Supervisory Authority (FINMA).25

In contrast to Switzerland, the insurance business

in the U.S. is primarily regulated on a state level.

Besides some federal statutes for health insurance

and some limited monitoring of insurance, there is

no signicant federal insurance regulation.26 The

insurance regulation primarily emanates from

the courts, the state legislatures and the state

regulatory agencies.

This is particularly true for

automobile insurance and insurance on contents,

which is called tenant or renters insurance.

The

U.S. health insurance system differs from the

Swiss system as it does not distinguish between

mandatory and supplementary health insurance.

The U.S. has no comprehensive national health

insurance programme.29 Rather there are three

different types of health insurance: public health

care coverage, employer-provided health insurance,

and individually purchased or small group insurance.

The public health care insurance programmes are

Medicare and Medicaid. Approximately 55-60% of

health insurance policies are employer-provided

through group insurance policies.30 Only a small

portion of health insurances are taken out as

individual policies.31

(Bundesgesetz betreffend die Aufsicht über die soziale

Krankenversicherung vom 26. September 2014, SR 832.12).

24 Bundesgesetz betreffend die Aufsicht über

Versicherungsunternehmen vom 17. Dezember 2004,

SR 961.01.

25 Art. 46 ISA.

26 John F. Dobbyn and Christopher C. French, Insurance Law

in a nutshell (5th edn, West Academic Publishing 2016) 501;

Spencer Kook and Paul Rodriguez, ‘Overview of California

insurance law’, in: Hinshaw & Culbertson LLP and Kristina

Alexander (eds) California Insurance Law & Practice (Matthew

Bender Inc. 2018) para 1.02[1], with further references. The

Federal Insurance Ofce has the authority to monitor all

aspects of the U.S. insurance industry (31 U.S.C. § 313).

27 Dobbyn and French (n 26) 501.

28 For the sake of simplicity, only the term “renters insurance”

is used in this article.

29 Barry R. Furrow and others, Health Law (3rd edn, West

Academic Publishing 2015) 400.

30 Dobbyn and French (n 26) 40 et. seq.; Statista, ‘Distribution

of U.S. population with health insurance 2011-2017,

by coverage’

distribution-of-us-population-with-health-insurance-by-

coverage/> accessed 25 March 2019.

31 The percentage of individually (direct) purchased health

insurance policies increased from 9.8% in 2011 to 16% in

2017 (ibid).

California’s insurance laws are enforced by the

Insurance Commissioner.32 His functions and duties

are exercised and performed by the California

Department of Insurance (CDI).33 Furthermore, the

Commissioner has the statutory right to supplement

the California Insurance Code (INS)34 with rules and

regulations. These administrative regulations are

compiled in Chapter 5 of Title 10 of the California

Code of Regulations (CCR), the codication of

Californian administrative law.35

II. Switzerland

1. Mandatory Health Insurance

Mandatory health insurance in Switzerland is

regulated by the Federal Health Insurance Act (HIA)36

and the Ordinance on Health Insurance (OHI).37 These

laws are authoritative in determining whether health

insurance premiums may be personalised. Neither

the HIA nor the OHI address the personalisation

of insurance contracts specically. The premiums

are determined by health insurers and not by an

authority.38 However, the principles governing

the calculation of premiums for mandatory health

insurance are set out in Art. 61ff. HIA and Art. 89ff.

OHI. As a general rule and as far as the HIA does

not provide for exceptions, health insurers have to

charge the same premiums to all of their insured

persons (unitary premium/premium per capita).

But an exhaustive list of criteria set forth by statute

may be considered for adjusting the premiums

to certain groups of insured and specic types of

insurances. These criteria are place of residence,

age group (children, teenagers and adults),41 limited

32 INS §§ 12900 and 12921; B.E. Witkin, ‘Chapter II. Insurance’

in: Summary of California Law (11th edn, Witkin Legal Institute

2018) para 9(2); Kook and Rodriguez (n 26) para 1.08[1].

33 INS § 12906; Kook and Rodriguez (n 26) para 1.08[1].

34 Cf. California Legislative Information,

legislature.ca.gov/faces/codesTOCSelected.xhtml?toc

Code=INS&tocTitle=+Insurance+Code+-+INS>, accessed

1 May 2019.

35 Kook and Rodriguez (n 26) para 1.08[1]; Witkin (n 32)

para 6(2).

36 Bundesgesetz über die Krankenversicherung vom 18. März

1994, SR 832.10.

37 Verordnung über die Krankenversicherung vom 27. Juni

1995, SR 832.102.

38 Ueli Kieser, ‘Art. 61’ in: Ueli Kieser and others (eds) KVG/

UVG Kommentar: Bundesgesetze über die Krankenversicherung,

die Unfallversicherung und den Allgemeinen Teil des

Sozialversicherungsrechts (ATSG) mit weiteren Erlassen (Orell

Füssli 2018) para 1.

39 Art. 61 para 1 KVG. Kieser (n 38) para 3.

40 Art. 61 para 1, 2 and 2bis HIA.

41 Art. 61 para 3 and 3bis HIA.

2019

Florent Thouvenin, Fabienne Suter, Damian George and Rolf H. Weber

214

choice of service providers,42 choice of deductible43

or bonus-related increases.

Accordingly, there is no

leeway for insurance companies to personalise the

premiums in mandatory health insurance.

2. Other Insurances

a.) Freedom of Contract

The question to what extent private insurers

may individualise insurance contracts covering

supplementary health benets, automobile or

renters insurance, is governed by the provisions of

the Insurance Contract Act (ICA), the ISA and the

associated Insurance Supervision Ordinance (ISO).45

In private insurance law, the ICA supersedes the

general provisions of the Code of Obligations (CO).46

There is no provision in these insurance statutes

which would standardise or even prohibit the

individualisation of insurance contracts. In addition,

the relationship with the insured person is governed

by the freedom of contract principle, meaning there

is no general obligation for insurance companies to

conclude a specic insurance contract, neither for

mandatory, nor for voluntary insurance.47

However, mandatory law, public order and the right

of personality set limits to freedom of contract in the

area of private insurance.48 Furthermore, insurance

contracts with an impossible, illegal or immoral

content are void. But, in general, the individualisation

42 Art. 62 para 1 HIA.

43 Art. 62 para 2 lit. a HIA, Art. 93ff. OHI.

44 Art. 62 para 2. lit. b HIA, Art. 96ff. OHI.

45 Bundesgesetz über den Versicherungsvertrag vom 2. April

1908, SR 221.229.1 and Verordnung über die Beaufsichtigung

von privaten Versicherungsunternehmen vom 9. November

2005, SR 961.011.

46 Bundesgesetz betreffend die Ergänzung des Schweizerischen

Zivilgesetzbuches (Fünfter Teil: Obligationenrecht) vom 30.

März 1911, SR 220; Art. 100 para 1 ICA; Hardy Landolt and

Stephan Weber, Privatversicherungsrecht in a nutshell (Dike

2011) 20. If an aspect is not regulated by provisions of the ICA,

the general provisions of the CO are applicable, as expressly

stated in the ICA (Moritz W. Kuhn, Privatversicherungsrecht

(Schulthess 2010) 98). Cf. on micro-segmentation and

contractual norms: Weber (n 1) para 41.

47 Stephan Fuhrer, Schweizerisches Privatversicherungsrecht

(Schulthess 2011) 66; Landolt and Weber (n 46) 38.

48 Art. 19 para 2 and Art. 20 para 1 CO; Kurt Pärli and

others, ‘Ungleiche Prämien aufgrund von Nationalität,

Alter und Geschlecht in der Motorfahrzeugversicherung

– ein Diskriminierungsproblem? (2019) Haftung

und Versicherung, 16, 23; Lanz (n 8) 155; Bernhard

Waldmann, ‘Nationalitätsbedingte Erhöhung der

Autoversicherungsprämien Kurzbegutachtung eines

Einzelfalls von grundlegender Tragweite‘ (2007) Haftung

und Versicherung, 65, 68.

of insurance contracts is neither impossible, nor a

violation of public order or morality. With regard

to legality, certain compelling requirements for

insurance contracts are set forth by Art. 97ff ICA.49

However, these provisions do not contain rules

on individualisation either.50 Nevertheless, it is

conceivable that individualisation of policies could

lead to legally relevant discrimination against

policyholders and hence would interfere with their

right of personality. This question will be discussed

in more detail below.51

b.) Protection against abusive behaviour

19 Even if private insurance law does not contain any

specic provisions prohibiting the individualisation

of insurance contracts - at least with regard to

certain types of insurances - the insurers’ freedom

of contract is limited by ISA’s provisions on the

protection of the insured against abuse. The ISA’s

objective is not only to protect the insured against

the risks stemming from insurance companies

becoming insolvent, but also to protect them

against abusive practices of insurance companies.52

Accordingly, the protection against abuse is part of

FINMA’s mandate.

However, FINMA’s respective

supervisory competences differ for different types of

insurance. While the legislator does not provide for a

systematic preventive review of rates and conditions

of most insurance contracts,

the rates as well as

the general terms and conditions of occupational

pension schemes and supplementary health benets

insurance have to be submitted to FINMA for prior

approval.55 For these two types of insurance, FINMA

must grant the approval, if the proposed premiums

do not jeopardise the solvency of the insurance

company and do not lead to an abuse of the insured.56

49 See: Fuhrer (n 47) 42.

50 For further restrictions on freedom of contract in Swiss

insurance law, see: Fuhrer (n 47) 99ff.

51 See below, D.

52 Art. 1 para 2 ISA. Rolf H. Weber, ‘Big Data – Rechtliche

Grenzen von unbegrenzten Möglichkeiten‘ in: Stephan

Fuhrer (ed) Jahrbuch Schweizerische Gesellschaft für Haftpicht

und Versicherung 2018 (Schulthess 2018), 87, 94.

53 Art. 46 para 1 lit. f ISA.

54 Monica Mächler, ‘Art. 1 ISA‘ in: Peter Ch. Hsu and Eric Stupp

(eds) Basler Kommentar Versicherungsaufsichtsgesetz (Helbing

Lichtenhahn 2013) para 51; Weber (n 52) 87. On the occasion

of the revision of the ISA in 2003, there was a change from

a preventive to a subsequent control of insurance products,

see: Swiss Federal Council, Botschaft vom 9. Mai 2003 zu einem

Gesetz betreffend die Aufsicht über Versicherungsunternehmen

(Versicherungsaufsichtsgesetz, ISA) und zur Änderung des

Bundesgesetzes über den Versicherungsvertrag (BBl 2003) 3789,

3790ff. and 3798ff.

55 Art. 4 para 2 lit. r ISA.

56 Art. 38 ISA; Bernhard Rütsche, Aufsicht im Bereich der

Krankenzusatzversicherungen (Schulthess 2017) point 20.

Big Data in the Insurance Industry

2019

215

Other private insurances, such as automobile

insurance or insurance on contents, are not subject

to comparable rules. With regard to these types

of insurances, the question whether FINMA may

and must intervene depends on how the notion of

“abuse” pursuant to Art. 1 ISA is construed.57 While

it is clear that FINMA has a statutory competence to

protect the insured against abuse,

it is contested

whether FINMA must take general action against

abuses.59 Narrower interpretations suggest that

the overall aim of preventing abuse shall merely

guide the interpretation and application of the

provisions of ISA, but does not serve as a separate

legal basis for intervention by FINMA.60 If one follows

this view, FINMA can merely intervene against

the individualisation of rates requiring approval,

i.e. the rates for occupational pension schemes

and supplementary health benets insurance.61

According to a broader interpretation, an

intervention to prevent abuse is generally possible.

This is the view taken by the Swiss Federal Council,

who specied the notion of abuse in Art. 117 ISO and

inter alia qualied legally or actuarially unjustied

substantial differentiations as abusive.62 However,

the effect of this provision is unclear as scholars

rightly question the Federal Council’s competence

to enshrine such substantial obligations in an

implementing ordinance such as the ISO.63

Even if one assumes, however, that FINMA is

generally competent to take action against abuse

with regard to all types of insurance, this does not

preclude the individualisation of insurance contracts

since varying conditions and premiums for individual

customers cannot be qualied as abuse – at least as

far as they are actuarially justied. This is probably

always the case with individualisation according to

57 Cf. Rütsche (n 56) point 62; Weber and Baisch (n 18) 143;

Shelby du Pasquier and Valérie Menoud ‘Art. 46 ISA‘

in: Peter Ch. Hsu and Eric Stupp (eds) Basler Kommentar

Versicherungsaufsichtsgesetz (Helbing Lichtenhahn 2013)

para 13.

58 Art. 1 para 2 ISA and Art. 46 para 1 lit. f ISA.

59 Cf. Hubert Stöckli, ‘Totalrevision VVG: Probebohrungen im

Entwurf des Bundesrates‘ (2012) Schweizerische Juristen-

Zeitung, 505, 513; Fuhrer (n 47) 556; as well as du Pasquier

and Menoud (n 57) para 13, 33, 37; without restrictions to

Art. 46 para 1 (f) ISA: Weber and Baisch (n 18) 210; Waldmann

(n 48) 65 and 75, also assumes that pursuant to Art. 46 para 1

lit. f ISA and Art. 117 para 2 ISO as well as of Art. 5 Abs. 3 FC

FINMA must prevent discrimination.

60 Weber (n 52) 94. Cf. also Weber and Baisch (n 18) 44; Mächler

(n 54) 53.

61 Art. 33 para 3 and Art. 38 ISA.

62 Art. 117 para 2 ISO.

63 For a discussion of this controversy cf. Florent Thouvenin,

‘Privatversicherungen: Datenschutzrecht als Grenze der

Individualisierung?’, in: Astrid Epiney and Déborah Sangsue

(eds) Datenschutz und Gesundheitsrecht/Protection des données

et droit de la santé (Schulthess 2019), 15, 23; Weber (Fn. 52) 95.

the risk prole.

While an individualisation based

on the willingness to pay cannot be justied from

an actuarial point of view, the concept of abuse does

not imply an obligation for equal treatment. As a

consequence, this form of individualisation should

also be permissible under Swiss insurance law,

especially since it has positive economic effects.65

III. U.S./California

1. Health Insurance

In the U.S., health insurance is regulated on the

federal level in the Patient Protection and Affordable

Care Act (ACA)

and the Health Insurance Portability

and Accountability Act (HIPAA).

On a Californian

state level, all health insurance policies marketed,

issued or delivered to a California resident are

subject to the provisions of the California Insurance

Code (INS).

The California Department of Insurance

is responsible for regulating all entities engaged in

the business of health insurance, with the exception

of managed care plans.69 Such managed care plans

are subject to the regulatory jurisdiction of the

Department of Managed Health Care (DMHC).70

64 See above, B.I.

65 See above, B.II.

66 Patient Protection and Affordable Care Act of 2010, 42

U.S.C., § 18001.

67 Health Insurance Portability and Accountability Act

of 1996, 26 U.S.C., § 9801. Notably, employer-provided

health insurance coverage may also be subject to ERISA

(Employee Retirement Income Security Act of 1974, 29

U.S.C. §§ 1001 to 1461 [1974], which imposes various

requirements considering participation, funding, vesting

and enforcement of rights under employee benet plans

(cf. Justice H. Walter Croskey and others, ‘Chapter 6: First

Party Coverages’, California Practice Guide: Insurance Litigation

(The Rutter Group 2017) para 1420ff.).

68 Witkin (n 32) para 169.

69 Managed care plans do not qualify as insurance companies

and they are not regulated by the INS or administrative

regulations issued under it (Witkin (n 32) para 170).

Managed care plans, in California characterised as health

care service plans (Cal. Health & Saf.C. § 1345(f)), ensure

the provision and payment of health services to its

members through contracts with health care providers (e.g.

doctors, hospitals, etc.). Different types of managed care

contracts, like full-service managed care plans (i.e. Health

Maintenance Organizations (HMOs)), Medi-Cal managed

care plans, Medicare Advantage plans, Preferred Provider

Organizations (PPOs) and Point of Service (POS) plans are

offered by managed care plans (cf. Witkin (n 32) para 170);

Croskey and others (n 67) para 900.

70 Croskey and others (n 67) para 700.5ff.

2019

Florent Thouvenin, Fabienne Suter, Damian George and Rolf H. Weber

216

a.) Public health care coverage:

Medicare & Medicaid

Medicare71 is a mandatory health insurance

programme for people over the age of 65 or for people

with certain disabilities or an end-stage kidney

disease.72 It consists of four programmes, parts A

(hospital insurance),73 B (voluntary supplemental

medical insurance),

C (private-sector alternative

to Parts A and B),

and D (outpatient prescription

drugs),76 Medicare is administered by the Center

on Medicare and Medicaid Services (CMS), which is

part of the U.S. Department of Health and Human

Services (HHS).77

24 Since Medicare is mostly funded by taxes on wages

paid over lifetime,78 most people in the U.S. don’t pay

a Part A premium when they enter retirement. The

Premiums for all Medicare parts are determined79

and depend on given factors like income, receipt of

social security benets or the Medicare part chosen

(Part B, C or D).80 Therefore, an individualisation of

these health insurance “contracts” is not possible.

Anyone enrolled in Medicare can purchase a

privately offered Medicare supplement insurance

(also called Medigap), which is sold as group or

individual policy.81 The insured pay a monthly

premium for Medigap82 and policies may only

be designed in accordance with model forms

approved by the National Association of Insurance

Commissioners.83 In California, Medigap policies

have to be approved by the Commissioner84 and the

71 42 U.S.C. § 1395-1395kkk-1; 42 C.F.R. Parts 405-426 and 482-

498; see Furrow and others (n 29) 403.

72 Dobbyn and French (n 26) 42ff; Robert H. Jerry and

Douglas R. Richmond, Understanding Insurance Law (6th edn,

LexisNexis 2018) 420.

73 Dobbyn and French (n 26) 43; U.S. Government, ‘What

Medicare Covers’

covers/what-part-a-covers> accessed 4 June 2019.

74 Furrow and others (n 29) 401.

75 So called “Medicare Advantage”. Tom Baker and Kyle D.

Logue, Insurance Law and Policy: Cases, Materials and Problems

(4th edn, Wolters Kluwer 2017) 259.

76 Furrow and others (n 29) 401 et seq.

77 Furrow and others (n 29) 403.

78 Dobbyn and French (n 26) 43.

79 See U.S. Government, ‘Medicare costs at a glance’

medicare.gov/your-medicare-costs/costs-at-a-glance/

costs-at-glance.html>, accessed 4 June 2019.

80 See Harvey L. McCormick, Medicare and Medicaid Claims and

Procedures (4th edn, Thomson West 2017) para 1:65.

81 INS § 10192.4(m); 10 CCR § 2220.51.

82 U.S. Government, ‘What’s Medicare Supplement Insurance

(Medigap)?’

insurance/whats-medicare-supplement-insurance-

medigap> accessed 12 June 2019.

83 42 U.S.C. § 1395ss(p); Croskey and others (n 67) para 745.

