Insurance regulation could prompt a shift to behaviour-based premiums
On 1 March 2011 the European Court of Justice (ECJ) upheld an opinion from the European Union’s (EU) Advocate General that the exception to the EU Gender Directive previously granted to insurers should no longer be legal. They ruled that gender-based pricing in insurance contracts would be unlawful from 21 December 2012. This means insurers writing policies in the Euro-zone will have to implement unisex rates! How would a “no gender rating” policy affect South African insurers? We’ll consider the question from a short-term only perspective for the time being.
It is common knowledge local short-term insurers make use of both age and gender in determining appropriate risk-adjusted motor premiums. They charge higher premiums to inexperienced drivers (incorrectly assessed on the basis of driver age only) and for male drivers, who are regarded (once again in a blanket fashion) as more reckless than their female counterparts. Other factors used by insurers – locally and abroad – to ‘price’ motor insurance premiums include vehicle type, engine size, where the vehicle is typically stored etc. UK insurers go as far as assigning a category to the insured vehicle based on its performance and load insurance premiums for any driver demerits too...
How to risk rate with age and gender stripped out?
The ECJ ruling creates an interesting challenge to insurers, namely how to fairly price insurance premiums without any consideration for gender. And further down the line they will have to broach the tricky issue of risk-rating with both age and gender ‘discrimination’ stripped from the equation. A possible solution could be to base motor insurance premiums on actual driver behaviours only. The technology already exists to do just that!
On 18 April 2011 South Africa’s leading short-term insurer issued a press release titled Santam shifts gear for safer roads and a more sustainable industry. They have partnered with cellular giant Vodacom and now offer a product called LiveTrack that will hopefully lead to motor insurance premiums based on individual driving habits and risks rather than broad macro assumptions about groups! Shehnaz Somers, head of personal lines underwriting at Santam, says the product, Vodacom LiveTrack, is fitted to insured vehicles. The device monitors and records how, how often and when the vehicle is driven and the data subsequently used to ‘reduce’ premiums.
“LiveTrack provides us with an empirical database of information by which we are easily able to assess how safe a driver is,” she says. It has similar capabilities to most modern tracking devices including the ability to record vehicle speed, acceleration, braking, distances travelled etc. “The device is set to be the ultimate equaliser in motor vehicle insurance, rewarding people for safe driving by lowering vehicle premiums by up to 20 percent!”
Enhancing motor insurance rating models...
The insurer’s announcement is a welcome development given local insurers’ ongoing focus on age and gender-based risk pooling. And although Santam can be commended for taking the next step in applying new technologies to insurance ratings, we believe Somers jumped the gun when she observed it was “not completely fair to levy a premium based on averages taken from a pool of good and bad risks…” That’s what local insurers, including Santam, have been doing for decades! And they will continue to do so for the foreseeable future. (I’d take the debate a step further and suggest insurers cannot claim to offer a driver behaviour policy until they offer an equal-premium product regardless of the driver/vehicle combination!)
A tracker with a difference
Santam hopes the product will make a positive contribution to road safety. “More than 13 700 people died on South Africa’s roads in 2009, and there were 10 857 fatal road accidents in that year,” says Somers. “While people complain about the condition of the roads, the fact is that 95 percent of accidents are a direct result of traffic offences or dangerous, reckless driving.”
LiveTrack is different to any other solution on the market. It focuses on the security of both driver and car by offering proactive tracking and recovery and promoting safe driving behaviour. The device enables individual motorists and commercial fleet owners to monitor their own or their family and staff member’s driving behaviours and tells users exactly where their vehicles are at any given time. The system will cost R162.05 per month (reducing to R39 per month after 36 months), with free installation for Santam clients. Santam clients who fit the device will benefit from motor premium reductions of up to 20%.
Editor’s thoughts: Local insurers have tried in the past to launch ‘driver behaviour’ linked products. But we can recall a case where the Ombudsman for Short-term Insurance rapped an insurer over the knuckles for declining a claim based on tracker data… Do you think the local industry is ready for ‘driver behaviour’ short-term insurance products? Please add your comment below, or send it to [email protected]
Comments