Here at Root, we believe that price is simply one piece of creating a fairer insurance industry. Right now for many consumers, the process is opaque, and often the factors that go into their rate estimates are unclear. However, as we are able to leverage data from smartphones to understand how people drive, we have the opportunity to transform the way we set insurance prices. Usage based insurance (UBI) – also known as pay how you drive – has the ability to transform not only an industry, but society at large in very tangible ways.
Our chief data scientist, Dr. David Martin, recently published an article for Wired outlining how UBI will impact the auto insurance industry. We believe that this kind of data will help make sure that good drivers receive fair rates, and that UBI is truly the future of the industry.
In the article, Dr. Martin outlines three specific ways that data is driving change in insurance. First, it finally allows the industry to move away using demographics to set rates, a practice that is often unfair to good drivers due to something that is entirely beyond their control. Secondly, this data can help prevent fraud, which is an expense that many insurancers pass on to their customers. Finally, and perhaps most importantly, driving data can save lives by helping create safer roads and better driving behaviors.
There is one other reason why this data is so important: it allows for a new model of insurance pricing that is based on fundamental fairness. As Dr. Martin writes:
One of the strongest cases for UBI is the increased pricing fairness it affords. Selling customers insurance policies at prices closer to their expected loss cost represents an ethical victory: It penalizes the most dangerous drivers while justly rewarding individuals who are doing their part to make the roads safer for everyone. Ultimately, these benefits extend to everyone sharing the road.
Take a moment to read Dr. Martin’s full post at Wired.com, and if you’re interested in how better data can help you get a better rate on your insurance, get in touch!