• Barney Insurance-Tina

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Amid data-gathering, ethical concerns grow

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Posted: Wednesday, April 10, 2013 12:49 pm

Let's say you pay twice as much to insure your car because you live in a certain ZIP code, not because of your driving record or the type of car you drive.

Or it costs double to insure your house because you usually pay cash rather than use credit.

Or your credit card company reduces your credit limit because other people who default on their bills swipe their cards at the same places as you do.

Those real-life examples of the use of computer-generated information sparked a lively discussion Tuesday about the ethics of innovation, especially how businesses use data in ways that are legal but may be viewed as unethical by the public.

Such issues are becoming more important because businesses and the government are gathering an increasing amount of data without oversight to protect individual privacy or the rights of consumers, several people said during a program held by the Omaha Business Ethics Alliance at Gallup.

"I think data has become the new currency," said Dusty Reynolds, chairman of the Greater Omaha Chamber of Commerce's entrepreneurship and innovation council. "Our economy is set to become a data-driven economy."

John Barrientos, a financial planner with Continuum Financial, said it's common for insurance companies to charge double for the same insurance on the same types of cars or houses in north Omaha or South Omaha as in west Omaha. Because immigrants tend to pay cash and don't build up credit histories, he said, they are more likely to face higher insurance rates, too, because insurance company data show that, as a group, they have higher claims histories.

Such practices are legal but similar to "red-lining" residential housing according to racial living patterns, which has been illegal for decades, some members of the audience of about 120 people said.

Yet insurance companies and data management businesses have found that the use of data on ZIP codes and credit history can control claims and protect against losses, Barrientos said.

Today's lack of controls over the use of data creates a "Wild West" atmosphere for businesses to gather and use data, some at the meeting said. "Sooner or later," one man said, "the sheriff has to come in" and impose rules and regulations to protect the public from the misuse of data.

One participant said part of the problem is that the collected information is not detailed enough and ends up, for example, lumping people who are good credit risks in the same category as those who are bad credit risks.

"It's not as focused as it needs to be, but it's all we have," he said.

If the data were more accurate and detailed, businesses could weed out true credit risks without penalizing people who happen to share some common characteristics.

Businesses also face the problem of storing and managing the data they collect. They often turn their information over to third-party vendors who may or may not have the same commitment to responsibly using data. Sending data to "the cloud" means giving up control of that information, one man said.

John Nelson, chairman of SilverStone Group, said cyber-liability coverage is one of the fastest-growing insurance products because of the risks involved. He said one college lost data on 36,000 of its graduates to hackers, including Social Security numbers and other vital information that could open the college to lawsuits.

Gail DeBoer, president of SAC Federal Credit Union, said the possibility of someone hacking into the credit union's financial database "keeps me up at night" even with good security systems in place. It's also a problem when a credit union member uses a card at a merchant and the merchant's data is misused.

At the same time, she said, using the latest technology can improve the credit union's efficiency, and one of her duties to members of the credit union is to operate as efficiently as possible.

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