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The increasingly sophisticated use of data could create an “underclass” of people who cannot afford insurance, a report from the Chartered Institute of Insurance (CII) has warned.

And as a result consumers could miss out on some types of cover altogether if insurers deemed them too risky.

Insurers and a number of start-ups are investing millions in new systems to help them understand customer and to improve the way they use it to help them calculate risks more accurately.

However the CII report warns that using data in this way threatens the concept of pooling risk on which the industry was founded, the FT reports.

CII director of policy and public affairs David Thomson said: “Data is a double-edged sword. The insurance sector needs to be careful about moving away from pooled risk into individual pricing. They need to think about the broader public interest.”

“There is a huge emphasis on insurers to guard their own reputations and business models. As in banking, algorithms can be good and bad.”

The report added: “Some people may be identified as such high risk to insurers that they are priced out of insurance altogether.

“Big data could, in effect, create groups of ‘uninsurable’ people. While in some cases this may be to do with modifiable behaviour, like driving style, it could easily be due to factors that people can’t control, such as where they live, age, genetic conditions or health problems.”

At the Insurance Times Broker 50 event last April guests discussed the rise of Big Data and the implications for the insurance industry.

Concerns were raised that some policyholders, especially those from deprived socio-economic groups, risked being unable to access insurance at an affordable price as insurers became more sophisticated about how they used and accessed data.

The FCA announced has also conducted a market study to investigate how insurance companies use Big Data. The results are expected to be published soon.

It wants to identify potential risks and benefits for consumers, including whether the use of Big Data creates barriers to accessing products or services.