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Nathan Golia
Nathan Golia
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Can Regulation Kick-Start Insurance Innovation?

Usage-based insurance in the UK was thought to be a failed experiment until a ban on gender-based underwriting revived interest. How else can insurers use regulation to spur new technology initiatives?

Reuters reports today that European insurers are reviving their telematics programs after a court ruled that gender can't be used as a deciding factor in underwriting decisions earlier this year.

The idea is that insurance companies will be able to stanch premium growth for women and encourage safer driving overall by using devices to gather data on individual drivers' habits. UK insurers, Reuters adds, are leading the way; a remarkable turnaround from when SMA analyst Mark Breading noted earlier this year that UK-based early telematics adopter Norwich Union discontinued its program due to lack of interest.

Perhaps we should've seen this coming. Celent's Craig Beattie, who is based in the UK, made an offhand remark about telematics when I interviewed him about social media's place in the underwriting process. He said that new data-gathering technologies like social media and telematics "have to be incentive-driven" and offer premium reductions in exchange for turning over your data.

"Right now, in the UK market, if you're a new driver and you want car insurance, you're going to end up spending three to four times the cost of your car on your insurance premium," Beattie told me. "The telematics providers in the UK are saying in the next few years you won't be able to get insured unless you have a telematics device."

Reuters says that the EU could achieve that with its eCall directive, which "aims to ensure that by 2015 car makers fit vehicles with devices that automatically dial for help in the event of a crash, [and] could give telematics insurance a decisive boost by allowing it to piggy-back on a ready-made technological infrastructure." This approach is similar to the State Farm-Onstar partnership that initially fueled the carrier's "Drive Safe and Save" program. (The insurer later released a telematics device called InDrive in partnership with Hughes Telematics.)

The turnaround in UK telematics popularity exemplifies a trend among insurers: Companies realize that regulation is not going away, and are using it to drive innovative programs that deliver value to the insured and the insurer while smoothing compliance. Arkansas Blue Cross and Blue Shield CIO Joseph Smith discussed this approach with me earlier this year ("The biggest opportunities are to find innovative ways to cope with regulation and find competitive advantage," he said) and Anthony O'Donnell expanded on that theme in a feature article about compliance last month.

Staying ahead of the game can provide tangible benefits for insurers, Capgemeni insurance practice manager Robin Spaulding told Anthony.

"It will eliminate a lot of what we have called 'fire drills' -- the rush to deal with demands you're not prepared for," she says. "With the right capabilities in place, insurers can say, 'Go ahead, throw some new regs at us.'"

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio

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