84 INS §§ 10192.1 in connection with 10291.5, 10192.14(c) and

premiums shall be calculated in accordance with

accepted actuarial principles and practices.

Pricing

can be based on the actual age (age-rated premium),

the age at the time the Medigap policy was taken

out (issue age-rated premium), or may be the same

for everyone living in a given territory (community

rated premium).86

Medicaid

is an insurance programme for people

who do not have the nancial means to pay for health

insurance themselves, aged or blind people in need

of long-term care services, and disabled persons

with low incomes.88 In California, the California

Department of Health Services (DHS) is in charge

of the administration of Medicaid (called Medi-Cal).

As with Medicare, there is no leeway regarding

the individualisation of Medicaid health insurance

premiums: Eligible Californians receive Medicare

respectively Medi-Cal as a benet without paying a

premium89 and the health benets are determined

by federal and state regulation.90

b.) Employer-provided coverage

(group health insurance)

The most common way to get health insurance in

the U.S. is through a group plan for employees.91

Employers with more than 50 employees (large

employers) are encouraged by the federal

government to provide health insurance with

minimum essential coverage.92 This so-called

“employer-provided coverage” is usually purchased

by the employer from an insurance company. Some

large employers “self-insure” their employees.93

However, even self-insuring employers often (have

10191.15(c).

85 INS § 10192.14(a)(B).

86 U.S. Government, ‘Costs of Medigap policies’

medicare.gov/supplements-other-insurance/whats-

medicare-supplement-insurance-medigap/medigap-costs/

costs-of-medigap-policies>, accessed 4 June 2019.

87 Medicaid is codied in 42 U.S.C. §§ 1396 a-f; cf. McCormick

(n 80) para 22:16.

88 Dobbyn and French (n 26) 44; Jerry and Richmond (n 72) 420.

89 California Department of Insurance, ‘Overview: Healthcare

Coverage in California’

consumers/110-health/10-basics/overview.cfm> accessed

25 March 2019.

90 See Furrow and others (n 29) 478ff.

91 Dobbyn and French (n 26) 40; see also: 42 U.S.C. § 300gg-91.

92 Dobbyn and French (n 26) 41.

93 To self-insuring employers a different set of rules applies

than to insurance policies or health plans, (California

Department of Insurance, ‘Group (Employer-Based) Health

Coverage’

health/10-basics/overview.cfm> accessed 12 June 2019.).

Due to the length of this article, we decided not to take a

closer look at these provisions for self-insuring employers.

Big Data in the Insurance Industry

2019

217

to) use a health insurer to administer the programme

and manage the health benets.94 Employer-

provided health insurance is predominantly taken

out as a group policy. Group policies are usually

underwritten on the basis of factors common to the

group as a whole, such as type of job, average age,

etc.95

Within the scope of the ACA, all products that are

approved for sale in the group health insurance

market must be offered to any individual or employer

in the state, and the health insurer must accept any

individual or employer that applies for any of those

products (guaranteed availability of coverage).96 In

California, group health insurance must be offered

to all the employees of an employer.97 All group

health insurance policies must be approved by the

Commissioner before they are issued or delivered

to any person in California.

The approval of the

Commissioner shall among others, prevent fraud,

unfair trade practices, and economically unsound

insurances.99 A group health insurance policy shall

also not be approved if it contains any provision

which is unintelligible, uncertain, ambiguous, or

abstruse, or likely to mislead a person to whom the

policy is offered, delivered or issued, or if it fails to

conform in any respect with any law of California.100

The framework of employer-provided coverage is

set out in the master policy. The insurance company

is bound by this master policy and can only include

the factors specied therein in the risk assessment

of an individual employee. Thus, the leeway for

individualisation of policies will be very limited for

the group health insurance.

c.) Individual and small group market

People who are not covered by one of the

aforementioned governmental programmes or

by their employer, can get health insurance from

a private insurer on the individual or small group

94 Dobbyn and French (n 26) 41; California Department of

Insurance (n 93).

95 Croskey and others (n 67) para 1306.

96 45 CFR § 147.104.

97 Group health insurance is regulated in INS §§ 10270-10400;

Michael A.S. Newman and others, ‘Group life and Disability

Insurance’ in: Kristina Alexander and Hinshaw & Culbertson

(eds) California Insurance Law & Practice (Matthew Bender

2018) vol 3, para 30.30 and 30.31[1].

98 INS §§ 10270.9 and 10290; Richard B. Hopkins, ‘The Health

and Disability Insurance Contract’ in: Kristina Alexander

and Hinshaw & Culbertson (eds) California Insurance Law &

Practice, vol 2 (Matthew Bender 2018) para 26.11; Ellena v.

Department of Ins., 230 Cal. App. 4th 198 [2014].

99 INS § 10291.5(a)(1).

100 INS § 10270.95 in connection with INS § 10291.5(b)(1) & (13).

market.101 On the individual market, individuals

take out the insurance policy themselves, while the

small group market provides group health plans

maintained by a small employer.102 The policy of

an individually-purchased insurance is based on

the buyer’s risk prole and the premium is equal

to the price the insurer deems adequate to insure

said risk.103

31 Under the ACA, insurance premiums shall be “fair”.

As a result, the rating factors for health insurance

policies on the individual or small group market are

community rated and subject to limited adjustments

based on age, geographic area, individual or family

unit, and tobacco use.

104

Insurers must maintain a

state-wide risk pool for both the individual market

and the small group market

105

and are required to

set an index rate for each pool for establishing the

premium rates. The premium rates for individual and

small group health insurance policies may only vary

to a limited extent from the index rates.106 Also the

health insurance policies for the individual market

and the respective premium rates have to be led

with and approved by the Commissioner before they

are issued or delivered to any person in California.

107

101 See: Dobbyn and French (n 26) 41ff; see INS § 10753 (q) (1)

for the denition of a small employer in California with

regard to insurance. See also: 42 U.S.C. § 300gg-91.

102 US.legal.com, ‘Small Group Market (Health Care)’

denitions.uslegal.com/s/small-group-market-health-

care/> accessed 25 March 2019; see: INS § 10753 (q) (1) for

the denition of a small employer in California with regard

to insurance. See also: 42 U.S.C. § 300gg-91.

103 James C. Castle and Paul Rodriguez, ‘The Insurance Contract’

in: Kristina Alexander and Hinshaw & Culbertson (eds)

California Insurance Law & Practice, vol 2 (Matthew Bender

2018) para 8.02[4].

104 42 U.S.C. § 300gg(a)(1)(A); 45 CFR § 147.102; Timothy

Stoltzfus Jost, Special Report, ‘The Patient Protection and

Affordable Care Act and the Health Care and Education

Reconciliation Act of 2010’ in: Kristina Alexander and

Hinshaw & Culbertson (eds) California Insurance Law &

Practice (Matthew Bender 2018) vol 2, II[B]. In terms of age,

the rate shall not vary by more than 3 to 1 for adults (42

U.S.C. § 300gg(a)(1)(A)(iii)). The rating factor for tobacco use

shall not vary by more than 1.5 to 1 (42 U.S.C. § 300gg(a)

(1)(A)(iv)). California, however, has prohibited the use of

the rating factor for tobacco use for insurance policies on

the individual or small group market (INS § 10753.14(b) for

small group policies and INS § 10965.9(b) for individually

purchased policies). See also: John K. DiMugno and Paul E.B.

Glad, California Insurance Law Handbook (April 2018 Update,

Thomson West) para 37A:3; 42 U.S.C. § 300gg(a)(2)(A).

105 42 U.S.C. § 18032(c). Adam M. Cole, ‘Legal Opinion Pursuant to

Insurance Code Section 12921.9 Regarding Premium Cross-

Subsidization Across Market Segments in Health Insurance’

(California Department of Insurance, 13 June, 2014)

insurance.ca.gov/0250-insurers/0300-insurers/0200-

bulletins/bulletin-notices-commiss-opinion/opinions.

cfm>, 2.

106 INS §§ 10965.3(h)(2 et seq.), 10753.05(k)(2 et seq.), quod vide:

45 CFR § 156.80(d)(2)); Adam M. Cole (n 105).

107 INS § 10290; Hopkins (n 98) para 26.11.

2019

Florent Thouvenin, Fabienne Suter, Damian George and Rolf H. Weber

218

The INS contains a long list of circumstances under

which the Commissioner shall not approve health

insurance policies.108 Should the Commissioner nd

that the benets provided under the policy are

unreasonable in relation to the premium charged,

he may withdraw an individual or mass-marketed

policy’s approval.109

As with group insurance, the ACA requires that

all products that are approved for sale in the

individual or small group market must be offered

to any individual or employer in the state, and

the health insurer must accept any individual or

employer that applies for any of those products

(guaranteed availability of coverage).110 Also

California has enacted a detailed review process for

rates increases when implementing the respective

provisions of the ACA.111 If the CDI determines that

a rate is unreasonable or not justied, the insurer

shall notify the policyholder of this determination.

112

However, the Commissioner’s authority is limited to

requesting rate changes; he cannot deny or approve

proposed rate changes.113

The leeway for individualisation of individually

purchased health insurance or small group health

insurance is very limited. Especially since individual

policies have to be based on one risk pool and the

rates may only be adjusted with regard to geographic

region, size of family, and age. The premiums also

have to be based on the approved index rate, which

will hinder individualisation. The requirements of

the ACA, such as the guaranteed availability and

renewability of coverage, are another obstacle for

individualising insurance rates. Nevertheless, the

requirements in connection with unreasonable

rate increases do not reduce the leeway for

individualisation, at least in those cases in which

individualisation is based on the risk prole.

Individualisation on the basis of risk will probably not

be deemed “unreasonable” as long as it is actuarially

sound. In the case of individualisation based on the

willingness to pay, however, the requirement to

inform customers about unreasonable rate increases

could hinder such individualisation, provided that

the criterion of the willingness to pay would meet

the “unreasonable” threshold. Affected people could

regard this practice as unfair and might switch

insurers upon receiving a respective-notice.

108 See INS § 10291.5(b).

109 INS § 10293 (a), see also: 10 CCR § 2222.10-19. See John A.

Gebauer and others, ‘Insurance Contracts and Coverage’,

California Jurisprudence 3d (February 2019 Update) para 272.

110 45 CFR § 147.104.

111 42 U.S.C. § 300gg–94; 45 CFR § 154.200 - 45 CFR § 154.230; INS

§§ 10181 - 10181.13.

112 INS §§ 10181.3(g) and 10199.1(d).

113 INS § 10181.3.

2. Property Insurance

a.) Preliminary remarks

Since the business of insurance in the U.S. is primarily

regulated on a state level, there are no federal

regulations on property-casualty insurance.

114

a Californian state level, most insurance on risk

and operations are regulated in Proposition 103,

an amendment of the Insurance Code adopted

in 1988.115 Proposition 103 shall, among others,

protect consumers from arbitrary insurance rates

and practices. For all Californians, insurance must

be fair, available, and affordable.

116

No rate which

is excessive, inadequate or unfairly discriminatory

shall be approved or remain in effect.117 By enacting

Proposition 103 California has become a prior-

approval state and like most insurance on risk

and operations, property-casualty insurances like

homeowners, renters and automobile insurance are

covered by Proposition 103.

118

Thus, all property and

casualty insurance rates have to be approved by

California’s Insurance Commissioner prior to use.119

35 In February 2015 the Commissioner has prohibited

price optimisation in his “Notice Regarding Unfair

Discrimination in Rating: Prize Optimization”. Prize

optimisation is therein dened as “any method of

taking into account an individual’s or class’s willingness

to pay a higher premium relative to other individuals

or classes.” The Commissioner qualies any form

of price optimisation in the ratemaking process

as unfairly discriminatory and as a violation of

Californian law. This assessment is based on the

nding that “Price Optimization does not seek to arrive at

an actuarially sound estimate of the risk of loss and other

future costs of a risk transfer.”120 Accordingly, there is

no leeway for the personalisation of property and

casualty insurance contracts based on an insured’s

willingness to pay.

114 The business of insurance is almost exclusively regulated by

the states, see: Baker and Logue (n 75) 631ff; Dobbyn and

French (n 26) 501ff.

115 Article 10, Reduction and Control of Insurance Rates, INS §§

1861.01-1861.16. Witkin (n 32) para 11 (1).

116 Witkin (n 32) para 11(1); Richard G. De La Mora and Spencer

Y. Kook, ‘Property-Casualty Insurance Ratemaking and

Rate Regulation’ in: Hinshaw & Culbertson LLP and Kristina

Alexander (eds) California Insurance Law & Practice (Matthew

Bender Inc. 2018) para 6A.03.

117 INS § 1861.05(a).

118 Kook and Rodriguez (n 26) para 1.08[3].

119 INS § 1861.01(c); Kook and Rodriguez (n 26) para 1.03, [3]

and para 1.07[3].

120 California Insurance Commissioner, Notice regarding unfair

discrimination in rating: price optimization (Department of

Insurance, State of California February 18, 2015)

insurance.ca.gov/0250-insurers/0300-insurers/0200-

bulletins/bulletin-notices-commiss-opinion/upload/

PriceOptimization.pdf>.

Big Data in the Insurance Industry

2019

219

b.) Renters Insurance

Renters insurance in California usually consists of

different insurance coverages like personal property

or liability insurance. In this paper we only analyse

the regulation concerning the insurance of personal

property.

Neither Proposition 103, nor the INS contains specic

requirements regarding property insurance and

hence the general rules set forth by Proposition 103

apply. Renters insurance premiums may not be

excessive, inadequate or unfairly discriminatory.121

Premiums are deemed excessive if it is expected that

the insurance company will generate an excessive

prot122 and they are considered inadequate if they

are expected to prevent an efcient insurance

company from generating an adequate return.123 To

investigate whether an insurance rate is excessive

or inadequate, the Commissioner has to balance the

interest of the insured in favourable prices with the

insurance companies’ interest in high earnings. He

also has to take into account that certain insurance

policies are in the general public’s interest or legally

prescribed.

124

A so-called “ratemaking formula” is

used to distinguish appropriate from inadequate

or excessive rates. The formula must be applied

by all insurers and sets forth the maximum

125

and

minimum126 permitted earned premium. Rates

within this range can be described as “fair and

reasonable” and “constitutional”.

127

Nevertheless,

the Commissioner still may assess on a case-by-case

basis whether a rate is “unfairly discriminatory”.

Notably, there are no rules and regulations specifying

how this assessment shall be made in connection

with property-casualty insurance.128

c.) Automobile Insurance

The aforementioned system of pre-approval of

insurance rates also applies to automobile insurance.

In addition, Proposition 103 has set forth additional

requirements for automobile insurance.129 The

permitted rate-making factors are determined and

given a hierarchy in INS § 1861.02(a). These are in

121 INS § 1861.05(a).

122 10 CCR § 2642.1.

123 10 CCR § 2642.3.

124 See: 10 CCR § 2642.1; 10 CCR § 2642.3.

125 10 CCR § 2644.2.

126 10 CCR § 2644.3.

127 Cf. De La Mora and Kook (n 116) para 6A.03 and [8][f]ff; The

California Supreme Court endorsed the formula, cf. 20th

Century Ins. Co. v. Garamendi, 8 Cal. 4th 216 [1994].

128 De La Mora and Kook (n 116) para 6A.04(2). But compare

D.III. with regard to anti-discrimination laws.

129 De La Mora and Kook (n 116) para 6A.04, [5][a].

decreasing order of importance: (1) the insured’s

driving safety record; (2) the number of miles driven

annually; (3) the years of driving experience; and (4)

other factors that have a substantial relationship to

the risk of loss and that were set forth in a regulation

adopted by the Commissioner. The Commissioner

has specied sixteen such optional rating factors.130

Insurers can base their premiums on these factors

as well. However, these optional rating factors

must not be weighted greater than the weight of

the third mandatory factor, i.e. the years of driving

experience.131 The use of rating factors not set forth

in the CCR is prohibited.

132

Considering any other

criteria without approval would constitute unfair

discrimination.133

39 While insurers can take the insured’s driving safety

record into account, this does not mean that they

may use crash recorder data for ratemaking, since

the law sets forth clear limits with regard to what

data may be used in rate-making.

134

Insurers may

consider the amount of annually driven miles, but

usually base this factor on an own estimation or an

estimation by the policyholder. While insurers are

free to offer rates that are based on veried actual

mileage rather than estimated mileage, participation

in these actual mileage programmes is purely

voluntary.135

130 According to 10 CCR § 2632.5(d)(l)-(16) these are: type

of vehicle; vehicle performance capabilities, including

alterations made subsequent to original manufacture; type

of use of vehicle (pleasure only, commute, business, farm,

commute mileage, etc.); percentage use of the vehicle

by the rated driver; multi-vehicle households; academic

standing of the rated driver; completion of driver training

or defensive driving courses by the rated driver; vehicle

characteristics, including engine size, safety and protective

devices, damageability, reparability, and theft deterrent

devices; gender of the rated driver; marital status of the

rated driver; persistency (only for renewal of policy, see

California Insurance Law Dictionary and Desk Reference (2018

edn, Thomson West) para P36.5); non-smoker; secondary

driver characteristics; multi-policies with the same, or an

afliated, company; relative claims frequency or relative

claims severity.

131 De La Mora and Kook (n 116) para 6A.04, [5][c]; cf. Spanish

Speaking Citizens’ Foundation, Inc. v. Low, 85 Cal.App.4th 1179

[2000], 1221.

132 10 CCR § 2632.4(a).

133 INS § § 1861.02(a)(4)

134 For example, public records on convictions may be

considered. Cf. 10 CCR § 2632.5(c)(1)). De La Mora and Kook

(n 116) para 6A.04, [5][c].

135 (10 CCR § 2632.5(c)(2)(E) & (F)). De La Mora and Kook (n 116)

para 6A.04, [5][c].

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IV. Findings

While Switzerland and the U.S./California apply a

very different approach for providing health care

insurance, both jurisdictions align with regard

to the limited leeway for the individualisation of

health insurance contracts. In Switzerland, the

individualisation of mandatory health insurance is

not allowed, while there is quite some leeway for the

individualisation of supplementary health insurance

if such individualisation does not qualify as an abuse.

In the U.S./California, there is almost no leeway

for the individualisation of insurance contracts

in the health insurance market as this market is

comprehensively regulated and leaves insurance

companies with vanishingly little possibilities with

regard to adjusting premiums on an individual level.

The regulatory approach in Switzerland and the

U.S./California differs even more in other insurance

markets, namely for automobile insurance and

insurance on contents: In Switzerland, these types

of insurance are based on the principle of freedom

of contract. Therefore, insurance law does not limit

the ability of insurance companies to individualise

insurance contracts. One could be of a somewhat

different opinion if it is assumed that FINMA is

generally competent to take action against abuse

and if it is argued that the individualisation of

insurance contracts is to be qualied as an abuse.

