Big data and auto insurance

Auto insurance companies need to be able to “predict” the behavior of their clients, and to some degree, they need to predict the environment their clients will be living and driving in. These behaviors and environments are called variables.

Car insurance companies have traditionally priced their policies based on ten or twenty variables. These were things that may seem obvious – such as the drivers age, gender, driving record, zip code, and how many miles are driven. Insurance is an extremely competitive business, so companies that can use the information available on their clients stand the best chance to offer the best prices, and most importantly, be profitable.

“Big Data” is a term the general public may not be very familiar with. But once you think about it, you will see it everywhere. Everyone has a data “fingerprint.” Credit scores, purchasing behavior, social media information, and a multitude of other statistical information are available to better predict future risk potential for clients.

Instead of a couple dozen variables, insurance companies can use hundreds of data statistics to make sure the higher risk drivers are being charged and the lower risk drivers are being rewarded. It also helps insurance companies create products that serve people more efficiently.

Most important for us as consumers of insurance is the ability for our insurance to be more effectively priced for the individual. Suppose you are a twenty two year-old single male. As a group twenty two year-old males may have a higher risk of having an accident, so they will pay a higher premium. What if you are an exception to the rule? Devices can be installed on your car that will measure your driving behavior and reward you for your safe driving! It’s not perfect, because these devices don’t know who is driving. If you loan your car to someone, their driving behavior will be attributed to you.

Car insurance in the near future will be changing to reflect a more individualized risk. Information privacy is an issue with all of the data the world is producing. Who has access to it and what they can do with it is something businesses and the government are wrestling with. The end result will hopefully be a better product, more efficient pricing, and a better customer experience.

The information contained in this page is provided for general informational purposes only. The information is not meant as professional or expert advice, and any reliance you place on such information is therefore strictly at your own risk.

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