Europe View from the Top: Telematics standards for motor insurance

The UK government has encouraged the use of telematics as a solution to the problems that the Gender Directive raises, essentially giving insurers data to base their premiums on, so reducing claims and premiums that male or younger drivers might otherwise incur.

But this solution is having its own teething problems, especially in the form of competition issues.

The failure of the products' suppliers to agree standards could have a big impact on insurers' businesses and on claims, resulting in insurers choosing not to or failing to recognise, the data produced by the telematics providers of other insurers, which would effectively lock the policyholder in to their current insurer on renewal.

These issues must be addressed if telematics is to be the panacea to the ills of European insurers as commonly suggested.

Data standards
There are concerns that, if insurers do not agree data standards for telematics-based products, the competition authorities could step in and force the issue.

European Commissioner Neelie Kroes has spoken on a number of occasions about the importance of common standards to ensure the interoperability of technology.

A ‘dominant supplier' refusing to provide interoperability information to its competitors could constitute an illegal abuse of a dominant position in breach of competition laws.

Indeed, Microsoft was fined €497m for abusing its market power in the EU by refusing to supply interoperability information in respect of its Windows software.

No dominant supplier
But where there is no dominant supplier in an industry, it is trickier for the competition authorities to take action.

The European Commission has stated that it is seriously exploring all options to ensure that significant market players cannot just choose to deny interoperability with their products.

It may be that legislation is necessary to ensure that businesses offer the required interoperability information for their products.

The Commission took similar action in May 2011 when it adopted a regulation on the technical specifications for interoperability of telematics applications for cross-border rail services.

Rail example
The standardisation of data relating to timetables and fares enabled key information to be exchanged between rail operators and ticket sellers. Legislation may do the same for the insurance industry, but in the meantime it faces a hinterland of uncertainty.

Alternatively if the UK Office of Fair Trading believed that failure to agree common standards for telematics-based products was causing a restriction and/or distortion of competition in the UK or motor insurance market, it could refer the matter to the Competition Commission for further investigation or seek appropriate undertakings from the suppliers to agree common standards.

If the use of telematics-based products is to take off, as desired by many parties, a solution is needed quickly.

Laurence Pritchard is a partner specialising in competition law at Weightmans