In our view, however, individual conditions and

premiums cannot be qualied as abuse if they are

actuarially justied, which should always be the case

if the individualisation is based on the insured’s risk

prole. In addition, the notion of abuse does not

imply an obligation of equal treatment. Accordingly,

the individualisation of insurance contracts should

also be permissible under Swiss insurance law if it is

based on the insureds’ willingness to pay.

42 In California, automobile and renters insurance are

densely regulated and the rates are subject to prior

approval by the California’s Insurance Commissioner.

While this approach limits the exibility of insurance

companies considerably, it does not exclude the

personalisation of insurance contracts per se. Rather,

the degree of permitted individualisation depends on

the concrete specications according to which the

insurance premiums must be determined and how

adjustable-rates are approved by the Commissioner.

In our opinion, a personalised insurance contract

cannot be deemed excessive, inadequate or unfairly

discriminatory as a premium which is specically

adjusted to the risk of an individual person can hardly

be deemed excessive or inappropriate. This should

particularly hold true for premiums that comply

with accepted actuarial standards. However, the

margin for individualisation appears fairly limited as

the maximum and minimum permitted premium is

determined by law. In addition, the personalisation

of renters or automobile insurance based on the

insured’s willingness to pay is straightforwardly

prohibited in California. As a consequence, insurance

companies in California have hardly any leeway to

individualise insurance contracts.

D. Anti-discrimination Law

I. Preliminary Remarks

The personalisation of insurance contracts leads

to people paying different premiums. This creates

tensions with the constitutional principle of equal

treatment, according to which individuals are

to be treated equally as far as they possess equal

characteristics. The equal treatment principle,

however, does not prohibit all forms of differentiation

and does not require unequal individuals to be

treated equally. Yet, discriminating against certain

protected characteristics is prohibited by the Swiss

and the U.S. constitution. Thus, anti-discrimination

law encompasses the question to what extent

private parties are bound by the constitution.

But anti-discrimination law is also found on a

statutory level. In Switzerland, several specic

statutes, as well as the general right to protection

of personality enshrined in the Civil Code, need to

be observed. Californian insurers are also subject

to a variety of anti-discrimination laws on both the

federal and the state level. The individualisation

of insurance contracts thus has to navigate the

conicted interplay between contractual freedom

and statutory limitations to discrimination. When

doing so, distinguishing between different types of

insurances, as well as understanding the rationales

for rate adjustment, is of utmost importance.136

II. Switzerland

1. Federal Constitution

The Federal Constitution’s non-discrimination

principle determines that no-one may be

discriminated against on the grounds of origin,

race, sex, age, language, social position, way of life,

religious, ideological or political conviction, or on

the grounds of physical, mental or psychological

disability (so-called “protected characteristics”).

137

The primary addressee is the state,138 but the

136 Cf. Bitter and Uphues (n 2) 148ff.

137 Art. 8 para 2 FC.

138 Giovanni Biaggini, ‘ Art. 8 BV’ in: Giovani Biaggini (ed)

Bundesverfassung der Schweizerischen Eidgenossenschaft:

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non-discrimination principle is also binding on

private individuals performing public functions,

139

such as insurance companies offering mandatory

health insurance.140 When offering such insurance,

insurance companies may not take protected

characteristics into account when exercising their

actuarial discretion within the limits set by health

insurance law.141

In contrast, the providers of private insurances,

such as supplementary health, automobile or

renters insurance are not directly bound by the

constitutional non-discrimination principle.142

Nevertheless, the constitution requires authorities

to ensure that fundamental rights also become

effective among private individuals, to the extent

that the fundamental right in question is suitable

for such “horizontal” application.143 This also applies

to FINMA, the authority supervising the insurance

sector. Thus, FINMA must take account of the

prohibition of discrimination in the application of

the laws regulating the insurance sector, particularly

when interpreting legal terms.144

For the individualisation of insurance contracts, this

assessment could be relevant when construing and

applying the concept of “abuse” in the ISA. If one

follows the view that neither the ISA’s objective

145

nor FINMA’s statutory competences146 serve as a basis

for intervention by the supervisory authority,147 the

question of giving effect to the non-discrimination

principle between private individuals arises only

when examining the rates that are subject to

approval; i.e. the rates for occupational pensions

and supplementary health insurance.148 Here,

FINMA must take due account of the prohibition

of discrimination when interpreting the concept of

abuse.

Kommentar (Orell Füssli 2017) para 18.

139 Art. 35 para 2 FC.

140 See: Swiss Federal Court (unpublished case no 5P.97/2006)

[2006] at 3.3.

141 See above, C.II.1.

142 See Swiss Federal Court (BGE 129 III 35) [2003] at 5.2; critical

Kurt Pärli‚‘Urteil des Bundesgerichts 5P.97/2006 vom 1. Juni

2006’ (2007) Haftung und Versicherung, 46, 48 ff.; cf. below,

D.II.4, on the protection against discrimination derived

from the right to respect one’s personality.

143 Art. 35 para 3 FC.

144 Advocating an interpretation in the light of fundamental

rights: Jörg Paul Müller, Verwirklichung der Grundrechte nach

Art. 35 BV (Stämpi Verlag 2018) 103 ff.

145 Art. 1 ISA.

146 Art. 46 ISA.

147 See above, C.II.2.b).

148 Art. 4 para 2 lit. r in conjunction with Art. 38 ISA.

At least in this area,149 FINMA is mandated to intervene

if an insurance company were to individualise the

conditions based on a protected characteristic

since such discrimination could be qualied as an

abuse.150 This applies to direct as well as indirect

discrimination. As opposed to direct discrimination,

which is taking place if an insurer discriminates

the conditions of an insurance contract based on

a protected characteristic, indirect discrimination

takes place when the insurer does not account for

a protected characteristic in its individualisation

process, but the actual effects of individualisation

would be particularly disadvantageous for people

possessing a protected characteristic.151 However,

the existence of discrimination always requires

the existence of a qualied unequal treatment of a

protected group of persons. According to prevailing

case law, this requires that the distinguishing feature

being used as discriminant constitutes an essential

element of the identity of the person concerned and

is impossible or very difcult to give up.152 Further,

using a protected characteristic as discriminant can

be justied if three conditions are met:

153

rst, there

must be an objective reason for the differentiation;

second, it must pursue a legitimate aim; and third,

the differential treatment needs to be proportionate

to that aim.154 As insurance companies will base the

individualisation on objective reasons such as an

insured’s risk prole or willingness to pay while

pursuing the legitimate aim of attracting additional

customers, increasing their turnover, and ghting

adverse selection and moral hazard, it is likely

that the individualisation based on protected

characteristics will be justied on a regular basis

and is therefore not to be considered as an abuse in

the sense of the ISA.

149 A more extensive interpretation of FINMA’s mandate has

been proposed, see above, C.II.2.b).

150 Same opinion Waldmann (n 48) 69.

151 Swiss Federal Court (BGE 139 I 169) [2013] at 7.2.1ff.; Swiss

Federal Court (BGE 129 I 217) [2003] at 2.1; Biaggini (n 138)

para 20, with further references; Rainer J. Schweizer

‘Art. 8 BV in: Bernhard Ehrenzeller and others (eds) Die

Schweizerische Bundesverfassung: St. Galler Kommentar (Dike

and Schulthess 2014) para 51, with further references.

152 Swiss Federal Court (BGE 141 I 241) [2015] at 4.3.2; Swiss

Federal Court (BGE 139 I 169) [2013] at 8.2.1; Swiss Federal

Court (BGE 135 I 49) [2009] at 4.1; Swiss Fedral Court (BGE

134 I 49) [2008] at 3.1; Swiss Federal Court (BGE 126 II 377)

[2000] at 6.

153 Biaggini (n 138) para 22; Schweizer (n 151) para 48; Swiss

Federal Court (BGE 141 I 241) [2015] at 4.3.2; Swiss Federal

Court (BGE 139 I 169) [2013] at 8.2.2.

154 Biaggini (n 138) para 26; Schweizer (n 151) para 54,

with further references. However, the requirements

for justication are not identical for all protected

characteristics and there is no room for justication at all

for certain characteristics, see: Biaggini (n 138) para 25;

Schweizer (n 151) para 48.

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2. Federal Act on the Elimination

of Disadvantages of Persons

with Disabilities (EDPD)

The Federal Act on the Elimination of Disadvantages

for Persons with Disabilities (EDPD)155 intends to

prevent, reduce or eliminate disadvantages to which

people with disabilities are exposed.

156

With this aim

in mind, private individuals offering services to the

public must not discriminate against disabled people

on the basis of their disability.157 This also applies to

private insurances.

158

Discrimination occurs when

people with disabilities are treated in a radically

different and disadvantageous way, with the aim or

the consequence of degrading them or excluding

them from services.159 However, the EDPD does not

oblige private individuals to take certain (positive)

measures to eliminate actual disadvantages, or to

refrain from differentiating between customers.160

In the event of discrimination, only compensation

of no more than CHF 5’000 can be claimed.

161

The Act

does not confer the right to conclude a contract.162

49 These requirements hardly impose any restrictions

on the individualisation of insurance contracts. First

of all, the legislator has made it clear that the law

merely aims at preventing particularly unacceptable

behaviour by private individuals lacking any

tolerance that members of the society owe to each

other.

163

Insurance companies do not exclude people

with disabilities because of their disability, but

because their disability represents a nancial risk.

Differentiating according to this risk is objectively

justiable.164 It is therefore only questionable

whether exclusion or degradation could be an

(indirect) consequence of individualisation. The

risk of exclusion cannot be ruled out, at least in the

155 Bundesgesetz über die Beseitigung von Benachteiligungen

von Menschen mit Behinderungen vom 13. Dezember 2002,

SR 151.3.

156 Art. 1 para 1 EDPD.

157 Art. 6 EDPD.

158 Similar opinion: Pärli (n 142) 50; Swiss Federal Court

(unpublished case no 5P.97/2006) [2006] at 4.2, in the case

of supplementary health insurance.

159 Art. 2 lit. d Federal Ordinance on the Elimination of

Disadvantages for Persons with Disabilities (Verordnung

über die Beseitigung von Benachteiligungen von Menschen

mit Behinderungen vom 19. November 2003, SR 151.31).

160 Swiss Federal Council, Botschaft vom 11. Dezember 2000 zur

Volksinitiative «Gleiche Rechte für Behinderte» und zum Entwurf

eines Bundesgesetzes über die Beseitigung von Benachteiligungen

behinderter Menschen (BBl 2001) 1715, 1780; see Swiss Federal

Court (unpublished case no 5P.97/2006) [2006] at 4.1.

161 Art. 8 para 3 in conjunction with Art. 11 para 2 EDPD.

162 Swiss Federal Court (unpublished case no 5P.97/2006) [2006]

at 4.1.

163 Swiss Federal Council (n 160) 1780.

164 Same opinon: Pärli (n 142) 51.

event of refusal to offer supplementary insurance.

However, the access to health care as such is not at

stake, as insurance companies are prohibited from

excluding disabled people from mandatory health

insurance. As the threshold has been set very high

(particularly unacceptable behaviour), the refusal to

offer supplementary insurance will hardly meet the

requirements of the EDPD.

3. Federal Act on Human

Genetic Testing (HGTA)

Insurers could use genetic tests for individualised

risk-assessments and discriminate against individuals

based on the conclusions that can be drawn from

the results of genetic tests. However, the use of

genetic information is constitutionally prohibited

unless authorised by consent or law.165 The Federal

Act on Human Genetic Testing (HGTA) sets forth

conditions under which human genetic testing may

be performed in the context of insurance.

166

First and

above all, insurance providers are prohibited from

requiring pre-symptomatic or pre-natal genetic tests

prior to providing insurance.167 For certain types of

insurance, such as mandatory health insurance,

supplementary health insurance, and insurance

for illness and maternity leave, the prohibition on

utilising or requesting genetic tests is absolute.168

For other types of insurance, the insurance provider

may require applicants to disclose previously taken

pre-symptomatic genetic tests if these tests provide

reliable results and are of demonstrable scientic

value from a technical and a medical practice

perspective.169

These provisions shall balance the interests between

persons seeking out insurance and the insurance

companies’ interest in comprehensive information

on the insured.170 However, the prohibition merely

covers the utilisation of pre-symptomatic and

pre-natal genetic tests. Information obtained

from genetic testing for diagnosis is not covered.

Nevertheless, the HGTA stipulates that, in general,

no one shall be discriminated against on the basis of

genetic information.171

165 Art. 117 para 2 lit. f FC.

166 Art. 1 lit. c HGTA.

167 Art. 26 HGTA.

168 Art. 27 HGTA.

169 Art. 28 para 1 HGTA.

170 Swiss Federal Council, Botschaft zum Bundesgesetz über

genetische Untersuchungen beim Menschen vom 11. September

2002 (BBl 2002) 7361, 7438; Lanz (n 8) 23.

171 Art. 4 HGTA. Cf. Claudia Mund, Grundrechtsschutz und

genetische Information, Basler Studien zur Rechtswissenschaft,

vol 71 (Helbing Lichtenhahn 2005) 266ff.

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4. Right to respect one’s personality

There is no general prohibition of discrimination

in Swiss private law.172 Legal scholars, however,

derive such a protection from the right to respect

one’s personality enshrined in Art. 28 of the Civil

Code (CC).173 It is argued, for example, that this

provision could act as an indirect prohibition of

discrimination under private law, because unequal

treatment on the basis of characteristics of a person

which are protected by the right to respect one’s

personality constitutes a violation of personality.174

Other scholars even derive a right to non-

discriminatory treatment from the right to respect

one’s personality.175

It is not immediately clear which characteristics

are to be taken into account when determining

discrimination as a violation of the right to respect

one’s personality, since the protection of this right

is not limited to certain characteristics of a person

but protects the personality as a whole. However, it

seems logical to construe the relevant characteristics

for a violation of personality with the protected

characteristics mentioned in the non-discrimination

principle in the Federal Constitution.176 In fact, the

constitutionally protected characteristics, such as

gender, nationality, race, age, state of health, sexual

preferences, political views or religious afliation, are

regularly referenced in the literature.177 As always,

172 Ruth Arnet, Freiheit und Zwang beim Vertragsschluss

(Stämpi Verlag 2008) para 356; Andreas Bucher, Natürliche

Personen und Persönlichkeitsschutz (Helbing Lichtenhahn

2009) para 433; for an overview cf: Tarek Naguib,

‘Diskriminierende Verweigerung des Vertragsabschlusses

über Dienstleistungen Privater: Diskriminierungsschutz

zwischen Normativität, Relativität und Idealität‘

(2009) Allgemeine Juristische Praxis, 993, 1005; Bettina

Hürlimann-Kaup/Jörg Schmid, Einleitungsartikel des ZGB und

Personenrecht (Schulthess 2016) para 1100; Samantha Besson,

L’égalité horizontale: l’égalite de traitement entre particuliers

(Fribourg: Editions Universitaires 1999) para 1240 ff.;

Herbert Trachsler, Das privatrechtliche Gleichbehandlungsgebot

(Dike 1991) 3ff. and 188ff.

173 Arnet (n 172) point 356; Peter Gauch and others,

OR AT: Band 1 (Schulthess 2014) para 1111; Tarkan

Göksu, Rassendiskriminierung beim Vertragsabschluss als

Persönlichkeitsverletzung (Freiburg: Universitätsverlag 2003)

para 214ff.; Naguib (n 172) 1005ff.

174 Arnet (n 172) para 356.

175 Naguib (n 172) 1006; Pärli and others (n 48) 28.

176 See above, D.II.1.

177 Roger Zäch, ‘Der Einuss von Verfassungsrecht auf

das Privatrecht bei der Rechtsanwendung‘ (1989)

Schweizerische Juristen-Zeitung, 25, 26; Peter Gauch and

others (n 173) para 1111. By referring to these criteria,

specic, personality-forming and often unchangeable

characteristics are qualied as relevant; some authors

argue that the impairment of such characteristics is a

pre-requisite for the existence of discrimination (Tarkan

Göksu, ‘Drittwirkung der Grundrechte im Bereich des

Persönlichkeitsschutzes‘ (2009), Schweizerische Juristen-

Zeitung, 89, 99).

a certain severity of the impairment is required as

a threshold for a violation of personality.178 To give

an example, the Federal Supreme Court has stated

that only an offensive disregard of an employee’s

personality will qualify as discrimination against

that employee.179

It is generally accepted that a discriminatory

contract formation can also be qualied as a violation

of personality.180 Discrimination is inadmissible not

only if the conclusion of a contract is refused, but

also if a contract is concluded on less favourable

terms for reasons that are unrelated to the subject

of the contract and that are infringing the right to

respect one’s personality.181 This may be the case

when insurance contracts are individualised, in

particular when the conditions are determined on

the basis of gender, age or nationality.

However, personality-infringing discrimination

can be justied, namely by an overriding private

interest.182 This is the case if the insurance company

can show objective reasons for individualisation

based on protected characteristics which outweigh

the interest in not being evaluated based on such

characteristics.183 If an offer is individualised on

the basis of the risk prole, this should qualify as

justifying overriding private interest. The same holds

true when the premium is calculated with regard to

the willingness to pay. In both constellations it is

decisive that the individualisation is not based on

a protected characteristic, but on other criteria. A

mere correlation of risk prole or willingness to pay

with a protected characteristic will therefore not

establish an unlawful violation of personality.

178 Heinz Hausheer and Regina E. Aebi-Müller, Das Personenrecht

des Schweizerischen Zivilgesetzbuches (Stämpi Verlag 2016)

point 12.06; Andreas Meili, ‘Art. 28 ZGB‘ in: Heinrich Honsell

and others (eds) Basler Kommentar Zivilgesetzbuch I: Art. 1-456

ZGB (Helbing Lichtenhahn 2014) para 38; Regina E. Aebi-

Müller, ‘Art. 28 ZGB‘ in: Peter Breitschmid and Alexandra

Rumo-Jungo (eds), Handkommentar zum Schweizer Privatrecht,

Personen- und Familienrecht, Partnerschaftsgesetz: Art. 1-456 ZGB,

PartG (Schulthess 2016) para 3; Sibylle Hofer and Stephanie

Hrubesch-Millauer, Einleitungsartikel und Personenrecht

(Stämpi Verlag 2012) point 20.11.

179 Swiss Federal Court (BGE 129 III 276) [2003] at 3.1.

180 Peter Gauch and others (n 173) para 1111; Göksu (n 173) point

274 ff., 312; Naguib (n 172) 1005ff; Arnet (n 172) point 357

and 363; Zäch (n 177) 25ff.; with regard to insurance law:

Stephan Hartmann, ‘Der Schutz der Versicherten vor

Missbräuchen im revidierten Aufsichtsrecht‘ (2007) Haftung

und Versicherung, 30, 33, with further references.

181 Göksu (n 173) para 199ff; Peter Gauch and others (n 173)

para 1111a.

