How Big Data Keeps Auto Insurance Prices Low

More information increases clarity which makes it easier to decide based on real evidence. It is understandable that car insurance companies are data hungry and cannot get enough of it considering they are dealing with all sorts of risks every day. Also, the cost saving aspect of using digital technologies almost forces their hands.

Otherwise, they may have to give in to cost pressures and hike prices. Big data implementation results in 30% better access to insurance services, over 40% cost savings, and 60% higher fraud detection rates, according to a post on YFS Magazine.

Not just availability and gathering of data but also availability of computer powers to handle it fast make everything more usable and valuable. And machine learning capabilities come as a big bonus once they set the system. The whole combination increases the incentives to invest money in technologies, which allow the industry to do things they have been doing for a century much better.

Calculating the Risks More Accurately

We cannot see many aspects of these advancements but they are heavily used today. Complex programming capabilities allow the simplification of the vehicle insurance platforms. They are deliberately made leaner and meaner to increase customer interactions. But it may give the impression that you are providing less information lately.

On the contrary, a lot more information is processed almost instantly because they are already loaded on. This makes the whole effort more worthwhile and encourages CEOs and angel investors to put more money into development of new technologies. 

For example, motorists just enter a zip code to get auto insurance quotes. It is a simple enough thing to do. However, that zip code contains everything companies need to know about the possible risks in that particular region. The same applies to the make and model of cars. Everything related to them is already calculated and loaded into the quote platforms.

Precise and Personal Premium Calculations

Only a few years ago, companies were basing their automobile insurance premium calculations on mainly driving records, claim history, address, age and vehicle details. They have been trying to build risk tiers for years. Finally, they can look at it from many other and much more personalized angles and see a clearer picture. For example, some companies are regarding credit scores as a better input in the way of predicting the future likelihood.

As mentioned earlier, availability of so many minute details differentiate drivers more and that results in razor sharp and personal pricing. No more getting bundled with the rest of them.

A computer program can almost tell if a recent accident a motorist had is one off and it is unlikely that another one is going to happen by looking at the person’s details like financial position, marital status, employment and homeownership. Each one of them provides insight into a driver’s risk profile and that in term allows companies to offer shaper car insurance prices.   

Predict and Prevent Fraudulent Claims

Another big leap is achieved in the way fraudulent claims can be nipped in the bud. Decades of claims data was already transferred to digital form. This made it easier to take the next step and start using them to predict certain behaviours. Crooks try the same things over and over until it doesn’t work anymore.

Programming is all about patterns, statistical significance and prediction. Once you have enough data to give you all of that, it is easy to build a program that will do exactly what you want. In this context, they look at many old known fraudulent activities and work out the recurring pattern. Then, they program the computers to fish them out.

It is estimated that the insurance industry will save about $4 billion dollars every year thanks to crime solving, machine learning technologies. Some of that money has to trickle down to consumers and that means cheaper auto insurance for everyone. The whole purpose of predicting and preventing is to plug a hole in the system and save money by doing so.

Offer Personalized Vehicle Insurance Solutions

Other digital developments like the Internet of Things open up the way for new solutions. Again, it all boils down to availability and usability of more data. Companies have been offering solutions with the help of telematics devices for some time now. There are many more limited use car insurance solutions in the market these days. Some of them just monitor the mileage while others look at a whole lot more from driving patterns to vehicle usage.

Especially for younger, novice and high-risk drivers these usage-based policies can save substantial amounts of money. Many companies offer as much as 20% discounts for just agreeing to monitoring because they believe that drivers will be extra careful when they know a big brother is watching them.

Unfortunately, they may seem to be podding and prodding into motorists’ personal lives. It is up to the authorities to make sure they don’t go too far and always get consent to gather and use personal information where it is used. Once people realize that they can get lower vehicle insurance rates by giving up some privacy they may be more cooperative. And some people may just not be willing to try solutions like telematics for privacy reasons.

Sources: YFS Magazine