Data Analytics and AI Drive Continued Changes in the Auto Insurance Market
Transformative technologies enable insurers to build smarter customer profiles to improve service and deliver personalized discounts.
When you see auto insurance commercials with actors pleading, “Don’t mess with my discount,” they’re based on new AI-driven capabilities that allow companies to process and analyze vast amounts of data and improve customer experiences.
About 25 years ago, car insurance companies had only a handful of variables upon which to base their rates, including a driver’s age, marital status, years behind the wheel, type of car and the ZIP code where he or she lived. Then companies started to analyze location data and driver profiles more granularly, eventually correlating credit scores with drivers’ propensity to file insurance claims.
All the while, companies were accumulating data on accidents — where they happened, in what type of weather — and overlaying the information on top of other data. This was run through analytics software in order to identify, for example, the most dangerous intersections in the country. Combined with AI, companies have been able to create predictive models that describe the risk a customer might pose.
Today, we’re in the age of usage-based insurance. With modern automobile technology (which already generates about 25 gigabytes of data an hour) and new data-gathering methods, including smartphone apps, insurance companies can answer many questions about drivers: How fast does a person accelerate? How hard does he brake? What time of day does she typically drive? Using AI and data analytics, insurance carriers can correlate this data with the likelihood of a driver filing a claim, leading to personalized pricing, safe-driver discounts and more.
The Future of Insurance Analytics
Looking ahead, insurance companies want to use AI and analytics to better understand the type of claim a customer might file. Not all claims cost the carrier the same amount of money, and how a company processes a claim often depends on type. With the data now at their disposal, and a good understanding of risk, insurance companies want to know if a person may have a fender bender in a parking lot or a T-bone collision at an intersection, because they’re very different claims.
At their core, insurance companies do three things: Sell policies, administer policies and adjust claims. Digital technologies vastly improve how they do all three. Legacy carriers have embraced AI and analytics, in part, because they’ve had to. Studies have indicated digital-first insurance companies were up to 12 percent more efficient than companies with legacy infrastructure. AI has helped level the playing field and ultimately created an insurance market in which there are competitive policies available to drivers of all types and demographics — plus attractive, data-informed discounts for the best drivers.
Risks and Rewards
You might wonder whether all the data insurance companies are collecting — some of it in real time — is a privacy risk for consumers, even if AI and data analytics result in a better insurance product. In general, consumer data privacy is an issue larger than any one industry, and all companies are getting better at letting people opt in or out of data collection, whether under their own policies or via legislation. And by and large, the data that insurance companies analyze — aside from claims information — is anonymized. Much has to do with a car’s performance (acceleration, braking, etc.) and can’t be tied to an individual driver.
But you can see a world in which customers actually benefit from personalized insurance data profiles. If today’s technology allows insurance carriers to offer better rates and service based on usage information and the data they can analyze, might a consumer want to own that data profile and be able to shop it around? Consumers may soon want to take that data to another carrier and say, “Here’s my last six months of driving history. Please run it through your algorithm and tell me what kind of discount you can give me.”
This type of insurance customer experience is increasingly possible, thanks to digital technology. In fact, with AI and data analytics, everyone in the insurance value chain can ultimately benefit, leading to discounts that no one can mess with.