182 Art. 28 para 2 ZGB.

183 Arnet (n 172) para 371. For the balancing of interests in

the context of justication see also: Hofer and Hrubesch-

Millauer (n 178) para 2069; Hausheer and Aebi-Müller

(n 178) para 12.23; Aebi-Müller (n 178) 32.

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If, however, there is no justication, the person whose

personality has been infringed is not only entitled

to injunctive relief, damages and satisfaction,184

but also to the conclusion of a contract on non-

discriminatory terms.185

III. U.S./California

1. Federal Anti-discrimination Law

In the U.S., the constitutional prohibition of

discrimination is only binding on governmental units

and ofcers and does not apply to private insurers.

186

However, next to this constitutional prohibition,

there is a variegated body of anti-discrimination

laws consisting of federal laws and state regulations

applying to businesses and legal entities.187 Some of

these laws are pertinent to the business of insurance

as they limit the types of permitted discrimination.

These are ACA, HIPAA and the Genetic Information

Nondiscrimination Act (GINA).188 These acts are the

only federal laws expressly forbidding insurers

from engaging in any form of discrimination in the

underwriting process. On the federal level, there is

no general prohibition for insurance companies to

take, for example, race, religion, or national origin

into account.

189

Moreover, employers offering health

insurance to their employees have to comply with the

Civil Rights Act

190

and the Americans with Disabilities

Act (ADA),191 which prohibit discrimination based

on various protected characteristics.192 Each of

these Acts enumerates some prohibited grounds

for discrimination (e.g. race, gender, health status),

but there is no centralised agency for enforcing

respective discriminatory cases.193

184 Art. 28a para 1 no. 1 f. and para 3 ZGB.

185 Peter Gauch and others (n 173) para 1111; Arnet (n 172)

para 417ff; Göksu (n 173) para 660.

186 Julie C. Suk and Fred L. Morrison, ‘The United States’,

in: Marie Mercat-Bruns (eds) Comparative Perspectives on

the Enforcement and Effectiveness of Antidiscrimination Law

(Springer 2018) 513, 513.

187 Avraham and others (n 5) 216; Suk and Morrison (n 186)

513ff.

188 The Genetic Information Nondiscrimination Act of 2008, 42

U.S.C. § 2000ff.

189 Avraham and others (n 5) 199.

190 Civil Rights Act of 1964, 42 U.S.C. § 1981.

191 Americans with Disabilities Act of 1990, 42 U.S.C. § 12101.

192 Cf. Croskey and others (n 67) para 706 and 710.

193 Suk and Morrison (n 186) 514.

a.) U.S. Constitution

Under the U.S. constitution, a common characteristic

of a group, such as skin colour, gender, or sexual

orientation, ought not to form the basis for unequal

treatment. This principle is enshrined in the Equal

Protection Clause of the Fourteenth Amendment

to the U.S. Constitution.194 Equally there are

various other guarantees against certain types of

discrimination found in the several Amendments of

the U.S. Constitution.195

59 With the exception of Part C, Medicare health care

coverage is managed by the federal government.196 All

governmental units are bound by the constitutional

prohibition of discrimination. This includes those

involved in Medicaid administration on a state level,

such as CMS, which is responsible for review and

approval of the state plans.197

b.) Patient Protection and

Affordable Care Act (ACA)

The Patient Protection and Affordable Care Act

(ACA), among others, aims at guaranteeing non-

discrimination in connection with programmes

funded under the ACA.198 Therefore, the ACA

prohibits discrimination on the basis of race, colour,

national origin, sex, age, or disability in certain

health programmes and activities.199 The ACA also

prohibits discriminatory premium rates for health

insurance in the individual or small group market.

Rating is limited to age, geographic area, individual

or family unit, and tobacco use. 200 Only these

listed factors may be taken into account in setting

health insurance premiums, while the maximum

premium variations that an insurer can charge for

these factors are also determined by the ACA.201 For

194 U.S. Constitution Amendment XIV. Peter J. Rubin, ‘Equal

Rights, Special Rights, and the Nature of Antidiscrimination

Law’ (1998) Michigan L.Rev. 97:564, 568; Avraham and

others (n 5) 216.

195 Barbara J. Van Arsdale and others, ‘Civil Rights’, American

Jurisprudence (2nd edn, August 2018 Update) para 3.

196 U.S. Government, Department of Health & Human Services,

Medicare & You (2019, Centers for Medicare & Medicaid

Services) . Cf. above,

C.III.1.a), for a general explanation of Medicare and

Medicaid.

197 Cf. Furrow and others (n 29) 490.

198 42 U.S.C. § 18116; Stoltzfuss Jost (n 104) para II[HH][6].

199 45 C.F.R. §§ 92.1-92.303; Robert E. Anderson and others,

‘Insurance’, American Jurisprudence 2d (February 2019

Update) para 544.

200 42 U.S.C. § 300gg.

201 Avraham and others (n 5) 198 Fn. 6; In terms of age, the rate

shall not vary by more than 3 to 1 for adults (42 U.S.C. §

300gg(a)(1)(A)(iii)). The rating factor tobacco use shall not

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example, the factor “gender” is not on this list and

therefore cannot be considered by health insurers.202

Moreover, the insurers also have to consider all

insureds of the individual and small group market

to be members of the same risk pool.203

With respect to group or individual health insurance

coverage, the exclusion based on pre-existing

conditions or the discrimination of those who have

been sick in the past is also explicitly prohibited

under the ACA.204 Hence, private health insurers must

accept all applicants without regard to pre-existing

conditions.205 Furthermore, group health plans must

not discriminate against individuals based on health

status, medical conditions, medical history, genetic

information or the like206 or discriminate in favour

of higher salaries.207

When interpreting the ACA’s underlying race

and sex statutes, courts have held that they

only bar direct but not indirect discrimination.

Nevertheless, district courts have been unwilling to

completely dismiss the viability of indirect disability

discrimination.

208

Accordingly, it is not yet excluded

that ACA’s anti-discrimination provision might also

protect individuals against indirect discrimination.

c.) Health Insurance Portability and

Accountability Act (HIPAA)

The Health Insurance Portability and Accountability

Act (HIPAA) limits insurance companies’ discretion

in considering pre-existing conditions in the

underwriting process for group health insurance

coverage.209 However, only some provisions of HIPAA

are still relevant, due to fact that the ACA largely

supersedes HIPAA.210 To give an example, HIPAA’s

prohibition of discrimination based on health status

in eligibility for coverage or premiums in older group

health plans is still of relevance.211

vary by more than 1.5 to 1 (42 U.S.C. § 300gg(a)(1)(A)(iv)),

see above, C.III.1.c).

202 Avraham and others (n 5) 198 Fn. 6.

203 42 U.S.C. § 18032(c); see above, C.III.1.c).

204 42 U.S.C. § 300gg-3.

205 DiMugno and Glad (n 104) para 37A:3.

206 42 U.S.C. § 300gg-4.

207 42 U.S.C. § 300gg-16(a); see: Anderson and others (n 199)

para 544.

208 Cf. Briscoe v. Health Care Services Corporation, 2017 WL 5989727

(N.D.Ill. Dec. 4 2017); Express Scripts v. Anthem ERISA Litigation,

No. 16 Civ. 3399 (ER) 2018 WL 339946 (S.D.N.Y. Jan. 5, 2018),

appeal led.

209 29 U.S.C. § 1181; Avraham and others (n 5) 198ff. with

further references.

210 Furrow and others (n 29) 351.

211 Furrow and others (n 29) 351.

d.) Genetic Information

Nondiscrimination Act (GINA)

The Genetic Information Nondiscrimination

Act (GINA) prohibits discrimination in health

insurance coverage and employment based on

genetic information.

212

Health insurance providers

are prohibited from requiring or requesting genetic

information of the person insured or the individual’s

family members and may not use such information

for xing rates, decisions on granting coverage or

to infer on pre-existing conditions.213 Therefore

denying coverage or charging different premiums to

insureds based on genetic information is prohibited

in group health insurance.214 But disparate impact

claims, i.e. cases involving indirect discrimination,

are not included in GINA.215

e.) Civil Rights Act

The 1964 Civil Rights Act’s Title VII216 prohibits

employers from imposing discriminatory terms and

conditions upon employees. If employers provide

health care coverage for employees, discrimination

based on various protected characteristics is

prohibited.217 These protected characteristics are

race, colour, religion, sex (including gender and

pregnancy) and national origin.218 Title VII of the

Civil Rights Acts bars both direct and indirect

discrimination.219

f.) Americans with Disabilities Act (ADA)

66 People with disabilities are guaranteed the full and

equal enjoyment of the goods, services, facilities,

privileges, advantages, or accommodations of any

place of public accommodation. Notably, insurance

212 29 U.S.C. § 1182(b)(3); Thomas Wm. Mayo, ‘Bioethics’,

in: American Health Lawyers Association (ed) Health Law

Practice Guide (December 2018 Update, Clark Boardman

Callaghan) para 15:16.

213 Mayo (n 212) para 15:16.

214 Avraham and others (n 5) 199; see: 29 U.S. Code § 1182; 42

U.S.C. § 300gg-1.

215 42 U.S.C. § 2000ff-7; Jennifer K. Wagner, ‘Disparate impacts

and GINA: Congress’s unnished business’ (2018) 5 JLB 527,

530.

216 42 U.S.C. § 2000e et seq.

217 Croskey and others (n 67) para 706.

218 42 U.S.C. § 2000e-2; Tracy Bateman Farrell and others, ‘Job

Discrimination’ American Jurisprudence (2nd edn, February

2019 Update) para 2.

219 42 U.S.C. § 2000e-2; Sara Rosenbaum, ‘Insurance

Discrimination on the Basis of Health Status: An Overview of

Discrimination Practices, Federal Law, and Federal Reform

Options’ (2009) 37 J.L.Med.& Ethic, 101, 108.

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Florent Thouvenin, Fabienne Suter, Damian George and Rolf H. Weber

226

ofces, ofces of health care providers, hospitals

and other service establishments are, among others,

qualied as public accommodation.220 However, it is

not clear whether the provisions of the Americans

with Disabilities Act (ADA) apply to insurance

policies and the underwriting practices of insurance

companies.221 If interpreted narrowly, insurance

companies merely have to provide physical access to

their service infrastructure. Such an interpretation

would not impact the business model of an insurance

company. By contrast, a broader interpretation

would have a signicant effect, as the respective

provisions would apply to the goods and services

offered by a public accommodation, meaning that

disparate treatment of disabilities in an insurance

policy’s provisions or an insurer’s underwriting

decisions could be subject to scrutiny under the ADA.

However, the literature notes that case law and the

Justice Department’s position on this matter have

been inconsistent.222

2. Californian Anti-discrimination Law

The federal laws are supplemented by Californian

state laws, which can be administered by state

agencies.223 Californian anti-discrimination

regulations pertaining to the insurance business are

found in the Constitution of California, the California

Civil Code (CIV) and the California Insurance Code

(INS).

a.) California Constitution

California’s constitutional anti-discrimination

regulation overlaps but is not identical with the

equal protection principle of the U.S. Constitution.224

The U.S. Constitution permits but does not require

the state to grant preferential treatment to suspect

classes,225 whereas the Constitution of California

prohibits the state from treating any individual or

group differently in a positive or negative sense on

the basis of race, sex, colour, ethnicity, or national

origin in the operation of public employment,

220 42 U.S.C. § 12181(7)(F).

221 Justice H. Walter Croskey and others, ‘Chapter 11:

Extracontractual Liability’, California Practice Guide: Insurance

Litigation (The Rutter Group 2017) para 351.

222 Cf. DiMugno and Glad (n 104) para 5:5; Croskey and others

(n 221) para 351ff.

223 Suk and Morrison (n 186) 514.

224 B.E. Witkin, ‘Chapter X. Constitutional Law’ in: Summary of

California Law (11th edn, Witkin Legal Institute 2018) para

1088(5)(c), with further references.

225 Witkin (n 224) para 1088(5)(c) and para 1089(a); cf. Rachel M.

Kane, ‘Public Works and Contracts’, California Jurisprudence

3d (February 2019 Update) para 14.

public education, or public contracting.226 The

notion of “state” includes political subdivisions

and any department, division or sub-division of the

state Government.

227

Therefore, any governmental

agency has to comply with the constitutional

anti-discrimination principle. This regulation is

particularly important for the state administration

of Medi-Cal and the CDI. Private insurers in California

are not bound by this principle.

b.) California Civil Code (CIV)

According to the California Civil Code (CIV) all

persons within the jurisdiction of California are

free and equal.228 Matters of sex, race, colour,

religion, ancestry, national origin, disability,

medical condition, genetic information, marital

status, sexual orientation, citizenship, primary

language, or immigration status shall not play any

role with regard to entitlements to full and equal

accommodations, advantages, facilities, privileges,

or services in all business establishments of every

kind whatsoever. This provision applies to property-

casualty insurances in California.229 Therefore

the aforementioned characteristics must not be

considered when calculating automobile or renters

insurance premiums.

c.) California Insurance Code (INS)

In Californian insurance law, discrimination on

grounds of specic protected classes is prohibited.230

By law, Californian insurance companies are

prohibited from denying insurance coverage

based on sex, marital status, race, ancestry,

colour, religion, national origin, disability, medical

condition, physical or mental impairment, genetic

characteristics or sexual orientation.231 The

California Insurance Code (INS) expressly bars health

insurers from discriminating on the basis of these

226 Cal. Const., art. I, § 31(a)); Kane (n 225) para 14.

227 Witkin (n 224) para 1088(1).

228 § 51(b) CIV.

229 INS §§ 679.70 and 679.71 as well as 1861.03(a); DiMugno and

Glad (n 104) para 66:18.

230 Kristina Alexander and others ‘Issuance of Insurance

Policies’, in: Hinshaw & Culbertson LLP and Kristina

Alexander (eds) California Insurance Law & Practice

(Matthew Bender 2018) para 9.08[2][b].

231 Cf. INS § 679.71 for renters insurance, INS §§ 11628-11629.5

for automobile liability insurance, INS § 10140 for health

insurance, NS §§ 10192.11(a)(1), 10192.11(h)(1), 10192.12(a)

(2) and 10192.24(a). for Medicare supplement insurance and

10 CCR § 2560.3 which applies to all classes of insurance.

Kristina Alexander and others (n 230) para 9.08[2][b].

Big Data in the Insurance Industry

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227

characteristics.232 Considering sexual orientation

as an underwriting criteria or using it to determine

whether to require an HIV-test is also prohibited.

Even if insurers were to infer sexual orientation from

marital status, living arrangements, occupation,

sex, beneciary designation, ZIP Codes or other

territorial classication, this would qualify as an

unlawful discrimination.233 However, charging

differing health insurance premiums for different

sexes is allowed if it is based on objective, valid, and

up-to-date statistical and actuarial data or sound

underwriting practices.234 Furthermore, adjusting

health insurance rates for the same coverage,

solely because of a physical or mental impairment,

is prohibited unless the differentiation is based on

sound actuarial principles or is related to actual and

reasonably anticipated experience.235

For property-casualty insurances, Proposition 103

prohibits unfairly discriminatory insurance rates.236

But there are no rules that specify how the “unfairly

discriminatory” nature of rates shall be determined,

since this concept is neither dened in the INS, nor

in other regulations.

237

Therefore the CDI must make

a case-by-case assessment.238 Rates are deemed

unfairly discriminatory whenever price differentials

fail to reect the difference in expected losses and

expenses in an equitable manner.239

IV. Findings

In Switzerland, the prohibitions of discrimination

in the Federal Constitution and various statutes

set certain limits to the individualisation of

insurance contracts. Also, insurance companies

are barred from utilising pre-symptomatic or

pre-natal genetic tests in their underwriting

procedures. Other forms of discrimination could

be present if the individualisation is based on

protected characteristics – such as age, gender

or origin – and the differentiation cannot be

justied on objective grounds. However, insurance

companies individualise their conditions primarily

according to the risk prole of the insured, and

sometimes according to their willingness to pay.

232 INS §§ 10140, 10143 and 10144.

233 INS § 10140(e).

234 INS § 10140(a).

235 INS § 10144.

236 See above, C.III.2.

237 De La Mora and Kook (n 116) para 6A.04(2), (4).

238 De La Mora and Kook (n 116) para 6A.04(2)-(4).

239 INS § 11732.5. In its assessments of rates, rating plans, and

rating factors, the CDI applies a denition of “unfairly

discriminatory” which was originally laid down in the law

for workers compensation rates (De La Mora and Kook

(n 116) para 6A.04(4).

These factors do not usually align with protected

characteristics. If they do so (as in the case of

gender), insurance companies should be able to

justify the individualisation on a regular basis as

it will be based on objective reasons (e.g. higher

risks of male drivers) and most often on actuarially

sound criteria such as a different risk prole. Thus,

there are hardly any relevant restrictions to the

individualisation of insurance contracts arising from

the general prohibition of discrimination.

In contrast to Swiss law, U.S. and Californian law

provide strong and extensive protection against

discrimination. These provisions are also applicable

in horizontal relationships, i.e. they also govern

contractual relationships between individuals and

businesses. Californian insurance law prohibits

discrimination and the use of certain protected

characteristics for the insurer’s risk classication.

This regulation is in line with federal law, which

prohibits discrimination in many sectoral laws

for specic areas of insurance. Accordingly, the

individualisation of insurance contracts must not

be based on protected characteristics, further

restricting the leeway for the individualisation of

insurance contracts, which is already severely limited

by insurance law. However, anti-discrimination law

only rules out individualisation based on protected

characteristics, thereby leaving (very limited) room

for an individualisation based on other features.

E. Data Protection Law

I. Preliminary Remarks

For the individualisation of insurance contracts,

insurers rely on data on their current or potential

policyholders. The sources from which this data can

be obtained are very diverse. Insurers have always

demanded pre-contractual disclosure of information

directly from the potential policyholder. But with the

possibilities offered by new technologies, they can

now increasingly rely on data collected during the

term of the insurance contract (e.g. by using tracking

tools) and on data bought from third parties, such as

providers of social networking sites or apps.

The data analysed for the individualisation of

insurance contracts will always be personal data

and hence raise questions with regard to privacy

and data protection law. The European approach

to informational privacy has been and still is all-

encompassing. European data protection laws apply

to any processing of personal data in the public and

the private sector,240 thereby trying to establish

240 Art. 2 para 1 GDPR; Art. 2 para 1 DPA.

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Florent Thouvenin, Fabienne Suter, Damian George and Rolf H. Weber

228

rules and safeguards for all means and aims of

processing personal data. The U.S. does not enact

such all-encompassing data protection regulations,

but rather pursues a sector-specic approach to

safeguard informational privacy.241

76 In the past years, the data protection landscape has

undergone signicant changes, in particular due to

the EU enacting the GDPR.242 Switzerland is not an

EU member state and under no formal obligation

to implement the GDPR. However, Switzerland is

a signee of the Council of Europe Convention 108

and when modernising the Convention 108

(Convention 108+) the Council of Europe ensured

consistency with the GDPR.243 Since Switzerland

aims at signing the Convention 108+, it is set to

adapt rules that align with the standard of the

GDPR.244 Furthermore, the GDPR claims to apply

to processing activities outside of EU territory and

hence businesses in Switzerland are often advised to

ensure compliance with the GDPR. For these reasons,

we will not limit the analysis of data protection law

to the Swiss Data Protection Act (DPA),

245

but also

include the GDPR.

