Using Data in Risk Selection: An Outsiders Guide

The automotive insurance industry is constantly changing; we are seeing innovation, such as telematics and partial autonomy, steadily develop the way risk selection works. But for now, before we reach the point where drivers are constantly tracked or barely involved in controlling the car at all, risk assessments in car insurance are made in broadly the same way by looking at a distinct array of categories. Depending on a number of factors, the safety of a driver is judged and translated into the cost of their insurance premiums.

Take a look at the main ways insurers operate their risk selection using data:
 

Younger drivers, who have been proven to be more accident-prone than those with more experience, are typically charged higher premiums. However, there are occasional loopholes. If a youngster believes they are a low-risk driver in spite of their age, several insurers give drivers the opportunity to demonstrate their safe driving with a telematics device or driving App.

Did you know?
Insurers in the U.S. have found a positive correlation between good school grades and safe driving; as a consequence, discounts on premiums may be offered to those who can prove they study hard.

Similarly, older drivers tend to generate higher premiums so it’s in the middle age that premiums tend to be most competitive.

Did you know?
In the UK, on average the optimum age for the best-priced motor insurance premiums is 59 years old.  
 

Postcodes always have a huge effect on insurance premium prices. Unfortunately for city dwellers, the cost is usually more in comparison to those living in the countryside, due to higher crime rates, in particular car theft and vandalism. In fact, in a city a car two streets away from another may have a significantly different price because it’s near a particularly dangerous stretch of road where more accidents have occurred.  

Did you know?
Liverpool, Manchester, Bradford and Birmingham, particularly city centres, tend to attract higher area ratings lists than most. Those living in quiet areas such as Cornwall and Inverness can expect some of the lowest motor insurance premiums available in the UK.  
 

To insurance companies, a credit rating provides some useful pointers for risk selection and pricing. As a fraud prevention tool, someone who isn’t known at a proposed policy address could be a red flag. For some, a good credit score suggests a driver is generally more responsible. Conversely, some studies have shown that motorists with lower credit scores tend to be poorer drivers. Because of this research, a credit rating could play a significant role in whether cover is offered and at what premium.  
 

Insurance companies tend to take a person’s marital status into account when analysing risk. There is a reason for this however. Married drivers are generally considered safer, more reliable, and studies have shown this may be because they are more likely to drive with loved ones in the car and therefore adopt a safer driving style.

Did you know?
A study in New Zealand proved that never-married drivers are twice as likely to file a claim for collision, making single drivers a high-risk group regardless of their safety measures.   
 

Naturally, the history of a driver’s personal driving record will majorly impact insurance premiums. If a large archive of speeding tickets and accidents is uncovered, an insurer will see this as a much greater risk due to the potential losses. One of the most trusted indicators for future behaviour is a motorist’s past; if a driving record is poor, the customer will inevitably pay higher insurance premiums. However, if a good driving record can be maintained, especially for a prolonged period of time, a driver will be likely receive a lower premium.
 

Aside from telematics and autonomous cars, there are many developments being introduced that are expected to dominate the future of data analysis and risk selection in insurance.

Did you know?
At Maiden Insurance Partnerships, we have developed a data enrichment module that can revolutionise insurance risk selection and pricing by cleverly using automotive information not publically available to the wider insurance market. Contact us to find out more.