Auto Insurers Are Learning to Use Personalized Data to Set Rates

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Leslie Scism, Car Insurers Find Tracking Is a Tough Sell; Companies look for ways to get inside vehicles, but customers are wary. Wall Street Journal, Jan 11, 2016 (front page).
http://www.wsj.com/articles/car- ... ugh-sell-1452476714

Quote:

(a) "the roughly $185 billion auto-insurance industry undergoes a wholesale change in how companies size up risk [from broad actuarial categories supplemented by driving records, to individualized driving data] * * * Progressive, Allstate Corp. and State Farm Mutual Automobile Insurance Co. are promoting plug-in devices and/or smartphone applications

(b) "Progressive traces its interest in data to its entry into the car-insurance business in 1937, after other insurers had largely cornered the market for the safest drivers. Left to pick through pools of rejects, Progressive studied accident reports to find the relatively better risks. It discovered, for instance, that older people who failed to yield at intersections posed more risk than those with speeding tickets.

"In the 1990s, its analysts helped establish a correlation between credit histories and claims by testing a hypothesis that financially responsible people are more cautious drivers. They factored that into pricing, so some applicants who on the surface look risky could end up paying less, and vice versa. Many rivals followed suit. * * * [innovation continued] Progressive gleaned new information, such as a mile driven at 2 am was in general four or five times riskier than one driven at 7 am. [yet further down the report is a disclaimer: 'Insurers are still on a learning curve when it comes to usage-based systems. Last year for instance, Progressive concluded Snapshot was overestimating the potential for accidents from midnight to 4 a.m. driving on week nights, and now considers late-night driving to be high-risk only on weekends.'] * * * In 2008, Progressive came out with a device that used wireless technology, which meant data could be sent directly to Progressive’s computers.

(c) "the company [Progressive] concluded most people have repetitive commuting patterns and driving behavior, so managers decided it would be enough to just take a [six-month] snapshot, after which the device would be removed.

"Since 2008, nearly four million drivers have participated in Progressive’s program. The most powerful predictor of accidents, the company says, is hard braking. * * * Progressive’s device beeps every time it senses a hard brake to make drivers aware of the risky behavior.

the power of individualized data, compared with categorized one : "The conventional approach of grouping insurance applicants into demographic pools reflects findings including that the average married male is 3% more likely to have an accident in a given year than a married female, according to Progressive. But married males with the fewest hard brakes are 41% less likely to have an accident than the typical married female as determined by the conventional methodology, according to Snapshot data.

(d) "David Pratt, who runs Progressive’s Snapshot program, says smartphones have made Americans more comfortable with location tracking, so the company is once again researching GPS use, including in some of its Snapshot devices.

(e) "Among the few big insurers that have yet to publicly acknowledge at least experimenting with usage-based insurance is Berkshire Hathaway’s Geico unit, which has bigger market share than Progressive. In the past, Berkshire CEO Warren Buffett has said that Geico doesn’t see evidence that usage-based pricing would provide an advantage.

Note: Progressive Corporation
https://en.wikipedia.org/wiki/Progressive_Corporation
(was co-founded in 1937 by Jack Green and Joseph M Lewis, and is headquartered in Mayfield Village [a suburb of Cleveland], Ohio)