Insurance telematics: What’s gender got to do with it?

Insurance telematics: What’s gender got to do with it?

Ruling on a challenge raised by the Belgian consumer group, Test Achats, the ECJ ended an earlier exemption for insurers from gender equality rules, in place since 2007.

Insurers will be allowed a transition period, but must fully comply with the judgment and switch over to a system of unisex premiums and benefits by December 21, 2012.

Some EU jurisdictions already have gender-neutral insurance laws in place; in those without them, insurers are expected to ramp up compliant systems well in advance of that deadline.

Women have statistically significant lower auto accident rates than men, and thus typically have paid lower car insurance premiums.

The decision has attracted widespread criticism from insurers, which must now develop new ways for calculating and pricing auto insurance risk.

But the ruling is not, in the long run, necessarily a loss to insurers—and telematics could provide new and more accurate ways to determine appropriate insurance premiums.

Telematics is gender neutral

Young drivers are a case in point. “One of the very big issues for very young drivers is that insurance premiums are sky high,” says Nick Bugler, a London-based partner at the law firm of Dewey & LeBoeuf LLP.

“If you want to insure a car as a 17-year-old boy, you can pretty much forget it.”
Some UK insurers have addressed this problem by fitting cars with devices that monitor actual driving risk.

“That principle can be extended, and that may actually prove the basis for a fairer pricing system,” according to Bugler.

“One effect of this judgment will be to force insurers to be more granular in how they price risk, especially as the industry is extremely competitive.”

One company that hopes to play a big role in helping the insurance industry set rates is Mydrive Solutions, a UK-based software technology business.

“The whole concept of insurance is that of pooling risk” to price products appropriately, says Linden Holliday, Mydrive’s CEO.

Currently, most major UK insurers don’t do this very well, as they’re running loss-to-income ratios of nearly 100%.

If an insurer were to sit down today and create a system for pricing the risk of driving a car, it wouldn’t do so on the basis of the inputs assessed in the past, such as gender, marital status, years or driving experience, or post codes.
“Past methodologies—ones that give you a statistical propensity for someone to have a particular type of accident—have been used because there have been no better alternatives,” Holliday believes.

Instead, with Mydrive and other telematics systems, behaviour is the important thing—and driving behavior can be measured by what the driver does and where the driver is. (For a look at insurance and driving behavior in fleets, see ‘How to make insurance telematics work in the fleet space’.)

What good driving looks like

Mydrive has a European-wide patent pending that allows it to contextualize the driver’s behaviour against the road network.

“Without knowing where the car is when the driver does something, it’s really impossible to say whether that behavior is risky or not,” Holliday notes.
If a driver is driving 60 miles per hour and braking harshly, for example, it could be because a child has just jumped out in front of the car.

“Although a system can never be foolproof, what we can do is understand what good looks like and what less good looks like,” says Holliday.

The Mydrive technology also discounts for one-off events, like braking to avoid an obstruction.

Mydrive’s and other behavior-based systems provide a more accurate way of assessing risk that would be consistent with the latest ECJ ruling.
“At Mydrive, we aren’t interested in whether you’re male or female, but in how you drive,” says Holliday.

He thinks insurers should regard the ECJ ruling as an opportunity to abandon old ways of doing business that weren’t profitable for the industry anyway.
“What the ECJ has done is provide an industry-wide catalyst for insurers to sit down to break apart their pricing models, and to look outside their own bailiwicks to what is available in the wider world to allow them to assess risk much more accurately,” according to Holliday.

Non-disclosure agreements prevent Holliday from discussing the insurers the company is currently working with, but he predicts, “Within the next ten years, and perhaps the next five years, it will be impossible to get a major insurance policy that is not based on this capability.”

(For more on insurance telematics, see ‘How to profit from telematics driver data’ and ‘Can Telematics Reinvent Auto Insurance?’.)

Jerri-Lynn Scofield is a regular contributor to TU.

For all the latest on insurance telematics, join the industry’s key players at Insurance Telematics Europe 2011 on May 4 and 5 in London.

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