Sunday, 6 March 2011

ECJ ruling on insurance gender discrimination means 100m more M2M connections in Europe

Part of my job is to predict the future. It is only very rarely that I can make a prediction with virtually 100% confidence. One seemingly unrelated event happened last week that will definitely have significant consequences for M2M. The European Court of Justice ruled that insurers will no longer be able to take gender into account when setting premiums. The ruling comes into effect from December 2012.

Gender is one of the prime statistical determinants of how safe a driver is. It's arguably not fair for the many many male drivers who are perfectly safe, but statistics ain't fair. The insurance industry works with what it has and knowing gender gives a pretty good indication of risk. That said, if particular ethnic groups had statistically greater risk and car insurance companies were using that to profile users and determine premiums, people would be up in arms. And rightly so. But I digress.

For the car insurance industry the ruling has taken away one of the main methods of segmentation. That will definitely push insurers in the direction of insuring based on actual usage rather than profiling since they can't really do the latter very effectively (and what happens when age discrimination is also banned?). So, they're going to rush for any solution that can monitor users' actual usage patterns. If they're a bad driver they have high premiums. No need for statistics. And what does that involve? Some form of black box travel monitor, ideally connected to allow insurers to provide new and innovative pricing models (as discussed in an earlier blog post). This means that the 250 million cars in the EU will need to be fitted with a device and many of them will have a wireless modem. So maybe 100 million extra M2M connections as a result of this piece of legislation. Of course no-one will be obliged to fit one of these devices. However, anyone who opts to do it the old way (i.e. just a flat annual fee) will look suspicious and attract higher premiums.

All this is bad news for Sheila's Wheels. But it does mean it might be a wise time to buy shares in these guys.

We at Machina Research will have a report coming out on M2M in the Automotive sector in Q2. Please get in touch if you would like me to keep you posted on when it is released.

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