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Does new technology put an end to policyholder risk declaration? The impact of digitalisation on insurance relationships

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The availability of data from telematics and wearables enables insurers to design and price products based on more information about the consumer. As new technologies develop rapidly, it is worth looking more closely at the way digitalisation changes the nature of insurance relationships. The purpose of this paper is to analyse how technology influences risk assessment and the insurance contract. Particular interest will be given to the role of traditional risk declaration. The author claims it is possible to obtain a full risk profile based merely on the information provided by ‘smart’ devices. This raises the specific question of whether the traditional policyholder’s risk declaration is still needed. The paper also discusses whether the use of telematics will alter the nature of insurance relationships in such a way that the doctrine of utmost good faith will no longer apply, or will apply only to a limited extent.

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  1. Article 2:101 of the Principles of European Insurance Contract Law (PEICL) stipulates policyholders’ duty to disclose information necessary for risk assessment, i.e. circumstances of which he is or ought to be aware and which are the subject of clear and precise questions put to him by the insurer (obligation to declare the risk). Article 4:202 of PEICL introduces the duty to give notice of an aggravation of risk (obligation to update information on the risk).

  2. For a detailed analysis of the reform of the doctrine of utmost good faith, see Farrugia (2018).

  3. For example, the theory of the obsolescence of the doctrine of utmost good faith is supported by Łopuski (2006), who claims that it is no longer applicable to land insurance.

  4. Other sources of information on risk used within the process of risk evaluation include information provided by insurance intermediaries, insurance surveys, statistical data and information provided by external service providers. See Gołębiowski (2010).

  5. The Act of 23 April 1964—Civil Code (the unified text, Journal of Laws of 2018, item 1025 as amended).

  6. For instance, the authors of PEICL highlight the superiority of the questionnaire system over spontaneous risk declaration mainly for the reason that it is usually more difficult for applicants than for insurers to appreciate what information is material to the risk (Basedow et al. 2009). On the other hand, the drawbacks of the questionnaire system are presented by Szczepańska (2011).

  7. Scientific research demonstrates that over time, incremental changes in life can even lead to the creation of memories of events that never took place. See Levitin (2015).

  8. For a comprehensive analysis of the potential perils and benefits created by new technology in insurance, see The Geneva Association (2018).

  9. It is recognised that the use of telematics in vehicles may have further consequences affecting the vehicle user’s behaviour. With awareness that the more prudent their driving habits the lower the insurance premium, the policyholder will tend to drive more safely. See The Geneva Association (2018).

  10. E.g. United Health, Cigna and Humana. See Dart (2015).

  11. See the Generali Press Release of 23.06.2016. Retrieved from

  12. This is also a prime example of the use of gamification—the concept of applying game-like elements and techniques to insurance business problems.

  13. Definition provided by the International Telecommunication Union in Recommendation ITU–T Y.2060.

  14. The International Communication Union defines things as objects of the physical world (physical things) or of the information world (virtual world) that are capable of being identified and integrated into communication networks. Most importantly, things have associated information. Physical things exist in the physical world and are capable of being sensed, actuated and connected, e.g. industrial robots, goods and electrical equipment. In turn, virtual things exist in the information world and are capable of being stored, processed and accessed, e.g. multimedia content and application software. For more detailed information on the IoT see:

  15. See, for instance, Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 335, 17.12.2009, pp. 1–155), Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (recast) (OJ L 26, 2.2.2016, pp. 19–59), Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services (OJ L 186, 11.7.2019, pp. 57–79).

  16. The thesis is proved in the impact assessment reports accompanying main EU insurance regulations, e.g. the European Commission, Commission Staff Working Document Impact Assessment. Accompanying the document Proposal for a Directive of the European Parliament and of the Council on Insurance Mediation, Strasburg 3.7.2012, SWD (2012) 191 final, p. 46. See also Malinowska (2019).

  17. The effectiveness of transparency measures are often challenged. The ongoing discussion on the utility of the abundance of information duties and customers’ ability to understand information proves that the introduction of transparency measures does not reduce information asymmetry effectively. See, for instance, Fung et al. (2008), Schwarcz (2011) and Ben-Shahar et al. (2010).

  18. Studies prove that ‘because information users have limited time and energy, they are likely to act on new information only if it has value to them, is compatible with the way they make choices, and is easily comprehensible’. See Fung et al. (2008).

  19. Full disclosure on how an AI system is developed and operated should also be questioned as it may pose risks to the security of the AI system itself by making it more vulnerable to attack. See Insurance Europe (2020).

  20. PwC found that almost half (49%) the people in the U.S. own a wearable device. Of those, 45% own a fitness band. Interestingly, PwC’s survey shows that if a wearable device was provided for free, then about two thirds of respondents would wear a smart watch or fitness band for insurance/risk assessment purposes (Dart 2015).

  21. For example, higher auto insurance premiums are charged in risky zip codes in predominantly minority neighborhoods compared to similarly risky non-minority zip codes. See Larson et al. (2017).

  22. For example, Art. 13 of the GDPR.


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Ostrowska, M. Does new technology put an end to policyholder risk declaration? The impact of digitalisation on insurance relationships. Geneva Pap Risk Insur Issues Pract 46, 573–592 (2021).

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