77 The principles applied to the processing of personal

data in Switzerland and the EU are only marginally

different. However, there is one important (but often

neglected) difference with regard to the regulatory

approach: Under the GDPR every processing of

personal data must have a lawful basis, such as

consent of the data subject246 or a legitimate interest

of the controller;247 in addition, the processing must

be carried out in accordance with the applicable

data protection principles.248 In Switzerland, the

processing of personal data is lawful if the data

protection principles are respected and a lawful

basis is only required if the handling of personal data

241 Lothar Determann, ‘Adequacy of data protection in the USA:

myths and facts’ (2016) 6 IDPL, 244, 246.

242 Regulation (EU) 2016/679 of the European Parliament and

of the Council of 27 April 2016 on the protection of natural

persons with regard to the processing of personal data and

on the free movement of such data, and repealing Directive

95/46/EC (General Data Protection Regulation), OJ 2016

L 119/1.

243 Council of Europe, Explanatory Report to the Protocol amending

the Convention for the Protection of Individuals with regard to

Automatic Processing of Personal Data (Council of Europe, 2018)

Treaty Series - No. 223, 1.

244 Swiss Federal Council, Botschaft zum Bundesgesetz über die

Totalrevision des Bundesgesetzes über den Datenschutz und die

Änderung weiterer Erlasse zum Datenschutz vom 15. September

2017 (BBl 2017) 6941, 6969ff.

245 Bundesgesetz über den Datenschutz vom 19. Juni 1992,

SR 235.1.

246 Art. 6 para 1. lit. a GDPR.

247 Art. 6 para 1 lit. f GDPR.

248 Art. 5 GDPR.

is infringing these principles.249

II. Switzerland & the

European Union

78 In Europe, data protection law is historically rooted

in the right to respect for one’s private and family

life, his home and his correspondence.

250

The 1981

Council of Europe Convention for the protection of

individuals with regard to the processing of personal

data (Convention 108) established harmonised rules

for electronic data processing. Nowadays, the right

to data protection enjoys the status of a fundamental

right in the EU

251

and, according to the predominant

doctrine in Switzerland, the (fundamental) right to

informational self-determination can be derived from

the Swiss Federal Constitution.252 The fundamental

rights approach has led to European lawmakers

enacting all-encompassing data protection laws,

which apply to any handling of data relating to an

identied or identiable person.253

1. Data protection principles

European data protection laws set forth conditions for

every processing of data that relates to an identied

or identiable person (personal data).254 The notion of

“processing” encompasses any handling of personal

data one can think of.

255

Whoever, alone or jointly

with others, determines the purposes and means

of the processing of personal data is a “controller”

and, among others, has to ensure being compliant

with the principles relating to the processing of

249 Art. 12 para 2 lit. a DPA.

250 Art. 8 ECHR.

251 Art. 13 FC and Art. 8 Charter of Fundamental Rights of the

European Union [2012] OJ C326/02.

252 Swiss Federal Court (BGE 138 II 346) [2012] at 8.2; Rainer J.

Schweizer, ‘Art. 13 BV‘ in: Bernhard Ehrenzeller and others

(eds) Die Schweizerische Bundesverfassung: St. Galler Kommentar

(Dike and Schulthess 2014) para 72; David Rosenthal,

‘Art. 1 DSG‘ in: David Rosenthal and Yvonne Jhöri (eds)

Handkommentar zum Datenschutzgesetz (Schulthess 2008)

para 3ff. Critical: Eva Maria Belser, ‘Zur rechtlichen Tragweite

des Grundrechts auf Datenschutz: Missbrauchsschutz

oder Schutz der informationellen Selbstbestimmung?‘, in:

Astrid Epiney and others (eds) Instrumente zur Umsetzung

des Rechts auf informationelle Selbstbestimmung/Instruments de

mise en oeuvre du droit à l’autodétermination informationnelle

(Schulthess 2013) 19.

253 Cf. Chris Jay Hoofnagle and others, ‘The European Union

general data protection regulation: what it is and what it

means’ (2019) 28 Info.&Comm.Tech.L., 65, 72ff.

254 Insurance companies have access to a variety of data sets

and since the data can often be linked to individuals, it will

qualify as personal data (cf. Weber (n 1) para 6).

255 Hoofnagle and others (n 253) 72ff.

Big Data in the Insurance Industry

2019

229

personal data.256 These principles are deemed the

core of European data protection law.

257

As a general

rule, every processing of personal data has to comply

with all the data protection principles.258

Regarding the individualisation of insurance

contracts based on big data analytics, the principles

of purpose limitation,259 data minimisation and

storage limitation are of particular relevance.260

Furthermore, questions with regard to the principles

of fairness (translated as good faith in Switzerland)

and transparency of processing arise.261 Lastly, data

quality can play a role in any data analysis.262

a.) Transparency and Purpose Limitation

The principle of transparency obliges controllers

to be transparent with regard to their processing

operations.263 This principle is closely connected to

the principle of purpose limitation as it requires the

controller to provide information on the purpose

of its processing.264 The transparency of data

processing is arguably not only the single most

256 Cf. Art. 5 para 2 GDPR; Switzerland currently employs

a different terminology, yet it is expected that this will

change.

257 Cf. Peter Hustinx, ‘EU Data Protection Law: The Review

of Directive 95/ 46/ EC and the General Data Protection

Regulation’ in: Marise Cremona (ed) New Technologies and EU

Law (OUP 2017) 127 and 131.

258 Art. 5 GDPR; Art. 4 and 5 DPA. Peter Carey, ‘Data Protection

Principles’ in: Peter Carey (ed) Data Protection: A Practical

Guide to UK and EU Law (5th edn, OUP 2018) 32, 32.

259 Art. 5 para 1 GDPR; Art. 4 para 3 DPA.

260 Art. 5 para 1 lit. c and e GDPR; in Switzerland data

minimisation and storage limitation are derived from the

general principle of proportionality enshrined in Art. 4

para 2 DPA. Cf. Weber (Fn. 52) 101; Rolf H. Weber, ‘Big

Data: Rechtliche Perspektive‘ in: Rolf H. Weber and Florent

Thouvenin (eds) Big Data und Datenschutz – Gegenseitige

Herausforderungen (Schulthess 2014) 17; Philippe Meier,

Protection des données (Stämpi Verlag 2011) para 673;

Yvonne Prieur, ‘Datenschutz und «Big Data-Geschäfte»

auf dem Prüfstand‘ (2015) Allgemeine Juristische Praxis,

1643, 1649; Bruno Baeriswyl, ‚Art. 4 DSG‘, in: Bruno

Baeriswyl und Kurt Pärli (eds) Stämpis Handkommentar

Datenschutzgesetz (Stämpi Verlag 2015) para 23; Florent

Thouvenin, ‚Forschung im Spannungsfeld von Big Data und

Datenschutzrecht: eine Problemskizze‘ in: Volker Boehme-

Nessler and Manfred Rehbinder (eds) Big Data: Ende des

Datenschutzes? Gedächtnisschrift für Matin Usteri, (Stämpi

Verlag 2017) 27, 34.

261 Art. 5 para 1 lit. a GDPR; Art. 4 para 2 and para 4 DPA.

262 Art. 5 para 1 lit. d GDPR; Art. 5 DPA.

263 Art. 5 para 1 lit. a GDPR; Art. 4 para 4 DPA.

264 Art. 13 para 1 lit. c and Art. 14 para 1 lit. c GDPR;

Florent Thouvenin, ‘Erkennbarkeit und Zweckbindung:

Grundprinzipien des Datenschutzrechts auf dem Prüfstand

von Big Data’, in: Rolf H. Weber and Florent Thouvenin (eds)

Big Data und Datenschutz – Gegenseitige Herausforderungen

(Schulthess 2014) 61, 64.

important principle of data protection law, but also

the reason for the broad information duties of data

controllers265 and the right of access.266

The principle of purpose limitation is a key principle

of data protection law and consists of two aspects:

rst, the purposes for which the controller intends

to process the data need to be specied (purpose

specication); and second, these purposes set the

limits for the controller’s processing operations (use

limitation).

267

The purposes have to be clearly and

unambiguously specied pursuant to the GDPR and

a controller’s processing operations are limited to

what is compatible with these specied purposes.

Swiss law allows processing for purposes that are

specied or merely obvious due to the circumstances

of the collection of the data. But in turn, a controller’s

operations are strictly limited to these purposes.268

83 In order to meet the requirements of transparency

and purpose specication, insurance companies

must ensure that their customers are aware of

the fact that their personal data is processed for

providing an individual offer, taking into account

their personal risk prole and/or their willingness

to pay. This should not cause particular problems

with regard to data obtained directly from the

(potential) policyholder in the context of a specic

insurance contract. But insurance companies may

want to use data that has not been obtained for the

purpose of running big data analytics to calculate

individual premiums, e.g. data on treatments and

therapies collected for billing and reimbursement

purposes. Such use would have to be classied as

data repurposing269 and would trigger the insurance

companies’ duty to inform the data subject

accordingly. While informing their customers

about such repurposing should not be a problem, it

might be difcult or even impossible for insurance

companies to comply with this requirement if their

analysis includes data about individuals who are not

their customers. As in other cases, the principle of

transparency and purpose limitation appear to be in

a fundamental conict with big data analytics’ idea

of gaining new insights from existing data.270

265 Art. 13ff. GDPR; Art. 14 and Art. 18a DPA.

266 Art. 15 GDPR; Art. 8 DPA.

267 Art. 5 para 1 lit. b GDPR; Art. 4 para 3 DPA; Carey (n 258)

34; Bart Custers and Helena Uršič ‘Big Data and data reuse:

a taxonomy of data reuse for balancing big data benets

and personal data protection’ (2016) 6 IDPL, 4, 8; Thouvenin

(n 264) 67.

268 Thouvenin (n 264) 67ff.

269 Custers and Uršič (n 267) 8.

270 Thouvenin (n 264), passim; cf. Paul MacDonnell, ‘The

European Union’s Proposed Equality and Data Protection

Rules: An Existential Problem for Insurers?’ (2015) 35

Ec.Aff., 225, 233, stating that insurance companies using

data mining techniques do not know what they will nd

until it is too late.

2019

Florent Thouvenin, Fabienne Suter, Damian George and Rolf H. Weber

230

b.) Data Minimisation and

Storage Limitation

According to the data minimisation principle, as few

data as necessary, for the purposes of the processing

shall be processed.271 Similarly, the principle of

storage limitation’s objective is to ensure that

controllers do not keep data longer than necessary

for the initial purpose of the processing.272 Thus, as

few data as needed for the purposes specied at the

initial collection shall be processed and as soon as

the initial purpose of the collection is fullled, the

personal data has to be deleted. As seen already,

it is arguably impossible to be specic about the

purposes of big data analysis. Since the data would

have to be deleted as soon as the initial purpose is

fullled, data reuse would be generally impossible

according to these principles. Thus, if interpreted

strictly, the data minimisation and storage limitation

principles go head to head with big data analytics

and many other data processing practices, since

the data would have to be deleted and be lost for

future analysis.273 These challenges also affect the

processing of personal data by insurance companies.

Namely, the principles of data minimisation and

storage limitation may have a negative impact on

the accuracy of the data analysis carried out to

determine individual risk proles and willingness

to pay, but they do not hinder the individualisation

of insurance contracts as such.

c.) Data Quality

An important aspect of any data analysis is data

quality. Data protection laws in Switzerland and the

EU incorporate a data accuracy principle, according

to which personal data must be accurate and, where

necessary, kept up to date.274 The principle intends

to prevent decisions made on the basis of poor

data. However, the controller should only alter

and update data when it is necessary to mitigate

potential dangers to the fundamental rights of the

data subjects.275 Whenever this danger cannot be

271 Art. 5 para 1 lit. c GDPR; Art. 4 para 2 DPA, where the

principle of data minimisation is derived from the more

general principle of proportionality; see Thouvenin (n 63)

31.

272 Art. 5 para 1 lit. e GDPR; Art. 4 para 2 DPA, where the principle

of storage limitation is derived from the more general

principle of proportionality; see Thouvenin (n 63) 31; for

an EU perspective see also Tjimen H.A. Wjisman, ‘Privacy,

Data Protection and E-Commerce’, in: Arno R. Lodder and

Andrew D. Murray (eds) EU Regulation of E-Commerce: A

Commentary (Edward Elgar 2017) point 12.13.

273 MacDonnell (n 270) 233; Hoofnagle and others (n 253) 78.

274 Art. 5 para 1 lit. d GDPR; Art. 5 DPA.

275 Cf. Thomas Hoeren ‚Big Data und die Datenqualität – ein

Blick auf die DSGVO‘(2016) 6 ZD, 459, 461ff.

identied, there is no need to “correct” or update

the data. While ensuring data quality might be as

difcult for insurance companies as for other data

controllers, this principle does not hinder the

individualisation of insurance contracts.

d.) Fairness and Good Faith

The principle of fairness or good faith276 has a

catch-all function.

277

It is understood as a duty to

safeguard the interests of the data subject in good

faith and not to interfere unnecessarily with his

protected interests. Clandestine data processing as

well as data processing which the data subject did

not need to expect, often conict with the principle

of good faith.278 Even though the principle of good

faith might be affected in many constellations, its

importance should not be overestimated. Scholars

rightly argue that it should only be used restrictively

to correct disturbing results that would otherwise be

in accordance with the law.279 Thus, the principle also

has little steering effect regarding the interpretation

of legal norms.

280

In particular, good faith should not

be equated with an obligation to equal treatment or a

general prohibition of differential treatment. Rather

these prohibitions need to be specied in statutes.281

Hence the principle of good faith does not hinder

individualisation of insurance contracts.

2. Lawful basis

87 In the EU, data processing must always be based on

(at least) one of six reasons for the lawfulness of

processing.282 In Switzerland, such reasons are only

needed if the principles relating to the processing of

personal data are violated.283

276 Art. 5 para 1 lit. a GDPR; Art. 4 para 2 DPA.

277 Lee A. Bygrave, Data Privacy Law (OUP 2014) 146; Tobias

Herbst, ‘Art. 5 DS-GVO’ in: Jürgen Kühling and Benedikt

Buchner (eds) Datenschutz-Grundverordnung/BDSG (2nd edn,

C.H. Beck 2018) para 17; David Rosenthal, ‘Art. 4 DSG’ in:

David Rosenthal and Yvonne Jhöri (eds) Handkommentar zum

Datenschutzgesetz (Schulthess 2008) para 14.

278 Aurelia Tamò-Larrieux, Designing for Privacy and its Legal

Framework (Springer 2018) 88; Baeriswyl (n 260) para 19.

279 Thouvenin (n 63) 34; Herbst (n 277) para 17; Philipp

Reimer, ‘Art. 5 DSGVO’ in: Gernot Sydow (ed) Europäische

Datenschutzgrundverordnung (2nd edn, Nomos, Manz and

Dike 2018) para 14; Alexander Roßnagel, ‘Art. 5 DSGVO’ in:

Simitis and others (eds) Datenschutzrecht: DSGVO mit BDSG

(Nomos 2019) para 47.

280 Roßnagel (n 279) para 48.

281 Thouvenin (n 63) 35.

282 Art. 6 GDPR.

283 Thouvenin (n 63) 36.

Big Data in the Insurance Industry

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231

a.) Consent

Most often, the data subject’s consent serves

as a legal basis.284 Consent must be freely and

unambiguously given after adequate information on

specied purposes of the processing operation.285

Notably, consent to processing may be withdrawn

by data subjects at any time without having to

specify any reasons.286 While this makes it difcult

for controllers to rely on consent, the processing on

other lawful bases remains possible.

Swiss and EU law contain hardly any formal

requirements regarding consent. Neither law

requires it to be given in writing. However, since

a controller has the burden of proof when relying

on consent for processing, he or she is advised to

obtain consent in writing or another documentable

form.287 Unambiguous consent means that insurance

companies may not rely on opt-out mechanisms, but

actually require their customers to opt-in to the

processing of their personal data.288

Regarding substantive requirements, the

requirement of freely given consent is the one

that limits controllers the most. In this context

so-called bundling, i.e. making the performance

of a contract conditional upon consent to the

processing of personal data that is not necessary

for the performance of that contract, is discussed

controversially.289 Some scholars argue that take-it-

or-leave it choices do not qualify as a freely given

consent.290 However, one may also take the view

that whenever providing personal data is part of

the data’s subject’s main obligation, such processing

is necessary and not prohibited by data protection

law.291

284 Art. 13 para 1 DPA; Art. 6 para 1 lit. a GDPR.

285 Cf. Art. 4 para 11 GDPR and Art. 6 para 1 lit. a GDPR ; Art. 4

para 4 DPA. Corrado Rampini, ‘Art. 13 DSG’ in: Urs Maurer-

Lambrou and Gabor P. Blechta (eds) Basler Kommentar

Datenschutzgesetz, Öffentlichkeitsgesetz (3rd edn, Helbing

Lichtenhahn 2014) para 3ff.

286 Art. 7 para 3 GDPR. Rampini (n 285) para 14.

287 Tobias Fasnacht, Die Einwilligung im Datenschutzrecht

(Freiburg: Universitätsverlag 2017), Rn. 250 f.; Benedikt

Buchner and Jürgen Kühling, ‚Art. 7 DS-GVO‘ in: Jürgen

Kühling and Benedikt Buchner (eds) Datenschutz-

Grundverordnung/BDSG (2nd edn, C.H. Beck 2018), para 27.

Notably, the GDPR states that if consent is obtained in

the context of a written declaration, it must be clearly

distinguished from other matters, using clear and plain

language (Art. 7 para 2 GDPR).

288 Hoofnagle and others (n 253) 79.

289 Art. 7 para 4 GDPR. For Switzerland cf. Rampini (n 285)

para 8.

290 Article 29 Working Party, ‘Guidelines on consent under

Regulation 2016/679’ (WP 259 rev.01, 28. November 2017)

at 9ff.

291 Cf. C-673/17, Planet 49, Opinion of Advocate Szpunar [2019]

(ECLI:EU:C:2019:246) at 99. As dierent notions of freedom

With regard to insurance contracts, providing

information that enables assessing risks in

underwriting procedures is part of the insured’s

main obligation. The same can be said for data

collected during the term of the contract. While

data on the insured’s behaviour related to the risks

which are covered by the insurance contract may

not be strictly necessary for the performance of the

contract, this data is so closely linked to the insurance

contract that requesting consent to collecting such

data can hardly be qualied as bundling. The same

is true for data on the data subject’s willingness

to pay. While there is no direct connection to the

performance of the contract, such data is used to

provide an individualised offer for entering into a

specic contract and is thus so closely related to the

contract that requesting consent for the processing

of such data cannot be qualied as bundling. There

might be bundling and no freely given consent,

however, if the insurance company requests consent

for collecting of data which is neither related to the

risks covered by the insurance contract, nor to the

insured’s ability or willingness to pay.

