How Analytics Will Shape The Future of Auto Insurance For Businesses

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So many things have changed ever since the first cars started coming out. Back then, cars were just machines that would take you from point A to point B. And this remained the same for almost a century. 

But with the coming of computers and powerful computing machines getting smaller, things are changing rapidly. Now people don’t drive cars, they drive a computer. 

This advancement in driving technology has resulted in lower car accidents and better understanding of the driver’s driving pattern but we still haven’t seen a big drop in car insurance rates. 

So how can the advancement in analytics and data processing help the future of auto insurance policies? More importantly, what does this mean for the average driver or business owner who does not want to spend thousands of dollars on auto insurance policies?

To understand the impact of analytics and the direction it is taking the car insurance industry, we need to first look at the process of how car insurance policies are priced. 

The Process of Pricing Policies

Car insurance companies provide different quotes for everyone, even for the same policies. This is done because auto insurers go through a complex and rigorous analysis process to determine the price of the car insurance for each individual buyer.

Auto insurers consider dozens of factors to assess the risk of the policyholder getting in a car accident and making an insurance claim. Insurers want to reduce the number of policy claims to minimum, and increase the number of policyholders paying premium on time. 

While this may sound simple on paper, determining who is more likely to get in a car accident and make an insurance claim is not that simple. 

Car insurance companies asses your:

  • Driving record: To check if you have a poor driving record with speeding tickets, rash driving, accidents, DUI charges etc. 

  • Past insurance claims

  • Age

  • Gender

  • Location

  • Credit Score

  • Make and Model of your car

There are other minor factors as well. The point here is that auto insurers have to rely on these factors to determine your insurance rates. So what happens when you are charged more for car insurance policies?

Why You Are Charged More 

If you have noticed that you are shown pricey car insurance quotes, it could be due to one or more factors mentioned above. Let’s look atl the possible reasons your insurance rates have been inflated. 

Getting in a car accident: One of the fastest ways of increasing your insurance rates is by getting in a car accident. Road accidents can stay on your driving record for as long as seven years. 

Traffic Violations: If you have recently received a speeding ticket, or points on your driver’s license, or you were caught committing some kind of traffic violation, your insurance rates will increase. 

One of the worst things that can happen to your driving record is a DUI charge. A DUI charge can increase your insurance rates by over 200%. 

Age: Younger people who are below the age of 25 are charged the most when it comes to age. This is because most of the car accidents involve a teenager or a person younger than 25 years of age.

Past Insurance Claims: Once you make an auto insurance claim (except someone else’s liability coverage), your insurance rates will increase. It is because auto insurers now view you as a high-risk individual and more likely to make other insurance claims. 

Gender: Females are less likely to be in a car accident compared to males, and hence auto insurers charge females less than males. 

If you are getting inflated costs, the best thing to do to get cheaper and affordable insurance rates would be to compare the policies and get the most affordable option. 

For example, if you live in Illinois, then search for cheap car insurance in Illinois and select the option that offers the best coverage at the lowest price. 

How Better Analytics Can Help

So why did we list all the factors that affect your auto insurance rates and what do they have to do with the future of auto insurance policies? Well, as you can see, the factors used by car insurance companies to determine the rates are helpful, but not definite.

For example, a person might get in an accident while driving in a busy and unruly area. And even though it might be the driver’s fault, this does not mean that the driver will again get in a car accident. 

So, increasing the insurance rates just based on this would be unfair. But these factors are currently our best ways of determining the risks of future car accidents. We just do not have any better or more precise way but we are getting there.

The Future of Car Insurance Policies

The future of car insurance policies and their pricing is about to change with better data analytics. Car insurance companies are using the power of Artificial Intelligence and powerful data processing devices to do much more complex analysis.

This complex analysis leads to better predictions and hence better pricing. Companies are working to develop programs and software that integrate with the car’s tachometer, and it analyzes every little thing, from the speed to the frequency and nature of braking.

With powerful and intelligent algorithms, the software can analyze and predict very accurately the chances of the driver getting in a car accident. It is not perfect, but it is definitely more accurate and better than the currently used methods.

So, perhaps in the future you can have an application on your phone that connects with the car and it shows a probability meter of you getting in a car accident based on the real-time analysis of your driving. 

You start driving rashly and the probability of an accident goes up, and so does the expected cost of auto insurance policy. This real-time report would definitely stop many drivers from driving rashly. 

That future is still far ahead, however, and we are stuck in the present. So, how do you save money now on car insurance policies? By driving carefully, following traffic rules, and avoiding road accidents.