How Insurance Companies Use Data To Measure Risk And Choose Rates

Data is playing a big role in the insurance industry. Here's how insurance companies use data to make big decisions about their businesses.

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The auto insurance industry has always relied on data analysis to inform their policies and determine individual rates. With the technology available today, there’s even more data to draw from. The good news is that this new data can help lower your insurance rate. Here is the type of data insurance companies use to measure a client’s potential risk and determine rates.

Demographics

Traditional data, like demographics, continues to be a factor in risk assessment. This includes: 

  • Age. Teens and young adults are less experienced drivers and, therefore, at risk for more car accidents.
  • Gender. Gender is still a factor but may be on its way out. Research shows that men are riskier drivers yet women tend to be charged higher rates. This gender discrepancy has led to seven states in the United States banning the use of gender as a factor in auto insurance rates.
  • Marital status. Statistics show that married people have fewer car accidents than singletons. The assumption is that married people tend to drive more carefully with children in the car.
  • Location. Where you live and if your car is parked in a locked garage influence your insurance rate. Insurance companies have access to crime statistics and can track the number of car theft and break-ins per neighborhood.
  • Occupation. Insurance companies place certain professions in a lower risk category or offer discounts to others. These include teachers, law enforcement officers, medical professionals, and military personnel.

Other types of traditional data auto insurers consider are your credit score, driving history, and how frequently you submit claims.

Type of Vehicle

It goes without saying that more expensive cars cost more to insure. However, that’s not the only thing insurers look at. Insurance companies have access to stats on what make and model of car is stolen more often or involved in more crashes. For instance, the 2000 Honda Civic is the most stolen car in America and the Mitsubishi Mirage (in the 2013-2017 model range) has the most fatal crashes.

To get an estimate of what the average insurance rate is for the make and model of your car, use The Zebra’s insurance by vehicle calculator. It gives you the annual average insurance rate according to the make and model of your car, the area you live in, and allows you to compare costs across different insurance providers.

Telematics

Vehicle telematics is revolutionizing vehicle insurance. It involves installing a usage-based insurance (UBI) device to your vehicle’s OBD-II port. Once installed, this device provides insurers with exact data on your driving behavior that allows them to create a more accurate risk profile.

UBI devices track things like speeding, rapid acceleration, hard braking, and sharp cornering. If you practice safe driving, installing one of these devices can substantially lower your insurance premium. For risky drivers, this type of tracking device can be an incentive to start driving more cautiously if they want the benefit of lower insurance rates.

Pay-as-you-drive or pay-per-mile insurance makes use of these UBI devices to track how many miles you drive and adjust your rate accordingly.

Telematics data can also include information on the locations you’ve driven to, speed limits, the duration of the trip, weather, and the time of day. Many UBI devices allow drivers access to information via an app on their smartphone, so you’ll be able to check your driving stats and improve your driving behavior if necessary.

As connected cars become more popular, this sort of technology will already be installed. Telematics is changing how insurance companies assess risk as it measures individual driver behavior rather than basing it on average group data. It also places data collection and analysis directly in the hands of the insurance company.

Safety Features

How safe your vehicle is makes a difference in insurance rates. If your vehicle is equipped with safety features like emergency automated braking, lane keep assist, drowsy driving detection, and blind-spot monitoring, you’ll score lower insurance rates.

Insurance companies take into account a vehicle’s safety ratings. The IIHS’ Top Safety Picks assess how well a vehicle withstands a crash and the type of crash-avoidance and mitigation technology it has. If your car makes the cut your risk, along with your rate, drops.

Older cars don’t come equipped with the latest safety features but there are some aftermarket safety products like blind-spot detection systems and rear backup cameras that can be installed in an older car. Inform your insurer once installed and it should help lower your rate.

While traditional data still gives insurance companies useful information for risk profiling, technology-driven data is the way of the future. It’s a win-win situation for both parties. Insurers can more accurately measure risk and, if the odds are in their favor, consumers can benefit from lower insurance rates.

(Image Credit - Shutterstock Licensed Photo)

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