Since consent is only valid with regard to the specic

purpose for which it was given, controllers need

to get renewed consent if they want to process

personal data for other purposes than the one it

had been collected for.292 As mentioned above,293

this emanation of the principle of purpose limitation

goes head to head with the idea of big data analytics

to analyse data for other purposes than the ones

initially intended. However, the limitation is not

strict. While the GDPR allows the processing for

compatible purposes, the DPA allows processing for

purposes that were indicated by the controller or

obvious from the circumstances.294 While it remains

unclear what purposes would qualify as “obvious”

under Swiss law, the GDPR states which criteria must

be taken into account to assess the compatibility of

a new purpose.295 As the repurposing of data does

not always need consent, the controller may use the

data for big data analytics as far as the new purpose

is compatible with the one for which the data was

collected for.

The purposes for which insurance companies use

personal data will most often be closely connected

– at least as long as the data is used in the realm of

one specic insurance contract; e.g. the processing

of personal data to decide on whether the insurance

company has to pay for an insured event (e.g. a car

could be applied in practice, it is to be seen from enforcement

what courts deem acceptable “freedom” (Hoofnagle and

others (n 253) 80).

292 Custers and Uršič (n 267) 8.

293 See above, E.II.1.a).

294 Art. 5 para 1 (b) and Art. 6 para 4 GDPR; Art. 4 para 3 DPA.

295 Cf. Art. 6 para 4 GDPR.

2019

Florent Thouvenin, Fabienne Suter, Damian George and Rolf H. Weber

232

accident) and the use of such data for estimating

the insured’s (future) risk (e.g. his or her driving

behaviour) are closely connected and these purposes

should therefore be considered compatible. In

addition, the data would remain in the controller-

data subject relationship, so that the latter has a

reasonable expectation of an insurance company

using data on an insured event to amend and alter

the terms of this relationship. Such forms of re-

use would therefore not trigger the need to get

renewed consent. It would be different, however,

if data collected in connection with one contract

(e.g. automobile insurance) is used for assessing the

risks covered by a different contract (e.g. health

insurance). In these cases, the insurance company

would need to get the data subject’s specic consent.

b.) Performance of a contract

Processing is lawful if it is necessary for the

performance of a contract that the data subject is

a party to, or to take steps to enter into a contract

that the data subject has requested.296 “Necessity”

means that the purpose of the processing could

not be fullled with anonymous information.297

If the data is merely useful, this lawful basis shall

not apply.298 Controversially, the European Data

Protection Board (EDPB) stated that only objectively

necessary processing operations may be based

on this legal ground and the contract cannot

“articially expand” the categories of personal data

or processing operations beyond the data subject’s

reasonable expectations.299 However, other scholars

highlight that data may be processed if the purpose

of the contract cannot “reasonably” be fullled by

other means. Thus, they argue against a restrictive

understanding of necessity and state that reducing

costs and fostering efciency are reasonable and

hence necessary aspects of performing a contract.

300

296 Art. 6 para 1 lit. b GDPR; Art. 13 para 2 (a) DPA.

297 Cf. C-524/06, Huber [2008] (ECLI:EU:C:2008:724) at 62ff;

Estelle Dehon and Peter Carey ‘Fair, Lawful and Transparent

Processing’, in: Peter Carey (ed) Data Protection: A Practical

Guide to UK and EU Law (5th edn, OUP 2018), 42, 50.

298 Horst Heberlein, ‘Art. 6 DS-GVO’ in: Eugen Ehmann

and Martin Selmayr (eds) DS-GVO: Kommentar, (2nd edn,

C.H.Beck and LexisNexis 2018), para 13; Benedikt Buchner

and Thomas Petri, ‘Art. 6 DS-GVO’ in: Jürgen Kühling and

Benedikt Buchner (eds) Datenschutz-Grundverordnung/BDSG

(2nd edn, C.H. Beck 2018), para 15.

299 European Data Protection Board, ‘Guidelines 2/2019 on

the processing of personal data under Article 6(1)(b) GDPR

in the context of the provision of online services to data

subjects, version for public consultation’ (EDPB, 9 April

2019) at 8ff.

300 These scholars reference GDPR, recital 39. Cf. Kai-Uwe

Plath, ‘Art. 6 DSGVO’ in: Kai-Uwe Plath (ed) DSGVO/BDSG:

Kommentar (3rd edn, Verlag Dr. Otto Schmidt 2018) para 20ff;

Dehon and Carey (n 297) 55. Cf. Sebastian Schulz, ‘Art. 6 DS-

Certainly, insurers need comprehensive, granular

and accurate data in order to assess the data subject’s

risks accurately. Thus, on the one hand it could be

argued that the processing of any data facilitating

the risk analysis is objectively necessary for the

performance of the contract. On the other hand,

business transactions can be performed in situations

of uncertainty and such uncertainty is the very

reason customers are willing to conclude insurance

contracts. An insurer, it could therefore be argued,

initially bears the risk of imperfect information and

performing data analysis in order to reduce that risk

with regard to individual customers could be deemed

“unreasonable”, since the insurer can always rely

on risk groups and does not necessarily have to

individualise insurance contracts. As establishing

the necessity of processing for a contractual

obligation comes with considerable uncertainties,

controllers are advised to rely on other grounds for

the lawfulness of processing.301

c.) Legitimate interests

In Switzerland and the EU, data processing can be

based on an interest analysis.302 Despite explicit

interest analysis being regarded as a tool that would

allow a judge to do the specic case justice,303 in

practice it is the controller who has to perform this

balancing exercise.304 In this interest analysis, the

legitimate interests pursued by the controller are at

the heart of the reasoning. But the interests of a third

party may be taken into account as well.

305

These

interests have to be legitimate, meaning that they

shall be in accordance with the law in the broadest

sense.306 The controller’s or a third party’s interests

GVO‘ in: Peter Gola (eds) Datenschutz-Grundverordnung: DS-

GVO, VO (EU) 2016/679: Kommentar (2nd edn, C.H. Beck 2018)

para 38.

301 Hoofnagle and others (n 253) 80.

302 Art. 13 para 1 DPA; Art. 6 para 1 lit. f GDPR. Cf. above, E.I for

the systematic differences between the two approaches.

303 Swiss Federal Council, Botschaft zum Bundesgesetz über den

Datenschutz (DSG) vom 23. März 1988 (BBl 1988) vol II, 413, 460.

304 Cf. Andreas Sattler, ‘From Personality to Property:

Revisiting the Fundamentals of the Protection of Personal

Data’, in: Mor Bakhoum and others (eds) Personal Data in

Competition, Consumer Protection and Intellectual Property Law

Towards a Holistic Approach? (Springer 2018) MPI Studies on

Intellectual Property and Competition Law, vol. 28, 27, 36.

305 Irene Kamara and Paul de Hert, ‘Balancing and the

Controller’s Legitimate Interest’ in: Evan Selinger and

others (eds) The Cambridge Handbook of Consumer Privacy

(CUP 2018) 331; Dehon and Carey (n 297) 58; Constantin

Herfurth, ‘Interessenabwägung nach Art. 6 Abs. 1 lit. f DS-

GVO’ (2018) 8 ZD, 5144; David Rosenthal, ‘Art. 13 DSG’ in:

David Rosenthal and Yvonne Jhöri (eds) Handkommentar zum

Datenschutzgesetz (Schulthess 2008) para 7; Rampini (n 285)

para 21.

306 Herfurth (n 305) 514; Paolo Balboni and others, ‘Legitimate

Big Data in the Insurance Industry

2019

233

have to be balanced against the interests of the data

subject. In a rst step, the necessity of the processing

in question has to be ascertained. In the literature,

necessity is usually dened negatively, meaning one

has to ask whether it would be possible to pursue the

legitimate interests in a less interfering manner with

the data subject’s right to data protection.307 Once it

has been established that the legitimate interest in

question cannot be fullled by less-invasive means,

the interests have to be balanced against in a second

step.

Insurers have an interest in collecting and processing

comprehensive, granular and accurate data on the

insured’s characteristics and behaviour related to

the risks covered by the insurance contract and on

their ability and willingness to pay. As this interest

is backed by the controller’s fundamental freedom

to conduct business308 and since it may be assumed

that neither Switzerland nor the EU member states

prohibit the processing of data for these purposes,

the interest of the controller in having access to that

data can be considered legitimate.

While many scholars and data protection authorities

(implicitly) base the pondering of interests on the

assumption that data subjects have a general interest

in not having their data collected and processed, a

person seeking out insurance may actually have

an interest in the processing of his or her personal

data for the purpose of individualisation as they may

get a better offer if their risk prole and/or their

willingness to pay is below average. Therefore, the

balancing of interests must be nuanced: On the one

hand, the portion of policyholders whose individual

risks are smaller than the average risk of the group

they would be part of actually benets from the data

processing. Their personalised premiums should

be lower than the premiums they would have to

pay when classied in a risk group. On the other

hand, policyholders whose risks are higher than

the average risk of their group have no interests in

a personalised risk prole and insurance contract.

Furthermore, persons who are not part of the data-

controller-data-subject relationship would benet

from another individual’s data being analysed as

long as the analysed individual has a higher risk

than they do. The more high-risk individuals pay

individualised premiums, the more likely it is that

the low risk individuals pay lower premiums and

eventually benet from the data processing. The

same argument applies to the willingness to pay.

interest of the data controller New data protection

paradigm: legitimacy grounded on appropriate protection’

(2013) 3 IDPL, 244, 254; Dehon and Carey (n 297) 57; Rampini

(n 285) para 22.

307 Kamara and de Hert (n 305) 332.

308 Art. 16 EU Charter of Fundamental Rights; Art. 26 Swiss

Federal Constitution.

99 Following this train of thought leads to a situation

where the interests of individuals that would pay more

due to individualisation outweigh the controller’s

legitimate interests in analysing the data, whereas

the processing of data relating to policyholders that

are better off with individualised premiums could be

justied with the legitimate interests of the controller

and the concurring interests of these data subjects.

Such an interpretation, however, cannot solve the

issue at stake and must be rejected for two reasons:

First, it merely focuses on an analysis of the potential

advantages or disadvantages of the data processing

and does not take into account the general interest

of (some) data subjects in not having their data

analysed, irrespective of the effect of such analysis.

Second – and this is the crucial point – in order

to determine whether a (potential) policyholder

actually benets from the analysis of his or her data,

the policyholder’s data would have to be analysed.

Hence an a priori differentiation between “winners”

and “losers” is impossible, and the lawfulness of the

processing can thus only be determined after the

data has already been processed. As a consequence,

the lawfulness of processing of personal data for the

individualisation of insurance contracts cannot be

based on such a pondering of interests.

100

As mentioned above, public interests should be

taken into consideration as well309 – and in this case

they could actually help to solve the dilemma. From

this perspective, the individualisation of insurance

contracts based on the processing of personal data

is a meaningful way to help solve the problems of

adverse selection and moral hazard.310 Since the

processing of personal data allows for the offering

of individual premiums, insurance companies should

now be able to also attract policyholders with a low

risk prole, thereby gaining additional customers

and making insurance coverage attractive to low

risk individuals as well. This would help tackle the

problem of adverse selection much better than

the mere sorting of policyholders into different

risk groups. The problem of moral hazard could

be signicantly mitigated if the collection and

processing of personal data gathered after the

conclusion of the insurance contract (e.g. by using

driving or tness trackers) is considered legitimate,

since the risk of having to pay higher premiums due

to risky behaviour would provide powerful incentives

to policyholders to behave more carefully.

311

Finally,

from a public policy perspective, it is hard to dispute

the fact that the individualisation of insurance

premiums has positive effects on the economy as

a whole.312

309 Herfurth (n 305) 515.

310 See above, B.I.

311 See above, B.I.

312 See above, B.II.

2019

Florent Thouvenin, Fabienne Suter, Damian George and Rolf H. Weber

234

101 In sum, there are good arguments for an overriding

legitimate interest of the insurance companies

which would ensure the lawfulness of processing of

the insured’s personal data. Nevertheless, since the

balancing of interest analysis requires a case-specic

assessment, it may be argued that a universal interest

analysis is impossible. After all, an interest analysis

should do justice to specic cases. As a consequence,

insurance companies would run a considerable risk

if they base the lawfulness of processing on their

legitimate interests alone.

3. Special Categories of Data

102

In Switzerland, special categories of data enjoy

additional protection as this data relates to the data

subject’s personality in a particularly sensitive way.313

Such sensitivity is given if data relates to religious,

ideological, political or trade union-related views or

activities, health, the intimate sphere or the racial

origin, social security measures, administrative or

criminal proceedings, and sanctions.314 However,

the DPA does not prohibit the processing of such

data per se. The aforementioned general conditions

for lawfulness apply to special categories of data as

well. While the controller may process such data in

compliance with the data protection principles and

he may rely on legitimate interests for justifying such

processing if needed, there are some variations.

315

particular, consent to processing special categories

of data has to be express and, by statute, there is no

legitimate interest in including special categories of

data in creditworthiness checks.316

103

The GDPR prohibits the processing of special

categories of data as dened in Article 9 of the GDPR,

under the assumption that what is unknown cannot

be used to discriminate.317 Special categories of data

are: data revealing racial or ethnic origin, political

opinions, religious or philosophical beliefs, or trade

union membership, genetic data, biometric data,

data concerning health or data concerning a natural

person’s sex life or sexual orientation.318 However,

the law provides exemptions for neutral or desirable

processing of these special categories of data, and

allows the processing of such data with the data

313 Gabor P. Blechta, ‘Art. 3 DSG‘ in: Urs Maurer-Lambrou and

Gabor P. Blechta (eds) Basler Kommentar Datenschutzgesetz,

Öffentlichkeitsgesetz (3rd edn, Helbing Lichtenhahn 2014)

para 27.

314 Art. 3 lit. c DPA.

315 Rosenthal (n 305) para 15.

316 Art. 4 para 5 DPA and Art. 13 para 2 lit. c DPA.

317 Benedikt Buchner, ‘Art. 1 DS-GVO‘ in: Jürgen Kühling and

Benedikt Buchner (eds) Datenschutz-Grundverordnung/BDSG

(2nd edn, C.H. Beck 2018), para 14.

318 Art. 9 para 1 GDPR.

subject’s explicit consent. While EU member states

may enact further derogations,

319

neither legitimate

interests nor necessity for the performance of a

contract are a legitimate ground for the processing

of special categories of data.320

104

These requirements and restrictions do not

specically relate to the individualisation of

insurance contracts. But obviously they also have

to be considered and met by insurance companies

processing data that falls within one (or several) of

these special categories.

III. U.S./California

1. Sector-Specific Data Protection

Laws on a Federal Level

105

The situation with data privacy law in the U.S. is

comparable to the situation regarding insurance

law: the U.S. does not have a comprehensive data

protection or data privacy law or any law regulating

all issues of information privacy or security.321 Also

there is no direct expressed right of privacy in the

U.S. Constitution or the Bill of Rights. But according

to the U.S. Supreme Court, privacy is implicitly

protected by the Constitution.322 Moreover, the U.S.

has many sector-specic federal laws regulating

nancial or health data or children’s privacy.323

Governmental agencies and industry groups also

develop (self-regulatory) guidelines - so-called

“best practices” - but in general these are not legally

binding.324 Notably, Section 5 of the Federal Trade

Commission (FTC) Act declares unfair and deceptive

acts or practices unlawful, with deception being the

primary vehicle for privacy enforcement.325 However,

the FTC also enforces other privacy regulations.326

319 Art. 9 para 2 lit. g GDPR.

320 Cf. Art. 9 para 2 GDPR and Art. 22 para 2 GDPR.

321 Denis T. Rice, ‘Challenges of Privacy Compliance and

Litigation’ in: Elizabeth M. Johnson and Jean Magistrale (eds)

Privacy Compliance and Litigation in California (September 2017

update, Cal CEB) para 1.2.

322 Griswold v. Connecticut, 381 US 479 (1965); Clara Ruyan Martin

and David B. Oshinsky, ‘Privacy Law and Privacy Policy’ in:

Suzanne L. Weakley (ed) Internet Law and Practice in California

(July 2017 update, Cal. CEB) para 9.7. See Lawrence v. Texas,

539 US 558 [2003]; Roe v. Wade, 410 US 113 [1973].

323 Kurt Wimmer, ‘United States’ in: Monika Kuschewsky

(ed) Data Protection & Privacy: International Series (3rd edn,

Thomson Reuters 2016), 1093, 1093.

324 Peter Swire and DeBrae Kennedy-Mayo, ‘U.S. Private-Sector

Privacy’ (2nd edn, IAPP 2018) 58.

325 15 U.S.C. § 41.

326 See Swire and Kennedy-Mayo (n 324) 42ff.

Big Data in the Insurance Industry

2019

235

106

In contrast to the EU, the U.S. does not have a

default prohibition of data processing. Accordingly,

the processing of personal data is allowed unless a

sector-specic restriction or prohibition applies.327

In addition to the sector-specic federal regulations,

the individual states have laws of their own, many of

them mapping respective federal laws. As a result,

U.S. data privacy law is a complex patchwork of

federal and state regulations, which covers different

jurisdictions and different sectors.328

107

On the federal level, the Health Insurance

Portability and Accountability Act (HIPAA),

329

the

Gramm Leach Bliley Act (GLBA),

330

the Fair Credit

Reporting Act (FCRA)331 and the Genetic Information

Nondiscrimination Act (GINA),332 are relevant for

insurers.333

a.) Health Insurance Portability and

Accountability Act (HIPAA)

108

The Health Insurance Portability and Accountability

Act (HIPAA), which was supplemented by the

Health Information Technology for Economic and

Clinical Health Act (HITECH Act) in 2009,334 provides

for national standards to protect the privacy and

security of healthcare information. The HIPAA

regulations regarding information privacy are set

forth in the HIPAA Privacy and Security Rule.335 HIPAA

regulates the use and disclosure of “protected health

information” by covered entities.

336

Protected health

information is dened as “individually identiable

health information”.337 The information has to

be created or received by a health care provider,

relate to health or the provision of health care,

327 Lothar Determann, California Privacy Law (3rd edn, IAPP 2018)

38.

328 Wimmer (n 323), 1093; Rice (n 321) para 1.2.

329 Health Insurance Portability and Accountability Act of 1996,

26 U.S.C., § 9801.

330 The Gramm–Leach–Bliley Act (GLBA), also known as the

Financial Services Modernization Act of 1999, 15 U.S.C.

§ 6801.

