How auto insurers are leveraging advanced data scoring to provide more customized rates

By Bob Homer

Today’s automotive and auto insurance industry continues to evolve, driven by the integration of advanced data, analytics and data scoring technologies. This shift is enabling insurance companies to offer more personalized, affordable and fair insurance rates to their customers.

By harnessing vast amounts of data and employing sophisticated analytical strategies, insurers can better assess risk, predict customer behavior and tailor their offerings to meet individual needs. This deeper level of data technology is reshaping the landscape of auto insurance and helping insurers offer the best quote possible.

According to a June 2024 Forbes Advisor article, the cost of auto insurance increased by 63.8% between 2014 and 2023. With these rising costs, insurers must find a way to leverage data to score and price policies more competitively as car insurance costs continue to rise.

Furthermore, with the increased proliferation of electric cars and trucks on the roads, insurers are paying close attention to how they price premiums for electric vehicle drivers. A June 2024 analysis by the Wall Street Journal found monthly EV premium insurance costs to be on average 12% higher compared with gas-powered vehicle rates.

Data collection: The foundation of modern auto insurance

The starting point of this evolution is the collection of diverse and disparate data sets. Insurers are no longer limited to traditional sources such as driving records, claims history and credit scores. Today, insurers tap into a wealth of information from various sources, including:

Telematics devices: These devices, installed in vehicles, provide real-time data on driving behavior, including speed, acceleration, braking patterns and mileage. This granular data helps insurers understand how safely a person drives, which directly influences risk assessment.

Mobile apps: Many insurers now offer mobile apps that track driving habits via smartphones. These apps can monitor distracted driving by detecting phone usage while driving, further refining risk profiles.
Connected cars: Modern vehicles equipped with advanced sensors and connectivity features can transmit data directly to insurers. This data includes information about vehicle maintenance, system diagnostics and even geolocation data.

Self-service verification: Image authentication platform enables insurers to accurately verify vehicle possession, location and mileage values. Contactless odometer and VIN extraction enables precise vehicle information to be instantly collected, which establishes a frictionless customer experience via simple, fast, and accurate verification. Captured images are served back to insurers in real-time which improves auto insurance risk assessment with both speed and trust.

Advanced analytics: Turning data into insights

Once the data is collected, advanced analytics come into play. This involves the use of statistical models, machine learning algorithms and artificial intelligence to process and analyze data. The key aspects of this analytical approach include risk scoring. Data scoring systems assign a risk score to each policyholder based on various factors such as driving history, vehicle type and even environmental conditions like weather patterns. These scores help insurers set premiums that accurately reflect the risk posed by each driver.

Advanced analytics also play a crucial role in detecting fraudulent claims. By analyzing anomalies and inconsistencies in claims data, insurers can identify and investigate suspicious activities more effectively.

Personalized auto insurance rates

The insights gained from advanced data and analytics enable insurers to create highly personalized insurance rates based on these scoring models. Rather than offering one-size-fits-all policies, insurers can tailor coverage to match the specific needs and risk profiles of individual customers. This personalized approach has several benefits that include usage-based insurance programs, such as pay-as-you-drive or pay-how-you-drive, where insurers can adjust premiums based on actual driving behavior. Safe drivers who log fewer miles or demonstrate cautious driving habits can enjoy significant discounts.

Insurers can also leverage dynamic pricing to adjust premiums in real-time based on changes in driving behavior or other relevant factors. This dynamic pricing model ensures that premiums remain fair and competitive.

Customers can select custom coverage options that align with their unique circumstances. For example, a person who drives primarily in urban areas might opt for coverage that includes protection against theft and vandalism, while a rural driver might prioritize collision coverage.

These risk scoring models are also helping to ensure that insurers can extend affordable premiums and packages to drivers who are considered thin file or no file, consumers with less or no credit history on file but still have the ability to pay their auto and insurance payments on time. A deeper look into payment histories in areas such as payday loans, cellular payments, or utility payments is now giving insurers better visibility into these individuals to set the right risk levels. This ensures more consumers are provided the best rates in the market.

Enhancing customer engagement and satisfaction

The use of advanced data and analytics extends beyond underwriting and pricing. It also enhances customer engagement and satisfaction through proactive communication, where insurers can use data to send personalized messages and alerts to customers. For instance, if telematics data indicates that a vehicle requires maintenance, the insurer can notify the driver and recommend nearby service centers.

Claims processing can also be streamlined and expedited claims processing is another benefit. By leveraging data analytics, insurers can automate the evaluation of claims, reducing the time and effort required to settle them.

Educational insights are also enhanced. Insurers can provide customers with insights into their driving behavior, helping them understand how they can improve safety and potentially lower their premiums.

The auto insurance industry is leveraging advanced data, analytics and data scoring to create more affordable, fair and personalized insurance packages. By harnessing the power of modern technology, insurers can better assess risk, engage with customers more effectively, and ultimately enhance the overall insurance experience. As these technologies continue to advance, the future promises even greater innovations that will benefit both insurers and policyholders alike.

Bob Homer is vice president and general manager of insurance, Equifax. Contact him at [email protected].