That is the critical word, finding the right balance. Insurers will respect the privacy of their customers; they have to. They compete with each other. Once a breach happens, once they are known to be abusive of information, customers will no longer go there.
In addition, the insurance contract is a contract of utmost good faith, which means that if the insurers do not act appropriately, they could be subject to punitive damages for a claim of bad faith. The high-water mark at this point in Canada is $1 million. It was approved by the Supreme Court of Canada a number of years ago, but that does not mean that this is as much as will be awarded against an insurer for a bad faith claim. It's really because of the bad faith risk that insurers take every effort to make sure that they proceed carefully before they allege that someone has committed fraud.