331 The Fair Credit Reporting Act, 15 U.S.C. § 1681.

332 The Genetic Information Nondiscrimination Act of 2008, 42

U.S.C. § 2000ff., 42 U.S.C. § 2000ff.

333 The Federal Trade Commission Act (FTCA, 15 U.S.C. §§ 41-

58.) would prohibit unfair or deceptive practices and is

applied to consumer’s ofine and online privacy and data

security policies. But, due to the McCarran Ferguson Act, the

business of insurance is only within the FTCA’s jurisdiction

as far as it is not regulated by state law (15 U.S.C. § 1012).

334 Wimmer (n 323) 1100.

335 45 C.F.R. Part 160 and 164. Cf. Swire and Kennedy-Mayo

(n 324) 167ff; Wimmer (n 323), 1100.

336 45 C.F.R. § 164.502(a). John T. Soma and others, Privacy Law in

a nutshell (2nd edn, West Academic Publishing 2014) 114.

337 45 C.F.R. § 160.103.

and there has to be reasonable grounds to believe

that a person can be identied through the data.338

HIPAA’s Privacy Rule does not apply to de-identied

data, meaning such information may be shared

freely. Nevertheless HIPAA provides protection to a

lesser degree with respect to data that is largely de-

identied but may contain data which could enable

re-identication (limited data set).339 By regulation,

limited data sets can only be shared for research,

public health, and health care operations, but no

other purposes.340 Covered entities are health plans,

health care clearinghouses and some health care

providers.341 The notion of “health plan” refers to

an individual or group plan that provides or pays

the cost of medical care. Health plan includes group

health insurance and health insurance issuers, which

are dened as a licensed and state-level regulated

insurance company, as well as insurance service

providers, and insurance organisations.342 Most

insurance companies are covered by this notion343

and accordingly, health insurance policies are

subject to HIPAA.

109

Covered entities have to comply with certain

administrative, physical, technical and organisational

security standards. For example they must ensure

the condentiality, integrity, and availability of

electronic protected health information.344 A covered

entity may not use or disclose protected health

information, unless permitted or required by the

privacy rule or with written authorisation by the

individual who is the subject of the information.345

Protected health information may be used with

the consent of the individual or for treatment, for

payment, and for health care operations.346 Generally,

underwriting, enrolment, premium rating, and

other activities in connection with health insurance

contract formation or renewal, as well as with health

338 Wimmer (n 323) 1094.

339 Determann (n 327) 148ff; see: 45 C.F.R. § 164.514(b) for the

requirements for de-identication of protected health

information and 45 C.F.R. § 164.514(e) for the requirements

regarding limited data sets.

340 45 C.F.R. § 164.514(E)(3).

341 45 C.F.R. § 160.102(a).

342 Cf. 45 C.F.R. § 160.103. The notion of “health plan” also

includes federal and state government health benet plans,

such as Medicare and Medicaid (Medi-Cal), but excludes

workers’ compensation insurers (Paul T. Smith, ‘Health

Information Privacy’, in: Elizabeth M. Johnson and Jean

Magistrale (eds) Privacy Compliance and Litigation in California

(September 2017 update, Cal CEB) para 7.25).

343 Daniel J. Solove and Paul M. Schwartz, Privacy Law

Fundamentals (2017 edn, IAPP 2017) 99.

344 45 C.F.R. § 164.306 (general security standards); 45 C.F.R.

§ 164.308 (administrative safeguards), 45 C.F.R. § 164.310

(physical safeguards); 45 C.F.R. § 164.312 (technical

safeguards); 45 C.F.R. § 164.314 (organizational safequards);

Determann (n 327) 150.

345 45 C.F.R. § 164.502(a).

346 45 C.F.R § 164.502.

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Florent Thouvenin, Fabienne Suter, Damian George and Rolf H. Weber

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benets, qualify as such health care operations.

347

While use, disclosure and requests of protected

health information shall be limited to the minimum

necessary to accomplish the intended purposes of

said operation, the use and disclosure of genetic

information for underwriting purposes is entirely

prohibited.

348

Finally, under HIPAA an individual has

a right to be adequately notied (notice of privacy

practice) of the possible uses and disclosures of its

protected health information, as well as of its rights

and the covered entity’s legal duties with respect

to protected health information.349 In this notice of

privacy practice, a health plan that uses protected

health information for underwriting must include

a statement that it is prohibited from using or

disclosing genetic information for this purpose.350

b.) Gramm-Leach-Bliley Act (GLBA)

110

The Gramm-Leach-Bliley Act (GLBA) limits the

disclosure of non-public personal information

collected by a nancial institution,351 i.e. an

institution engaging in activities which are nancial

in nature.352 By statute, insuring against loss, harm,

damage, illness, disability, or death is qualied as

nancial activity.

353

Therefore, insurance companies

are subject to the GLBA. With regard to its material

scope of application, the GLBA protects personally

identiable nancial information that is provided by,

results from, or is otherwise obtained in connection

with consumers and customers who obtain nancial

products.354 However, the Act is neither applicable to

information in the public domain, nor to non-public

nancial information. With regard to substantive

provisions, the GLBA imposes privacy and data

security obligations on nancial institutions. The

Financial Privacy Rule foresees that privacy notices

need to be provided to customers who obtain a

nancial product or service. Furthermore, certain

restrictions on a nancial institution’s information

sharing practices, as well as a duty to safeguard

customer information (Safeguard Rule), are

imposed.355 The customer must be informed about the

institution’s privacy policies and practices ab initio

347 45 C.F.R. § 164.501.

348 45 C.F.R § 164.502(a)(5) and 45 C.F.R. § 164.502(b)(1).

349 45 C.F.R. § 164.520(a)(1).

350 45 CFR §§ 164.502(a) in connection with 164.520(b).

351 John T. Soma and others (n 336) 94.

352 15 U.S.C. § 6809(3)(A) and 12 U.S.C. § 1843(k).

353 Cf. 15 U.S.C. § 6809(3); 12 U.S.C. § 1843(k)(4)(B). ‘Financial

Data Privacy’ in: Elizabeth M. Johnson and Jean Magistrale

(eds) Privacy Compliance and Litigation in California (September

2017 update, Cal CEB) para 6.4.

354 15 U.S.C. § 6809(4), 16 C.F.R. § 313.3(o); Wimmer (n 323) 1094.

355 Wimmer (n 323) 1101.

and kept up-to-date at least annually.356 In particular,

information on the disclosure and protection of non-

public information must be given.357 The customers

must also be informed about the possibility that their

non-public personal information may be disclosed to

a non-afliated358 third party and they must be given

the opportunity to opt-out of having their non-public

personal information shared with non-afliated

third parties, except for fraud prevention or the

processing of consumer transactions.359 Additionally,

the nancial institutions have to ensure the security

of the customer‘s information and records. The

latter must be protected against anticipated security

threats or hazards and unauthorised access or use.360

111

Besides the relatively detailed rules on privacy

policies and information sharing, the GLBA does

not restrict the use of personal information and

hence does not limit the possibilities of personalising

insurance contracts based on big data.

c.) Fair Credit Reporting Act (FCRA)

112

The Fair Credit Reporting Act (FCRA)361 shall

protect consumers from inaccurate or unfair

uses of their personal information in credit

reports.362 The Act regulates the disclosure and

use of personal information supplied by Consumer

Reporting Agencies (CRA),

363

and in particular the

use of consumer reports364 for adverse action.365

Insurance companies might have an interest in

consumer reports when individualising insurance

contracts with regard to the willingness to pay.

By statute, denial, cancellation, or other adverse

356 15 U.S.C. § 6803.

357 15 U.S.C. 6803(a)(1)&(2) and 15 U.S.C. 6803(a)(3).

358 “The term “afliate” means any company that controls, is

controlled by, or is under common control with another company.”

(15 U.S.C. § 6809(6)).

359 15 U.S.C. § 6802; Determann (n 327) 94.

360 15 U.S.C. § 6801(b). Johnson and Magistrale (n 353)

para 6.13.

361 Fair Credit Reporting Act, 15 U.S.C. §§ 1681-1681x.

362 15 U.S.C. § 1681.

363 Johnson and Magistrale (n 353) para 6.15; Pauline T. Kim

and Erika Hanson, ‘People Analytics and the Regulation of

Information under the Fair Credit Reporting Act’ (2016) 61

St. Louis U.L.J. 17, 21.

364 A consumer report is dened as “any written, oral, or other

communication of any information by a consumer reporting

agency bearing on a consumer’s credit worthiness, credit

standing, credit capacity, character, general reputation,

personal characteristics, or mode of living”, which is

used for determining the eligibility for credit, insurance,

employment or other authorized purposes (15 U.S.C.

§ 1681a(d)).

365 Swire and Kennedy-Mayo (n 324) 188ff; Johnson and

Magistrale (n 353) para 6.38.

Big Data in the Insurance Industry

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237

or unfavourable change of coverage, as well as

unfavourable changes of the charged amount of any

insurance, are considered such adverse actions.366

Thus the use of consumer reports by insurers would

have to comply with the FCRA.367

113

A CRA may only furnish a consumer report in

accordance with the instructions of the consumer,

or when it has reason to believe that the requesting

person has a permissible purpose to obtain a

consumer report.368 By statute, the underwriting of

insurance is such a permissible purpose.369

114

Where an adverse action is taken based on

information contained in a consumer report, the

user of the report shall inform the consumer about

this fact.370 Whenever consumer reports are used

for big data analytics and such analysis leads to an

insurer taking an adverse action, the insurer has to

inform the consumer. However, the FCRA does not

apply to companies when they use data derived from

their customer-relationship in their decision-making

processes.371 As long as all the data in the insurer’s

database is derived directly from the consumer and

not from a consumer reporting agency, the FCRA

would not prevent performing big data analytics.

d.) Genetic Information

Nondiscrimination Act (GINA)

115

The Genetic Information Nondiscrimination Act

(GINA) prohibits employers and health insurance

companies from discriminating against individuals

on the basis of genetic information.372 Therefore

companies should refrain from collecting genetic

information unless it is absolutely necessary and

permitted by law.

373

Health insurers, in particular,

are not allowed to request or purchase genetic

information for underwriting purposes or prior to an

individual’s enrolment under a plan or coverage in

connection with this enrolment.

374

They may also not

request an individual’s family member to undergo

366 15 U.S.C. § 1681a(k)(1)(B)(i).

367 Cf. Determann (n 327) 101.

368 15 U.S.C. § 1681b; see: Determann (n 327) 103.

369 15 U.S.C. § 1681b(a)(3)(C).

370 15 U.S.C. § 1681m(a)(1)).

371 15 U.S.C. § 1681a(d)(2)(A)(i).

372 See above, D.III.1.d). GINA expressly made genetic

information protected health information under HIPAA,

thus GINA violations are treated and enforced as an

unauthorised use or disclosure under HIPAA (cf. John T.

Soma and others (n 336) 133.)

373 Determann (n 327) 145.

374 29 U.S.C. § 1182(c)(4)(C); 29 U.S.C. § 1182(d); Determann

(n 327) 146.

genetic testing.375 Furthermore, premiums may not

be adjusted on the basis of genetic information.376

2. Californian Data Protection Law

116 As on the federal level, the state of California does

(not yet)

377

have a comprehensive data protection

or (informational) privacy law. So far, California

has only enacted harms-based privacy legislation,

meaning that merely statutory protection against

specic threats as well as rules relevant to certain

industries and groups of data subjects exist.378

a.) Californian Constitution

117

The Californian constitution grants all people certain

inalienable rights, one of them being a right to

privacy.

379

This right applies to the local government,

to private entities and to individuals.380 But neither

the wording, nor its interpretation by courts, impose

concrete compliance obligations on companies.

381

A cause of action based on a violation of the right

to privacy is possible if three elements are present:

a legally protected privacy interest; a reasonable

expectation of privacy; and a serious invasion of

the privacy interest.

382

Thus, companies should keep

the constitutional right to privacy in mind, even if

intrusive invasions of personal privacy are in line

with specic statutes and common law principles.

383

b.) Insurance Information and

Privacy Protection Act (IIPPA)

118

The personal information of insurance applicants or

policyholders is strictly regulated in California, in

particular by the Insurance Information and Privacy

375 29 U.S.C. § 1182(c).

376 29 U.S.C. § 1182(b)(3)(A).

377 See below, E.III.2.f).

378 Determann (n 327) 37. An overview of some of California’s

major privacy laws can be found here: State of California

Department of Justice, ‘Privacy laws’

privacy/privacy-laws> accessed 12 June 2019.

379 1972 Cal. Const. Art. I, § 1.

380 Determann (n 327) 44; Roy G. Weatherup, ‘Common Law and

Constitutional Privacy Protection’ in: Elizabeth M. Johnson

and Jean Magistrale (eds) Privacy Compliance and Litigation in

California (September 2017 update, Cal CEB) para 2.6; Hill v.

National Collegiate Athletic Assn. 7 Cal.4th 1 (1994), 18-20.

381 Determann (n 327) 45.

382 Hill v. National Collegiate Athletic Assn. 7 Cal.4th 1 (1994), 35-3.

Witkin (n 224) para 643(c); Determann (n 327) 46.

383 Determann (n 327) 45.

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Florent Thouvenin, Fabienne Suter, Damian George and Rolf H. Weber

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Protection Act (IIPPA).384 The IIPPA’s purpose is

to establish standards for the collection, use, and

disclosure of information gathered in connection

with the insurance business, and to maintain a

balance between the insurers’ need for information

and the public’s need for fairness in insurance

information practices.385 The regulations apply to

health and property-casualty insurance386

119

Among others, the act contains provisions

regarding the notice of information practices to

all applicants and policyholders in connection

with insurance transactions,387 the disclosure of

personal or privileged information,

388

the right to

access recorded personal information,389 and the

right to have recorded information corrected or a

portion of it deleted.390 Notably, the IIPPA restricts

on what basis an adverse decision may rest.391 By

statute, declination and termination of insurance

coverage as well as charging higher rates for

property or casual insurance or offering higher

than standard rates in health insurance qualify

as adverse actions.392 Information on preceding

adverse underwriting decisions, the information

that an individual previously obtained insurance

coverage through a residual market mechanism,

and information possibly stemming from insurance-

support organisations shall not be used as a basis

for an adverse action.393 Thus the information an

insurance company can base an adverse underwriting

decision on is limited. Furthermore, IIPPA also vests

the insured with a right to receive reasons for an

adverse underwriting decision.394

c.) California Confidentiality of

Medical Information Act (CMIA)

120

The California Confidentiality of Medical

Information Act (CMIA)395 protects the privacy of

California residents’ medical information.396 Any

individually identiable information regarding

a patient’s medical history, mental or physical

condition, or treatment in possession of or derived

384 INS §§ 791-791.29.

385 INS § 791.

386 INS § 791.01.

387 INS § 791.04.

388 INS §§ 791.06, 791.13.

389 INS § 791.08.

390 INS § 791.09.

391 INS § 791.12; Witkin (n 32) para 541.

392 INS § 791.02(a)(1)(A), (B), (D) and (E).

393 INS § 791.12.

394 INS § 791.10.

395 CIV §§ 56-56.37.

396 Cf. Determann (n 327) 156.

from a provider of health care, health care service

plan, pharmaceutical company, or contractor, is

protected.397 The CMIA applies to providers of health

care and their contractors and to health service

plans.

398

Health insurers must comply with the Act.

399

In 2014 the CMIA was amended to cover providers

of software and hardware that allow customers

to manage their health,

400

making it applicable to

wearables.

121

The use or disclosure of health information “for

any purpose not necessary to provide health care

services to the pat ient,” is prohibited unless the

individual has given his consent, or it is otherwise

permitted by the CMIA. For example, the disclosure

to an insurer for the payment of services is permitted

by statute.401 If an insurance company receives

medical information from a person or company that

is subject to the CMIA, it may not further disclose

this information except in accordance with a new

authorisation that meets the requirements of the

CMIA.402 However, the CMIA does not prevent the

disclosure of medical information by a provider of

health care to an insurance institution subject to the

IIPPA, provided the institution has complied with

all requirements for obtaining the information set

forth by IIPPA.403

d.) California Financial Information

Privacy Act (CFIPA)

122 The California Financial Information Privacy Act404

(CFIPA) makes use of the GLBA’s reservation for

states wishing to expand and tighten its rules on

nancial privacy protection.405 The CFIPA requires

nancial institutions406 to obtain written consent

from a customer before disclosing said customer’s

non-public personal nancial information.407 In

some cases, CFIPA mandates that this consent

must be provided by an afrmative action (opt-in),

397 CIV § 56.05(j).

398 Determann (n 327) 156; see: CIV §§ 56.05(m) in connection

with 56.06. Cf. Fn. 69.

399 Determann (n 327) 157.

400 CIV §§ 56.06; Determann (n 327) 157.

401 CIV §§ 56.10; cf. Paul T. Smith (n 342) para 7.4.

402 CIV § 56.13; cf. Determann (n 327) 158.

403 CIV § 56.10(c)(11).

404 California Financial Code (FIN) §§ 4050 – 4060.

405 FIN §§ 4051.5(a); Swire and Kennedy-Mayo (n 324) 204;

Johnson and Magistrale (n 353) para 6.47.

406 Financial institution is dened as it is in the GLBA, 15

U.S.C. § 6809(3)(A) as well as FIN § 4052(c) refer to 12 U.S.C.

§ 1843(k).

407 Non-public personal nancial information is dened the

same way as under the GLBA, compare: 15 U.S.C. § 6809(4)

and FIN § 4052(a).

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whereas, in general, opt-out consent would be

sufcient pursuant to the GLBA.408 The written

consent (opt-in) of the consumers must be obtained,

if nancial information shall be disclosed to third

parties that are neither afliates nor nancial

institutions for the purpose of offering non-nancial

products and services.409 However, when disclosing

non-public personal information to an afliate, a

health insurer must only provide the insured with

an opt-out option and remind them annually in

writing that the information is being disclosed.

410

An opt-out notice must also be sent if a nancial

institution wants to share nancial information with

another (non-afliated) nancial institution for the

purpose of offering nancial products or services.411

However, under the CFIPA nancial institutions are

not required to obtain a consumer’s consent for

sharing non-medical, non-public information with

their fully owned subsidiaries, as long as they are

engaged in the same line of business and regulated

by the same functional regulator.412

123

Insurers would be interested in non-public nancial

information for individualising insurance contracts

in accordance with the willingness to pay. In such

a scenario the CFIPA’s requirements regarding the

disclosure of non-public personal information need

to be observed. Opt-out and opt-in requirements do

limit the information on which the individualisation

of insurance contracts may be based with regard to

individuals that object to their information being

shared. But as far as the individualisation is based

on non-public nancial information already in

possession of an insurer or its subsidiaries, the CFIPA

does not limit the leeway for individualisation.

e.) Consumer Credit Reporting Agencies

Act (CCRAA) and Investigative Consumer

Reporting Agencies Act (ICRAA)

124

The Consumer Credit Reporting Agencies Act

(CCRAA)413 and the Investigative Consumer Reporting

Agencies Act (ICRAA)

414

govern how consumer credit

reporting agencies furnish information and reports

for the needs of commerce. They require that such

agencies need to adopt reasonable procedures and

408 Johnson and Magistrale (n 353) para 6.47.

409 FIN § 4053; Determann (n 327) 97.

410 FIN § 4053(b); Johnson and Magistrale (n 353) para 6.48.

411 Determann (n 327) 99. This nancial product must be offered

by at least one of the institutions, the receiving institution

must be clearly identied and maintain the information

condentiality (cf. Johnson and Magistrale (n 346)

para 6.48).

