Report on the IMKR Lecture “Tracking Rates in Insurance Law” by PD Dr. Lüttringhaus
Priv.-Doz. Dr. Jan Lüttringhaus, Maître en Droit (Aix-en-Provence), LL.M. (Columbia), was a guest at the IMKR in Siegen on April 11, 2018, to speak about tracking rates in insurance law. Lüttringhaus was a long-time research associate at the Max Planck Institute for Comparative and International Private Law in Hamburg and held an interim professorship at the University of Münster in the summer semester 2018.
After being welcomed by Prof. Rösler, Lüttringhaus presented the so-called telematics rates offered by auto liability insurers: Using specially installed “black boxes” (similar to the flight recorders in airplanes) or the driver’s smartphone, new vehicles today can transmit large amounts of data directly to the insurer or an intermediary service provider. Using a points system, this data can be used to calculate each driver’s insurance premium individually and adjust it regularly based on their driving behavior. Careful drivers would pay less than reckless ones (“pay as you drive”).
On the other hand, private life and disability insurers already offer so-called “fitness plans.” Here, the insured person benefits from discounts at gyms and department stores. In return, these establishments pass on usage and purchasing data to the insurer. The idea: The healthier you live, the lower your insurance premium (“pay as you live”). Policyholders could also provide even more detailed activity and health data via their smartphone or fitness tracker to receive discounts. Of particular interest to property and casualty insurers – but also suitable for monitoring dietary habits – are so-called “smart home plans,” in which the user’s internet-connected household appliances (such as the refrigerator) are intended to provide data.
The description of these technically feasible and, in some cases, already available plans (see, for example, https://www.generali-vitalityerleben.de) was followed by an analysis of their admissibility under insurance law. In this regard, Lüttringhaus initially concluded that the differential treatment of policyholders based on individual data is consistent with the principle of equivalence: After all, policyholders’ premiums must be tailored precisely to their individual risk profiles. Insurance contract law also does not pose any insurmountable legal obstacles to tracking-based rates. If an automatic premium adjustment is agreed upon in the insurance contract, §§ 23 et seq. of the Insurance Contract Act (VVG) would, pursuant to § 32 VVG, only preclude this if it were disadvantageous to the policyholder. However, because the policyholder can influence the adjustments to their rate – either upward or downward – through their own behavior, and because there is always the possibility of a premium reduction, such a structure should not be classified as disadvantageous to the policyholder. If insurers were to grant premium reductions to their health-conscious policyholders solely through profit sharing (as Generali did in the example cited above), the contractually agreed-upon premium would not change in any case.
Lüttringhaus then turned to the issues surrounding the review of standard contract terms. To comply with the transparency requirement of § 307(1) sentence 2 of the German Civil Code (BGB), the criteria and methods for calculating premium adjustments must be set forth to the contracting party in a sufficiently specific and, at the same time, understandable manner. The policyholder must always be able to recognize the effects that a particular behavior has on their insurance premium. These requirements are not yet fully met in some of the currently available rate plans.
Finally, Lüttringhaus addressed the risks associated with tracking-based rates. Under data protection law, highly sensitive health data is subject to special protection. It may only be collected and processed with explicit consent (Art. 9 GDPR). However, the voluntary nature of data disclosure becomes increasingly questionable as demand for tracking-based rates grows. This is because freedom of choice effectively ceases to exist once the policyholder can no longer afford “normal” rates due to rising costs. Furthermore, the accumulation and linking of data from various tracking-based plans could infringe upon the fundamental right to informational self-determination and – in extreme cases where the volume of collected data amounts to total surveillance of the policyholder’s daily life – even human dignity.
In the lively discussion that followed the presentation, the effectiveness of some incentives was initially called into question: For example, a gym member might check in there only for show to collect points, without actually working out there. The discussion then turned to the pros and cons of tracking-based insurance plans: On the one hand, such plans would also offer benefits to society as a whole, for example by incentivizing safe driving or a healthy lifestyle. On the other hand, the financial savings for the policyholder are comparatively small and possibly questionable: Ultimately, the policyholder pays with their personal data.
Further reading: An article by Priv.-Doz. Lüttringhaus on this topic can be found on SSRN. It appears in print at Mohr Siebeck in the volume “Mehr Freiheit wagen” (Daring More Freedom), published in honor of the retirement of Prof. Dr. Dr. h.c. mult. Jürgen Basedow, LL.M. (Harvard), as director of the Max Planck Institute for Comparative and International Private Law in Hamburg, to which Prof. Rösler also contributed.
