Analysis. In both Europe and the US insurance companies have started calculating premiums according to how we behave. If we behave ‘properly’, we get a lower premium or even direct payment. It is a great advantage for many, especially the young and healthy, but it also challenges the insurance model, which makes it possible to help the few unlucky byt having the many pay.
When we pay for our insurance, we do it because we risk something will happen to us or our property or that we cause others damage. For most of us, fortunately nothing happens. But we pay anyway, as insurance is a necessity, and we are also participating in a kind ‘community model’ – safeguarding that when accidents occur for the few, then there is money to help them.
Insurance companies calculate premiums based on risk. Do you live in a zip code, where there are relatively many burglaries , the premium is typically higher than for those living in areas with fewer burglaries. People driving many kilometers also pay more than those driving fewer kilometers. Those who practice extreme sport often pay more than those who do not.
Armed with an increasing number of personal data, insurance companies can be even more thorough when calculating individual risks. We see trends both in Europe and the United States that the insurance model as we know it today is cracking with what you could call the Pay-As-You-Behave model. If you behave ‘properly’, then you get a lower premium or even direct payment. And if you don’t want to be tracked to prove your behaviour, you have to pay more.
‘Black box’ measures your Driving
It began with car insurance. If you take out insurance in Danish Alka or US Progressive you will get a discount of 25% if you install a tracker in the car. A kind of car’s black box. It collects data on how you drive, provides an overview of your driving pattern and provides the insurer documentation on who is to blame, if you should be part of an accident.
Bracelet measures your Activity
Pay-as-you-behave has spread to health. If you wear a tracking device your steps and movements can influence your insurance premium. It is the venture-capital funded company Oscar, which Google is supporting and has exploded in valuation, who practices this pure pay-as-you-bebave model. Get a free Misfit tracker and be rewarded for every step you take, it says in the YouTube ad for Oscar.
Employers are also beginning to like the idea that employees wear a tracker, so they get up and move enough and stay healthy and slim. A less flattering scenario happening in the wake of this is described in the novel The Circle, which many called the new 1984.
Risky model on Health
German authorities have warned against pay-as-you-behave when it comes to health. Both in relation to the disclosure of sensitive personal data, such as health data, and secure storage of health data. Industry should be very careful chasing short-term economic solutions, according to the German data protection, stressing that these offers are primarily attractive to young people and healthy.
Constructive proposals on Car Tracking
When it comes to pay-as-you-behave and motoring driving behaviour, German authorities have taken a more constructive approach. German insurance companies can give their customers a black box (telematics-box) to monitor the drivers’ routes, times, speed, acceleration, braking behavior, etc. The behaviour will be measured up against the behaviour of many many others and the box will generate a personal score. The score is showing the risk of an accident. To do this, the the strict German data authorities states following is necessary:
- Data must be separated. This means that the telematics service provider receives the real-time data, but does not know the names of the policy holders. On the other hand, the insurer knows the names of policyholders, but only receives the scores and the total kilometers and not the raw data.
- Data must be encrypted in the telematics-box and during transmission using the latest technology. It must not be possible to access the hardware.
- If there are multiple drivers of a vehicle, they must be given the ability to decide individually before commencing a journey whether they want to allow tracking or not. The insurer must provide the policyholder with a sticker to place in the vehicle which provides information to drivers about the tracking.
- The collected data can only be used to determine the insurance premium and not for the settlement of claims.
- The policy holders must be fully informed in an understandable way about the processing of data as well as about the parties involved.