At the end of last year, the European Court of Justice's Advocate General issued a legal opinion challenging the legality of the European Union's so-called 'gender directive'. Now that the ECJ has decided to follow this opinion, insurers will no longer be able to use gender as a pricing factor in insurance.

Of course, this ruling will have far-reaching implications for the industry, as insurers will now have to evaluate risk differently. And it is clear the best way for insurers to assess risk would be on a case-by-case basis, with premiums that accurately reflect the individual driver being insured. Common sense dictates, for example, that motorists who drive fewer miles represent a lower underwriting risk than those spending more time on the road.

Capturing behaviour
Similarly, aggressive or careless behaviour behind the wheel - such as sudden starts and stops, high speeds, and very sharp turns - will often increase the risk of an accident. Driving late at night and during periods of high traffic congestion will typically have the same effect. Capturing driving behaviours like these and applying them to insurance premiums not only makes good business sense, but it also benefits both insurers and safe drivers.

Not only is this kind of data capture technically possible, but it is already being done in this UK. Telematics, the term used to describe the integrated use of telecommunications and informatics, has been an essential tool in fleet management and logistics for a number of years, and innovative providers have sought to introduce this location-based technology into the car insurance market with great initial success.

"The best way for insurers to assess risk would be on a case-by-case basis, with premiums that accurately reflect the individual driver being insured."

Centre stage
However, it is the powerful combination of the ECJ's ruling and business fundamentals that will ultimately thrust this technology onto the centre stage of the car insurance industry, and no doubt encourage a large number of providers to offer it as part of their product suite.

So how does the technology work? When using telematics, information is automatically gathered from a small device that is fitted to a policyholder's car. The information from this telematics box is then sent to an insurer's technical centre, where all the data is collated and used to inform the insurer, and potentially the customer, about the journeys and driving behaviour of the person and/or people using the car.

Careful calculation
The idea is that this technology will help to drive down the cost of car insurance for careful drivers by allowing underwriters to calculate premiums based on exactly how the driver is operating the vehicle, and not how all the other members of the driver's age group and/or gender are driving. As such, when it comes time to renew the policy, the insurer will be able to set the new premium accordingly, and, therefore, more accurately.

For good drivers, so far so good: but how many people will be confident enough to allow their insurance companies to monitor their driving every time they get behind the wheel? It is a good question. However, the EU may soon make the choice for them via its Emergency Call directive. Ecall is an automatic emergency call system for road accidents, based on the single European emergency number 112. In the event of a serious accident anywhere in Europe, cars will automatically call the nearest emergency centre.

Reducing reaction time
Basic information about the crash, including the exact location of the accident scene, is communicated via this call, even when no passenger is capable to communicate. The availability of the location information reduces rescue services' reaction time by 50% in rural and 40% in urban areas.

Estimates suggest that this could save up to 2500 lives in Europe each year, and lead to less severe injuries in 15% of all non-fatal cases. As such, the project is being supported by the European Automobile Manufacturers Association, an interest group of European automobile, bus and truck manufacturers, and also ERTICO, a non-profit organisation which promotes the implementation of intelligent transportation systems and service providers in Europe.

"How many people will be confident enough to allow their insurance companies to monitor their driving?"

Potential proposal
In light of this support, as well as the potential to offer assistance to injured motorists much more quickly, the EU is proposing that every new vehicle in 15 European states will have this technology fitted as standard. Add this ruling to the repercussions of the ECJ's decision to outlaw discrimination against insurance customers based on their gender, and it would seem that many of the traditional methods of calculating insurance premiums using proxies may soon be phased out.

Consequently, insurers will have to find other ways of assessing risk, and embracing telematic technologies to assess the individual temperament and behaviour of each policyholder seems a ready-made solution. In addition there are obvious fraud prevention benefits - just think about what effect this could have on drivers who 'forget' the truth of what really happened in an accident - and it is amazing to think that telematics has so far only achieved a negligible market penetration in the UK.

Gaining popularity
With such a compelling argument for the use of telematics - as well as the need to comply with the ECJ's ruling on this subject - this market is likely to increase dramatically in the near future. In fact, the use of telematics is already gaining popularity in a number of related areas, with GPS navigation, integrated hands-free mobile phones, and automatic driving assistance systems all now included under the telematics umbrella.

As such, any insurers that decide to embrace this area with enthusiasm right now - and thus become early adopters of this exciting new technology - will also be the first to offer policies that can truly assess potential risks both accurately and fairly in accordance with the ECJ's ruling.

Ian Faulkner is managing director at Metaskil