Insurance telematics and the gender ruling

Insurance telematics and the gender ruling

Until relatively recently, the phrases ‘gender equality’ and ‘insurance telematics’ weren’t often heard in the same sentence. But since the European Court of Justice (ECJ) ruled in favor of the Belgian consumer group Test-Achats, declaring that “taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination,” the two terms are frequently used together.

The ruling, which came into effect on Dec. 21, 2012, removed a previous exemption for insurers from E.U. laws prohibiting gender discrimination.

The decision was widely predicted to be a boon for the telematics insurance industry. With the fundamental factor of gender excluded from information that insurers could use to assess a driver’s risk, the use of telematics boxes, or black boxes, installed in cars to collect data on a user’s actual driving habits were expected to hit the mainstream, with young female drivers in particular seeking sanctuary from rising prices that subsidized their boy-racer male peers.

But that’s not exactly how it worked out. “Before Christmas, people were saying that if you’re a young female driver you should renew your insurance before December 21,” says David Waring, a director at SSP, an insurance technology company. “But, in the end, the directive didn’t create a mass exodus towards telematics based products. Insurers were gearing up for a big onslaught, and it didn’t happen. The price differences probably weren’t significant enough.”

Frederic Bruneteau, managing director of the Ptolemus Consulting Group, agrees: “I really don’t think it’s led insurers to radically embrace insurance telematics.”

But it did bring the potential of using telematics for motor insurance into the spotlight, which is an achievement in and of itself. “Some smaller insurers have been really reactive,” Bruneteau says. “But as far as larger insurers are concerned, it will take them more time to change their strategy and change their pricing rules.”

Adds Waring: “Like with anything, you need experience, and you need historical data, which isn’t there at the moment. If you’ve got lots of driving data, how do you know what good driving looks like? You need to understand the data before you can come up with a sensible pricing strategy. People are keen to get involved, but there’s a lot of learning to be done.”

(For more on insurance telematics, see Industry insight: Insurance telematics.)

Drive Like a Girl

Drive Like a Girl is an example of an insurance product that came directly from the gender ruling. Launched in January by insurethebox, one of the United Kingdom’s leading insurance telematics companies, it offers young drivers a discount on their insurance after three months of having their habits monitored by a black box.

And it was more than a marketing stunt, says Charlotte Halkett, a marketing actuary at the company. “In January, before we launched Drive Like a Girl, we saw insurance prices leap 28%,” she says. “People will say that prices haven’t gone up that much, but that’s because we’re occupying the cheapest spots and keeping the average down. If it hadn’t been for telematics products, you would have seen an enormous leap.”

Admittedly, recent growth in the insurance telematics industry can also be attributed to other factors.

(Just before the gender ruling, the British Insurers Brokers’ Association reported that sales of motor insurance policies using telematics had increased fivefold in the previous two years.)

Other drivers

One important factor is that prices of black boxes is falling rapidly. “Since the first trial by the U.S. insurer Progressive of the telematics box in 1997, there has been a tenfold reduction in the cost of telematics solutions,” Bruneteau says. “When Progressive did their first trial, it was a failure because they couldn’t make the economics work. The cost of the black box and the installation was around $500. They just couldn’t make a business case for it.”

The increasing use of the smartphone to record driving behavior data is another factor. “There are all sorts of problems with smartphone applications as they’re not as clever as telematics boxes and they don’t gather as much data,” SSP’s Waring says. “But all of the down sides are considerably outweighed by the fact that they’re so much cheaper than wiring a box into somebody’s car.”

Public acceptance of driver tracking is increasing. In a survey conducted by the Association of British Insurers, 41% of those questioned said they would consider taking out an insurance policy that uses telematics. And regulatory efforts are helping matters as well.

Last year, Italy, became the first country in the world to pass a law that requires insurers to offer drivers a discount if they accept a telematics device that monitors how much and how well they drive.According to Waring, similar developments aren’t far off in other countries.

The end of statistical discrimination is near

One point everybody seems to agree on is that the future of insurance is about the individual. “The insurance industry is at a turning point because we’re seeing the first stages of a movement away from statistical discrimination and towards individually based pricing,” Bruneteau says.

He is convinced that, in the not-too-distant future, pricing factors the individual can’t control, like age or home address, will be perceived as discrimination in insurance pricing.

“Statistical discrimination existed before because insurers couldn’t do better,” he says. “It was better to discriminate than to have everybody pay the same. But now that insurers can provide a better rating, they shouldn’t be using the same tricks.”

Frances Perraudin is a regular contributor to TU.

For all the latest telematics trends, check out V2V & V2I for Auto Safety USA 2013 on July 9-10 in Novi, MI, Insurance Telematics USA 2013 on September 4-5 in Chicago, Telematics Russia 2013 in September in Moscow, Telematics LATAM 2013 in September in Sao Paulo, Brazil, Telematics Japan 2013 on October 8-10 in Tokyo and Telematics Munich 2013 on November 11-12.

For exclusive telematics business analysis and insight, check out TU’s reports: Telematics Connectivity Strategies Report 2013The Automotive HMI Report 2013Insurance Telematics Report 2013 and Fleet & Asset Management Report 2012.

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