The EU Gender Directive has given rise to a new generation of ‘girly’ motor insurers – but are the practices sustainable in the long term?
When the European Union Gender Directive came into force in December 2012 – outlawing the use of a motorist’s sex as a factor in underwriting decisions – it was to the dismay of actuaries everywhere. What the EU deemed discrimination, they knew as one of the soundest proxies available when looking to differentiate risk, especially in the highly competitive UK motor market.
As motor insurers stripped gender from their rating engines, experts wracked their brains for a new way to price risk and balance their portfolios, while remaining compliant with the new rules. The result was the appearance of gender-based marketing, the likes of which have not been since Nestle’s Yorkie Bar ‘Not for Girls’ campaign launched in 2002. Drive Like a Girl and Girls Drive Better began publicly courting female drivers, offering discounted car insurance, along with ‘girly’ extras such as cashback on shopping.
Explaining the impetus for Girls Drive Better, managing director Simon Jackson says: “It was designed to take advantage of the fact there was going to be this churn in the marketplace with females potentially seeing significant increases in their premiums for no real reason other than this stupid piece of legislation. If the book of business steers on the side of being wholly female-biased then the underwriting results should speak for themselves.”
Charlotte Hawklett, marketing actuary at Drive Like a Girl, says her brand also believed it was unfair that females faced higher premiums. “The Gender Directive sparked this off because we, as actuaries, knew there was a gap between males and females – and the data backs this up,” she explains.
Hawklett says Drive Like a Girl’s branding is designed to woo females, adding that the fact that it may ward off some ‘boy racers’ is not an unintended consequence. “There is a certain sort of male driver we will be alienating, and it’s probably fairly obvious that we’re happy about that,” she says. “We also have a lot of male drivers who tend to drive in a way we think is safer. The psychology behind this is such that a certain type of male driver is still likely to buy these products, and that can benefit the whole book.”
Reaction to the brands has been fairly polarised. “The people who like this product really love it,” Hawklett says. “We get a very good response on social media but I’m sure there’s a group who wouldn’t touch it with a barge pole. We often get comments like ‘The cheapest product is called Drive Like a Girl, so I’m going for the second-cheapest product’. That’s not a bad thing for us.”
But with slogans such as Drive Like a Girl’s ‘car insurance designed for girls’ and a section devoted to shopping labelled ‘girly stuff’ on the Girls Drive Better website, could the branding be alienating some desirable clients who feel unable to get on board? Rob Clark, head of retail motor at Equity Red Star, believes this is a risk. He explains: “I tested the idea that ‘driving like a girl’ is a compliment by asking my teenage son – it’s definitely not a compliment to the younger male population. Equally, there are women who could be put off completely, especially if they don’t like being referred to as girls.”
While the brands’ appeal to a stereotypical notion of femininity can come across as patronising, gimmicky and maybe even sexist, they are grabbing the headlines. However, the more important question for insurers is whether deliberately engineering a strong female motor book bias is a sound business move.
“It’s a definite attempt to drive out a certain part of the market, which, strategically speaking, is fine but it has a natural level,” says Clark. “That market is incredibly transient, and if you want to be a specialist motor insurer you need to seek the entire spectrum of risks that are out there and provide a consistent rating platform for them. The idea that you can build a business around a finite segment of the market has a definite ceiling.”
It is also important to bear in mind that not all women are better drivers. Less skilled, riskier female drivers may gravitate towards these brands and expect cheaper rates. According to Jackson, this is where telematics comes in. “If a woman is prepared to have [a telematics device] in her car then that [will provide] irrefutable evidence of what her driving is like,” he says. “There is a great bunch of young drivers out there who are happy and confident to have a black box. If they’re willing to have a box in return for competitive car insurance, they’re less likely to be speeding, driving at unsociable hours and having their mates drinking beer in their car.”
He adds: “We’re happy to insure males [as we are legally obliged to]. We have another brand called Policywise, which is priced slightly cheaper than Girls Drive Better. There are a number of females on that brand but, within the constraints of the law, we steer them towards Girls Drive Better because they get a better product for very little difference in price.”
Since launching in January, Drive Like a Girl has handed back more than £51 000 to its first 500 customers in recognition of their behaviour behind the wheel – which could be seen as vindicating its belief about female drivers.
Meanwhile, female-focused brands are not the only new entrants to the market following the Gender Directive, with many firms seeing the ruling as a catalyst in the uptake of telematics products with the young driver market. Carrot, for example, offers telematics-based insurance policies in return for cashback via a discount card. Launched in September 2012, it initially took a similar approach to Drive Like a Girl and Girls Drive better. Product director Ed Rochfort explains: “When we first came up with our Carrot card it was an attempt to attract more female drivers. We decided, in a very sexist way, that women would be interested in shopping.
“We added brands that we thought would appeal to women, like Topshop and Boots, to our retail partnership programme – but since then we’ve opened that up and we’re more interested in writing for young males as well.
“We thought selecting a female book was going to be really important to us but, as we started to analyse the data, we became more interested in getting customers of both sexes.”
This emphasis on changing behaviour is something Hawklett is also aware of: “Younger drivers are a risk – you have to have smart systems. We have regular conversations with our customers, and this demographic is the best group to influence. The behavioural psychology is huge for us – the way we can improve people’s driving at that age. If you can make a 17-year‑old drive like an 18-year-old it makes a massive difference.”
But as NCI Vehicle Rescue managing director Neil Richards-Smith explains, one of the major challenges for telematics vendors is how they react to the data they collect. “Insurers are tempting drivers with reduced rates if they have black boxes fitted when they have no idea if the driver is a good or bad risk, other than the standard rating reference points,” he says. “If the driver’s data indicates they are a poor risk, how quickly can the insurer increase the monthly charge without being too quick to up premiums?
“When the client’s monthly premium goes up, the direct debit default rate goes through the roof. Cancellation percentages will be high, and you have collected a reduced premium to tempt the customer. If, on the other hand, the risk is good then they will be after a better premium as they have proven they are a safe bet.”
He adds: “The risk in the first year of insurance is high as the individual’s driving data isn’t available. After that the insurer can start to rate according to experience. Naturally, insurers backing the scheme are likely to be nervous until the data backs up the experience.
“Bad drivers will have to pay more or leave; good drivers stay and are rewarded with lower premiums. If the industry allows drivers to move their data to other insurers, it may be that the initial insurer doesn’t retain the client for the second year after investing in the data capture and monthly rating changes.”
Broker Esure showed the benefits of improved retention last week, when its interim results revealed a 7% increase in gross written premiums in the first half of 2013. It attributed this in large part to the impact of the Gender Directive on its Sheila’s Wheels book.
Commenting on the revenue growth, Esure head of marketing and communications Adrian Webb said: “For younger women we’ve seen retention levels increase by 15%. Many companies have had to equalise prices, so when women have been shopping around they have gone back into a market that has rebased at higher prices for women. However, because the Sheila’s Wheels book, when equalised, has such a small proportion of men, the rate disturbance within that book is quite low.”
The question is whether such rates would be sustainable if there were an influx of men – something Rochfort believes will soon be tested: “It won’t be long before young males wake up to the fact that they could be getting a better deal and target these brands.”
With the appearance of these brands on price-comparison sites such Confused and Money Supermarket, the risk that price becomes the defining factor is increasing. Jon Byford, head of private motor at Axa, believes the importance of brand may be overestimated, but adds: “Through presenting the image that the brand is more aligned to female drivers and more likely to listen to their needs, firms don’t need to be the very cheapest to win that business. It provides a disincentive for people to shop around at renewal.
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