412 FIN § 4053(c); Determann (n 327) 98ff.

413 CIV §§ 1785.1-1785.36.

414 CIV §§ 1786 - 1786.60.

contain provisions concerning the condentiality,

accuracy, relevancy, and proper utilisation of

such information.415 While the CCRAA regulates

consumer credit reports416 and thus concerns a

person’s creditworthiness,417 the FCRA also applies

to reports regarding a consumer’s character, i.e.,

general reputation, personal characteristics, or

mode of living.

418

To a large extent both Acts, the

CCRAA and the ICRAA, duplicate federal law, while

in addition many provisions may be pre-empted by

the FCRA.419 Thus the relationship between CCRAA

and FCRA is very complex.

125

A consumer credit report under the CCRAA is

any written, oral, or other communication of any

information by a consumer credit reporting agency

bearing on a consumer’s credit worthiness, credit

standing, or credit capacity, which is among others,

used for insurance underwriting.420 Overall the CCRAA

denes terms similarly to the FCRA and contains

similar obligations for reports regarding someone’s

creditworthiness.421 As is the case under the FCRA,

whenever a CRA has reason to believe that a person

intends to use a consumer report in connection with

the underwriting of insurance, it may furnish said

report to that person.

422

If information in a consumer

credit report leads to adverse action with respect to

any consumer, he or she also has to be provided with

an adverse action notice.423

126 Investigative consumer reports as regulated in the

ICRAA are reports in which information is obtained

on a consumer’s character, general reputation,

personal characteristics, or mode of living.424

This denition is broader than the denition

of investigative consumer reports contained in

the FCRA, since it includes information obtained

“through any means”425, while under the FCRA, the

information is obtained through personal interviews

only.426

127

The ICRAA’s rules are stricter than the CCRAA

rules pertaining to consumer credit reports.427

An investigative consumer report may only be

415 CIV § 1785.1(d) and CIV § 1786 (f).

416 CIV § 1785.3(c).

417 Johnson and Magistrale (n 353) para 6.50.

418 CIV § 1786.2(c).

419 Johnson and Magistrale (n 353) para 6.50.

420 CIV § 1785.3(c) in connection with CIV § 1785.11(a)(3)(C).

421 15 U.S.C. § 1681 a(e); Johnson and Magistrale (n 353)

para 6.52.

422 CIV § 1785.11(a)(3)(C).

423 CIV § 1785.20.

424 CIV § 1786.2(c).

425 CIV § 1786.2(c).

426 Johnson and Magistrale (n 353) para 6.54.

427 Johnson and Magistrale (n 353) para 6.54.

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Florent Thouvenin, Fabienne Suter, Damian George and Rolf H. Weber

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prepared when a need for a specic purpose can

be demonstrated, e.g. for determining eligibility

or rates for insurance.428 In general, the consumer

needs to be informed a priori when an investigative

consumer report is requested by the user.429 Also a

consumer has to give his consent if an investigative

report that contains medical information shall be

sent to an insurer.430 If an insurance for personal,

family, or household purposes increases the charge

for insurance, or denies the consumer insurance

based on a consumer’s investigative consumer

report, the insurance must inform the consumer and

supply the name and address of the investigative

consumer reporting agency that made the report.431

f.) Outlook: California Consumer

Privacy Act (CCPA)

128

In 2018 a Californian ballot initiative for a

comprehensive consumer privacy act enforced

through litigation had received sufcient signatures

to cast a vote. Since laws enacted through ballot

initiatives are almost impossible to revise, the

legislature was under pressure to present an

indirect counter-proposal, which would make the

initiators withdraw the ballot initiative. It was not

until the last day of possible withdrawal that the

Californian legislative hastily enacted the California

Consumer Privacy Act (CCPA).432 The CCPA will enter

into force 1 January 2020 and will be supplemented

by regulations issued by the Californian Attorney

General on or before 1 July 2020.433 This guidance will

likely determine the scope of how the law is to be

enforced in practice, since it is expected to elaborate

on key denitions such as “personal information”

and “unique identiers”, as well as procedures

companies must have in place to effectuate the

CCPA’s consumer rights.

129 The CCPA protects “consumers”, which are dened

as California residents and the act thus applies to

personal information relating to any California

resident.

434

Companies that do business in California

428 CIV § 1786.16(d) in connection with CIV § 1786.12(d)(2).

429 Johnson and Magistrale (n 353) para 6.54; CIV § 1786.16.

430 CIV § 1786.12(f).

431 CIV § 1786.40; Johnson and Magistrale (n 353) para 6.54.

432 CIV §§ 1798.100 -1798.199. Cf. Ian C. Ballon, ‘Chapter 26 Data

Privacy: 13A: Litigation Risks and Compliance Obligations

under the California Consumer Privacy Act’, in: Ian C. Ballon

(ed) E-Commerce and Internet Law: Legal Treatise with Forms (2nd

edn, 2019 Update, Thomson Reuters/West Publishing) vol 3,

26-401, Fn. 3; cf. Nicholas Confessore, ‘The Unlikely Activist

Who Took Silicon Valley – and Won’ NY Times Magazine, (New

York 14 August 2018)

magazine/facebook-google-privacy-data.html>.

433 CIV 1798.185(a); Ballon (n 432) 26-402.

434 Lothar Determann, ‘New California Law Against Data

and either: (i) have an annual gross revenue of

more than $25 million; (ii) receive or share personal

information of more than 50,000 consumers,

households, or devices; or (iii) derive more than

50 percent of their annual revenues from selling

consumers’ personal information have to comply

with de CCPA.435

130

The CCPA regulates the selling of personal

information and provides consumers with various

rights. Selling is dened as “selling, renting,

releasing, disclosing, disseminating, making

available, transferring, or otherwise communicating

orally, in writing, or by electronic or other means,

a consumer’s personal information by the business

to another business or a third party for monetary

or other valuable consideration”.436 However,

businesses can claim that they are covered by one

of several complexly specied exemptions from the

denition of “selling”.437

131

Consumers will have a right to be informed, to receive

a privacy notice, and they will have access rights.438

The information to be provided includes inter alia the

categories of personal information collected about

the consumer, the categories of sources and the

categories of recipients.439 Unlike the ballot initiative,

consumers do not have a right to receive the name

and identity of the data recipients.440 Furthermore,

consumers are vested with opt-out options, whereas

minors have to opt-in to the collection of personal

information.

441

The CCPA prescribes certain means of

communication; for example, it requires businesses

to communicate the opt-out option with consumers

via a clear and conspicuous link on the business’s

Internet homepage, titled “Do Not Sell My Personal

Information”.442 Furthermore, consumers have a

right to get their data deleted.443 Also companies

must not discriminate against California residents

on the basis of them exercising their rights under

the CCPA by denying goods or services, charging

different prices, or providing a different service

quality. However, differing prices, rates or quality

may still be applied, if these differences are

Sharing’ (2018) 19 CRi, 117, 118; CIV § 1798.140(g).

435 CIV 1798.140(c). Christin McMeley and others, ‘California

Consumer Privacy Act: A Rapid Q&A’ (2018) 23(7) Cyberspace

Lawyer NL, 3.

436 CIV §§ 1798.140(t)(1).

437 Cf. Determann (n 434) 119; CIV §§ 1798.140(t)(2)A-D.

438 CIV §§ 1798.100, 1798.110, 1798.115.

439 CIV § 1798.110(a)(1), (2) and (3).

440 Thomas Hoeren and Stefan Pinelli, ‘Das neue kalifornische

Datenschutzrecht am Maßstab der DS-GVO: Auswirkungen

des CCPA auf global agierende europäische Unternehmen‘

(2018) MMR, 711, 712.

441 CIV § 1798.120. Ballon (n 432) 26-406.

442 CIV 1798.135(a)(1).

443 CIV § 1798.105. Ballon (n 432) 26-406.

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reasonably related to the value of the consumer’s

data.444

132 California Civil Code (CIV) § 1798.175 provides that

in the event of a conict, the law that provides

the greatest privacy protection takes precedence.

However, the CCPA appears to prevent some of

these conicts by clarifying that it neither applies

to medical information governed by the Medical

Information Act nor to protected health information

that is collected by a covered entity or business

associate governed by the privacy, security, and

breach notication rules issued pursuant to HIPAA

and the HITECH Act.445 Further reservations concern

the FCRA, the GLBA and the CFIPA.446

IV. Findings

133

All data processing operations in Switzerland and

in the EU have to comply with applicable data

protection law. Swiss data protection law makes

the analysis of special (i.e. sensitive) categories of

data subject to additional safeguards and the GDPR

prohibits the processing of similar categories of

data as a matter of principle. However, while both

jurisdictions recognise a fundamental right to data

protection, they also recognise that such right is

by no means absolute. Hence, data processing in

general, as well as proling with the use of special

categories of data in particular, is permitted with the

data subject’s consent. The main restriction here is

that this consent has to be given freely and may be

withdrawn without further ado. The processing of

personal data for the personalisation of insurance

contracts could also be deemed legitimate as far as

it is necessary for the performance of such contracts

or for pursuing a legitimate interest of the insurance

company. In addition, insurance companies must

ensure that their (potential) policyholders are aware

that their personal data is processed to calculate

individual offers based on their individual risk

prole and/or their willingness to pay.

134 The restrictions these requirements impose on the

individualisation of insurance contracts mainly

depend on how the notions of “transparency”,

“freely given consent” and “legitimate interest”

are understood. While there are convincing reasons

to acknowledge that the lawfulness of processing

personal data for offering individual insurance

contracts can be based on the legitimate interests

444 CIV § 1798.125(a)(1); Determann (n 434) 120.

445 CIV § 1798.145(c)(1)(1). However, Determann states that the

CCPA does not address any overlaps or inconsistencies with

any of California’s existing privacy laws (Determann (n 434)

117).

446 Ballon (n 432) 26-422.

of insurance companies or should be considered

compatible with the initial purpose of the insurance

contract in most cases, it is hard to predict whether

data protection authorities and courts would actually

accept this reasoning. As a consequence, insurance

companies are well advised to always ask for the

specic consent of their (potential) policyholders

prior to processing their data for providing an

individual offer.

135

In California, a patchwork of privacy laws needs

to be observed when individualising insurance

contracts. Some federal laws set signicant limits

to individualisation based on certain categories of

data, such as HIPAA’s prohibition to disclose and

GINA’s prohibition to request or purchase genetic

information for underwriting purposes. The majority

of the rules, however, require transparency and

security about data processing operations, without

setting specic boundaries to individualisation.

On the state level, most notably the IIPPA vests

consumers not only with a right to have recorded

information corrected or a portion of it deleted, but

actually limits the informational basis for adverse

action taken against the insured. The CFIPA also

restricts information sharing between insurance

companies and non-afliates, but does not limit

personalisation based on information in possession

of the insurance or fully owned subsidiaries. While

the novel CCPA will grant consumers the possibility

to opt-out from having their information sold, the

personalisation of insurance contracts appears

to still be possible, since it is arguably reasonably

related to the value of the consumer’s data.

136

In sum, the all-encompassing Swiss and European

approach to data protection law operates with

very abstract concepts which leaves insurance

companies with a great margin of interpretation and

a remarkable amount of legal uncertainty. However,

using big data analytics for the individualisation

of insurance contracts is not prohibited by data

protection law and should be compliant as long

as the correct safeguards are in place, notably by

requesting the data subject’s consent. In California,

data may be used for big data analytics in principle.

But since rate increases qualify as adverse actions

by statute under the IIPPA and the CCRAA, these

regulations limit an insurer’s informational basis.

Thus, Californian data privacy laws set forth

some signicant and specic boundaries to the

individualisation of insurance contracts.

2019

Florent Thouvenin, Fabienne Suter, Damian George and Rolf H. Weber

242

F. Conclusion

137 The aim of this paper is to outline possible solutions

for dealing with the individualisation of insurance

contracts, namely with regard to individually

calculated insurance premiums. It does so by

analysing the legal situation on both sides of the

Atlantic, using the jurisdictions of California and

Switzerland as examples for two quite different

approaches. The individualisation of insurance

contracts has become technically possible and

economically feasible in most insurance sectors

thanks to novel technologies such as big data

analytics. In order to provide a broad picture,

this paper does not focus on one specic type

of insurance, but includes three different types;

namely, mandatory health insurance, renters

insurance and automobile insurance. In addition,

we analyse individualisation based on the two

most important criteria in the insurance sector:

individualisation based on the risk prole of the

insured and individualisation with regard to his or

her willingness to pay. Obviously, these two criteria

can be combined when calculating the individual

premium of a customer, but it seems that (until now)

insurance companies have been rather reluctant

to individualise their contracts according to their

customers’ willingness to pay.

138

Whether insurance companies should be allowed

to individualise their contracts and premiums or

whether the principle of solidarity should prevail,

is being debated in various disciplines. While ethical

considerations may speak in favour of solidarity at

least for some types of insurance,447 an economic

analysis would reach the conclusion that the

individualisation of insurance contracts is benecial

for most individuals and the society at large. Given

these different perspectives and the importance of

the respective arguments, there is certainly no simple

answer on how to deal with the individualisation of

insurance contracts. Accordingly, it may come as no

surprise that the two jurisdictions we have chosen

to analyse – Switzerland and California– do not only

rely on very different approaches to deal with the

phenomenon, but they also come to quite different

conclusions. Perhaps surprisingly, the leeway for

individualisation is much smaller in California than

in Switzerland for renters and automobile insurance,

while the results are very similar for mandatory

health insurance.

139 In Switzerland, the insurance sector is regulated as

well, but less densely than in California and there

are also important variations between different

types of insurance. While there is strictly no leeway

447 Michele Loi and Markus Christen, ‘Choosing how to

discriminate: fair algorithms and risk prediction with big

data in the insurance sector’, unpublished manuscript.

for individualising mandatory health insurance

contracts in Switzerland, an insurer is free to do

so with regard to supplementary health insurance

policies. As opposed to health insurance, renters and

automobile insurance are generally governed by the

principle of freedom of contract, thereby allowing

almost unlimited choices to insurance companies.

Although Switzerland prohibits discrimination on a

constitutional level and also through the Civil Code

as well as other regulations, anti-discrimination

law does not restrict the ability to individualise

insurance contracts as long as factoring in a

protected characteristic such as age, gender and the

like is based on a sound actuarial risk-assessment

is based on a sound actuarial risk-assessment. The

most important restrictions for the individualisation

of insurance contracts stem from data protection

law, from the Swiss Data Protection Act (DPA)

as well as from the EU’s General Data Protection

Regulation (GDPR). These bodies of law contain

important barriers for analysing personal data

about the potential customers and the population at

large. As a result, the individualisation of insurance

contracts is only clearly allowed if the customer’s

specic consent is obtained, while justifying the

individualisation with legitimate interests comes

with considerable legal uncertainties.

140

In the U.S. and California, the insurance sector

is densely regulated. Individualisation based

on the willingness to pay is straight-forwardly

excluded in California by way of a notice enacted

by the Insurance Commissioner. The leeway to

individualise offers based on the risk assessment

of individual customers is very limited in all three

insurance sectors considered. This is especially true

for the comprehensively regulated health insurance

market. While there is a little more leeway for

the individualisation of automobile and renters

insurance, the scope is still very limited as the rates

for these types of insurance are subject to prior

approval by the California Insurance Commissioner

and the maximum and minimum permitted premium

is determined by law. As a consequence, insurance

law limits the ability of insurance companies

to individualise their insurance contracts to a

minimum. In addition, U.S. and California law contain

strict rules with regard to anti-discrimination, which

further restrict the remaining leeway if protected

characteristics such as age, gender, race, or place of

residence are factored into the calculation individual

premiums. As a consequence, the leeway for the

individualisation of insurance contracts in California

is so small that it is doubtful whether running big

data analytics to individualise insurance premiums

is commercially feasible. As opposed to Switzerland

and Europe, however, data privacy laws establish

no relevant restrictions for the individualisation of

insurance contracts in the U.S. and California.

Big Data in the Insurance Industry

2019

243

141 Given the restrictions on both sides of the Atlantic

and the potential benets of the individualisation

of insurance contracts, both on an individual and

a societal level, the result of the analysis is hardly

satisfying, especially with regard to Switzerland (and

Europe). Instead of directly or indirectly hindering

the individualisation of insurance contracts through

data protection law, Swiss (and European) lawmakers

should initiate a dialogue involving all stakeholders

to determine which sectors of insurance should be

dominated by the principle of solidarity and in which

sectors the individualisation of insurance contracts

should be allowed. It is to be expected that there will

be no uniform answer for all types of insurances.

Rather, there may be sectors in which solidarity

should prevail to ensure that no one is excluded from

insurance coverage; the most important case in point

being mandatory health insurance. By contrast,

automobile insurance might be a sector in which

the individualisation of insurance contracts should

be allowed to ensure the benets of the incentives

provided by individual premiums that are calculated

based on individual risk proles of very prudent or

more hazardous drivers.

142

While this approach should be able to provide

nuanced and convincing results, it is obvious that

such a process will need time. For the time being,

a meaningful step forward would be to allow for

factoring in the public interest when assessing the

lawfulness of processing of personal data based on

the legitimate interest of the controller. This would

allow insurance companies to at least use readily

available data for calculating and offering individual

insurance premiums. The consent of their customers

would then only be needed if insurance companies

wanted to collect additional data, e.g. on driving

behaviour or the physical activity of their customers,

by using driving or tness trackers, or other means

to collect additional data.

Acknowledgements

We would like to thank Joseph Lavitt, lecturer at Berkeley

Law, University of Berkeley, California, for his very

generous help with regard to all aspects of U.S. law; Prof.

Paul Schwartz, Berkeley Law, University of Berkeley,

California, for his valuable input; David O’Brien, Assistant

Director of Research at the Berkman Klein Center for

Internet and Society at Harvard University for his

valuable comments on U.S. and California privacy law;

and the staff at the California Department of Insurance

for valuable input on various issues of California

insurance law.

This research has been supported by the Swiss National

Science Foundation as part of the project “Between

Solidarity and Personalization – Dealing with Ethical

and Legal Big Data Challenges in the Insurance Industry”

(application no. 407540_167218/1). With the exception

of some last minute developments, literature on U.S. and

Californian law is updated until August 2018. Literature

and case law on Swiss and European law has been

considered until May 2019.

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