Davey's blog: A fair price for equality?

Equality and fairness are not the same thing and the gender ruling due from the European Court of Justice on 1 March has brought this firmly into focus.

The court will decide whether gender can be used as a rating factor in insurance. If it rules that pricing based on gender is discriminatory then insurance products across the board will be affected, although the biggest impact is likely to be felt in the motor market.

Nobody is disputing the importance of gender equality, but at what point does equality legislation stop protecting the rights of individuals and start impacting on their ability to be represented fairly and accurately for who they are?

The gender divide

When it comes to driving, the difference between men and women is stark. Contrary to the myth perpetuated by men, women are better drivers and the evidence is irrefutable.

Men may not like it and it may hurt their egos, but they represent a much greater risk for insurers than their female counterparts, particularly at the younger end of the age scale.

According to the ABI, the cost of claims from women under 25 is about a third less than the cost of claims from men in the same age group.

Figures from court rulings in England and Wales also put men firmly in the dock when it comes to bad driving. In 2009, men were responsible for 95% of all dangerous driving cases. They were responsible for 83% of careless driving cases and, across the entire spectrum of all offences committed, they were behind the wheel for 84% of them.

It is hardly surprising, therefore, that the price differential created by gender-inclusive rating is significant. If gender data is omitted from the underwriting process then women will see their premiums balloon.

The ABI says some women under the age of 25 will see an average hike in rates of 25%, while their male counterparts will enjoy an average fall of 10%.

In extreme cases, the ABI believes some women will see premiums pushed up by as much as 60%, while some men could see their premium reduce by up to 25%.

In the short term, such price hikes may exclude people from the market, encouraging driving without insurance, fronting and increasing the propensity to massage a better rate out of online carriers by submitting false information on applications.

Technological advances

The ruling will also impact on carriers that have differentiated their business on the different risk presented by men and women. A ruling in favour of equality might mean they need to look again at their brands and business models – a major headache.

A ruling in favour of equality is also likely to drive the development of telematics technology, which has already been experimented within the market, but failed to really gain a foothold. In the past, telematics have been used to rate a person on the distances they drive and the times at which they make their journeys.

However, the technology is becoming a lot more sophisticated and it is now possible to rate drivers on how they drive. Instead of simple GPS devices, sensors can now monitor how quickly a driver accelerates and brakes, how quickly they corner and how erratic their movements are.

This significantly enriches the data available and will ultimately allow underwriters to rate a person’s individual driving ability. Perhaps this is the fairest way to proceed and once the technology is sophisticated enough, people will actually pay for the risk their driving style presents.

One premium for all?

But, in the short term, my worry is that this legislation, if passed, opens the door to a ridiculous situation where a flat premium rate will have to be put in place for all. If they go bananas in Brussels, using where you live, how old you are and your driving history to rate a policy could all be deemed discriminatory.

I hope the UK fights this unfair over-extension of the equality movement with vigour and even if it is passed, takes steps to see it repealed rather than just accepting and complying with it immediately. We can rest assured that the rest of Europe will not take it on board and gold-plate the new rules, as we in the UK are prone to do.

Indeed, perhaps the government and lobbyists could turn their attention to the much more unfair proliferation of uninsured drivers and collect a compulsory third-party insurance premium via a petrol levy.

This would mean we were all insured automatically and those that covered the most miles would pay more, reflecting the risk they represented. We would even be collecting premium from visiting French lorry drivers, which would be one way of justifying our contribution to the European Court and their analysis of our industry practices!

Jonathan Davey is managing director of Keychoice Underwriting.