What lies ahead: The ultimate predictor for auto insurers

Looking towards the future of auto insurance and observing the historic rise in claims costs, insurers need to leverage telematics, today!

Following a year of rapid evolution of driving patterns in our country, predicting what lies ahead is of great value to insurers. Auto insurers are grappling with a 20-year rise in claims costs, while at the same time challenged to grow market share profitably. To navigate this paradox, it’s imperative that insurers more accurately assess low- and high-risk drivers. Insurers who collect and use driving data to determine auto insurance premium have an advantage against their competitors. However, evolving their approaches for when and how to apply these insights will prove critical as the industry adjusts to new driving behaviors resulting from the pandemic.

Predicting driving behaviors is all about chasing perfection to be the ultimate predictor. And while there’s always more room to innovate, factoring driving behaviors into traditional premium models is the best predictor of loss. And having that insight at the moment of new business, well it’s the next best thing to a real crystal ball. But doing so requires access to driving behavior data at the point of quote, and at a scale that’s meaningful.

Fortunately, new channels are enabling carriers to reap the benefits of telematics from the driving data consumers already share with popular mobile apps. Just one example is GasBuddy, which not only shows drivers where to save on gas, but tips for saving based on how they drive. This data can help better price consumers and allow insurers to rate a much larger percentage of their book of business more accurately. With traditional driving patterns changing, costs increasing, and rates rising, carriers’ traditional ways of using driving data must evolve to remain competitive with, and meaningful to, consumers.

More and more carriers should be looking to leverage driving data to meet evolving consumer expectations for more personalized coverage options and related pricing.

So, how can auto insurers leverage these new channels to stand out and attract and price customers profitably? Tailored pricing for individual drivers plays a pivotal role. Rather than raising rates broadly to cover claims costs, telematics, and Arity IQSM allows insurers to rate consumers based on a more accurate view of the potential costs of insuring them. Both now and in the future, remaining competitive requires embracing these insights to innovate new, better approaches to addressing risk. Further, more and more carriers should be looking to leverage driving data to meet evolving consumer expectations for more personalized coverage options and related pricing – ones based on HOW a person drives, not just who they are, where they live, or their credit score.

Earlier this year, Arity conducted a consumer survey of nearly 2,000 U.S adults on how they feel about auto insurance and found that most consumers want their insurance pricing tied more closely to how they drive rather than who they are and what they look like. When asked which factors should be most important to the price of their insurance, people pointed to:

  • Previous driving records
  • How many miles they drive
  • How safely they currently drive

Based on these findings, it’s clear that consumers now demand pricing to evolve even further – to become more prescriptive with driving data, even before an initial policy is issued. The power of telematics data instantly available through Arity IQ has enabled carriers to predictively account for risk when assessing premium from the get-go, making this pool of driving data the ultimate solution for both closing the quotes carriers want as well as not losing money on the ones they don’t.

Today, many US-based carriers offer a telematics product to their customers (i.e., auto insurance based on personal driving data). by providing all customers the same participation discount for enrolling in the program, generally between 5 and 10 percent – regardless of their actual driving behavior risk. Only after the monitoring period to assess actual driving behavior risk, can carriers remove or increase discounts at renewal. Through Arity IQ, insurance carriers and consumers can now reap the benefits of this already-collected driving data in the form of the Arity Drivesight score.

So, instead of relying on consumers to first enroll in an insurer’s telematics program to determine if they deserve an increase or decrease on their rate, consumers will earn an accurate and transparent price from the start. This leads to carriers providing more accurate, personalized pricing when quoting consumers at point of sale based on their actual driving risk – and lower rates for the safest drivers!

Looking towards the future of auto insurance and observing the historic rise in claims costs, insurers need to leverage telematics to better price drivers relative to their actual risk, today. Tapping driving data at time of quote with Arity IQ levels the playing field for insurers who use it and allows them to meet rising customer expectations for more relevant and transparent pricing that protects profit across.

Headshot of Henry Kowal
Henry Kowal
Henry Kowal is Director of Product at Arity, where he is responsible for emerging aspects of Arity’s Insurance product strategy, including Arity IQ. He joined from The Hartford, where he defined the telematics strategy and roadmap for the Personal Lines Auto business. He also oversaw the design, implementation, and management of the new smartphone telematics program offered to The Hartford’s AARP policyholders in over 40 states.