The future of auto insurance pricing is personalization

Auto insurance pricing is rapidly changing. Have you modernized your pricing models?

For years, the auto insurance industry has maintained a model that’s predictable for both insurers and drivers. It’s rarely a surprise when city dwellers and young drivers yield higher rates while older, suburban drivers often see lower insurance quotes. 

However, the use of traditional metrics to justify individual insurance rates is becoming less popular with consumers. In 2021, Arity surveyed 2000 U.S. adults, and 42% said the way they currently drive should be the most important factor in auto insurance pricing. In today’s economy, U.S. drivers are constantly looking for ways to cut costs — and that includes searching for more competitive auto insurance policies.  

So how do you keep your pricing models accurate, competitive, and timely? The answer lies in a more personalized approach to auto insurance.

Woman looking at her phone on a sunny street.

3 reasons to reconsider outdated pricing models 

Many insurers still price their auto insurance policies using group classifications like age, gender, location, and credit score. While some of these metrics are useful, many insurers neglect to price based on individual driving behaviors, leading to inaccurate policy rates. With that in mind, insurers should consider the following when it comes to pricing based on bulk rates vs. personalized premiums: 

  1. Behavioral shifts: The COVID-19 pandemic led to changes in driving patterns across the country. But not all drivers changed their driving habits in the same way. For example, while some drivers reduced their road time, others may have picked up more aggressive driving habits due to reduced traffic. A personalized approach to pricing via telematics can help insurers more accurately determine how individual drivers have changed their behavior. 
  2. Inaccurate assumptions: Traditional metrics and statistics don’t always represent the individual driver (for example, not all young males are high risk, and not all older suburban drivers are low risk). Instead, the most accurate predictions of risk come directly from individual behaviors on the road. 
  3. Customer retention: Customers are always on the hunt for a better deal. Opting into a telematics program will provide more accurate insights into drivers’ current driving behaviors vs. their accident history, which can dramatically shift a quoted policy rate. And if a driver successfully demonstrates improved driving behaviors and is rewarded with a lower premium, you’re more likely to retain them in the long run. 

Why choose personalized pricing? 

With a real-time personalized snapshot of your customer’s driving history, trends, and habits, you can eliminate the need to categorize drivers based solely on traditional factors. So how does driving data help? 

Implementing a telematics program results in fresh driving data with insights into how individual customers behave on the road. From braking habits to speeding, insurers can use individualized data to price according to risk, resulting in: 

  • Attracting and retaining your ideal driver with a competitive rate upfront 
  • Avoiding mispricing high-risk drivers 
  • Accurately pricing the best drivers with low rates based on their good driving habits  
  • Eliminating the need for a monitoring period by leveraging existing claims data at the time of quote 
  • Developing insurance policy pricing that is equitable 

Accelerate to the future with Arity 

With billions of miles driven, Arity IQ offers one of the largest datasets of driving behavior data associated with actual claims and one of the largest pools of driving scores available for pricing at the time of quote. 

Arity produces driving scores that help insurers more accurately predict driving risk while incentivizing customers to practice safe driving behaviors. With driving scores tied to individual drivers, personalized driving risk gives insurers the most accurate view of how their drivers act on the road. 

Arity has collected over 850 billion miles of mobility data anonymously from over 23 million active connections. Learn more about how we’re changing the future of mobility with tools like Arity IQ.