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Insurers turn to onboard technology to avoid gender ban losses

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Insurers trying to avoid next years ban on charging male drivers more than women are looking to technology which allows them to base their prices on how each specific customer drives.

The technology, which has been around for years but never seen as cost effective until now, could spark a revolution on how auto insurance is underwritten in the future.

In their weekly credit outlook, Moody’s said insurers offering the technology, or usage based insurance (UBI), will have a significant market advantage when the laws are implemented.

Frontrunners offering UBI will gain a significant competitive advantage in terms of pricing and policy retention. Though not a major concern at the moment, companies that do not implement similar products could face adverse selection as insurers that do not vary their prices based on actual driving behavior will be faced with demand from higher-risk drivers.”

Women, who currently pay less for insurance for men because they are statistically less likely to have an accident, could see price hikes of up to 25% next year when the laws take place. In order to avoid this deterrent for female customers, many insurers are acting now by investing in the technology.

Moody’s said the technology will allow for much more accurate pricing because of the increase of information available.

Adopting UBI sooner rather than later will not only attract better drivers willing to participate, but will also allow carriers to build and maintain a database on numerous variables that influence loss costs (or claims costs).

By obtaining sufficient vehicle operation data, UBI allows insurers to incorporate variables into their pricing models that are more correlated with loss cost, leading to significantly enhanced predictive modeling capabilities.”

Moody’s said it expects most major car insurers to offer a version of UBI. On Dec. 8, Hartford Financial Services became the latest company to announce it will offer UBI products. Other insurers offering such services include Allstate, GMAC, Liberty Mutual, Nationwide, Progressive, State Farm and Travelers.