Articles - ECJ Gender ruling: Can I pay a fair price for car insurance

 Johan A. Strydom BComm FIA CertPFS
  The Actuarial Consultants and Editor of 
  Gender is a long established factor in pricing car insurance but from 21 December 2012 gender can no longer be used to differentiate prices.   Whether it is ethical, fair, common sense or morally correct will be debated for some time to come, but that does not really help the man (and woman!) in the street with knowing what they can do to alleviate their concerns.  This article aims to reduce the confusion many are going to struggle with come 21 December 2012.
 The most concerned group of people is young female drivers.  It has long been a statistical fact that young men on average are responsible for more accidents than young females.  On top of this, the additional statistical fact is that when young men have an accident, it costs insurers considerably more on average than accidents caused by young females.  Given the combined effect of these two statistical facts one would argue (as insurers have done for decades) that it is only fair for young men to pay higher insurance premiums than young women.   The only problem with this argument is the following:  these statistics are only right on AVERAGE.
 What does “only right on average” mean?  Let’s assume you are a young male.  If your driving behaviour is the same as the average young man, then you are paying a fair price for your insurance.  If you are the typical boy racer though, you are paying too little and if you are a very responsible driver you are paying too much.  You see, whether you are male is not really what insurers are interested in when they quote you an insurance premium.  What they are interested in is charging you a price which reflects your driving behaviour – a true reflection of how risky you are to insure.  To date gender has been a convenient way of judging your expected behaviour and there were not many alternative ways of doing it.
 Car insurers have been struggling for years to become more accurate in pricing car insurance for those not behaving like the other members of the groups they are categorised in. One way which has become very common is No Claims Bonuses (NCBs) to reward the better drivers with discounts.  For the young driver new on the roads and with no track record to prove his superior driving behaviour, this is of little use though.
 So what can be done to make car insurance premiums more accurate?  Well, it’s quite simple.  The more information an insurer has about you, the fewer assumptions they need to make about how risky your driving is and the less they need to group you in categories they have historical averages for.  
 Many insurers will argue they only have access to the information you give them on your application form, but a few forward-thinking and brave insurance companies have been researching and investing in technologies to overcome the issue of limited information.  I believe they are on the brink of being rewarded for their efforts and investments – they are the revolutionary motor insurers who harness telematics technology to assess individuals’ driving habits.
 What do these insurers do differently? They assess driving behaviour by fitting a telematics box to your motor vehicle.  The telematics device sends information such as levels of acceleration and braking, distances travelled, types of roads used, speed, time of travel, etc. from your vehicle to the insurer.  This information can them be used by their actuaries to accurately calculate individualised premiums for you the individual making many of the traditional groups they usually categorised you in, such as gender,  obsolete.  Traditional car insurance premiums can be compared to charging someone once a year for the petrol they will use in the coming year based on other similar drivers’ historic petrol consumption.  Is this really accurate and fair on those using less petrol than the average driver?
 So whilst many in the car insurance world express their shock and dismay in the press with the ECJ ruling on gender, I believe this is an exciting time.  Sometimes we need an alligator in our pond to leave comfortable familiar waters and embrace the technologies of the modern age we live in.  There are more than just the Olympics to look forward to in 2012.

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