Time To Rethink Car Insurance
Most of us will be aware of the ongoing transportation and automotive revolution that within a decade will consign driving to the past and instead usher in a world where cars simply provide a service. The impact of such fundamental change will be widespread and among the sectors most affected will be insurance.
It's difficult to tell what goes into a car insurance quote: Is it my age? That accident from a few years ago? The color of my convertible?
The Zebra, which runs a car insurance comparison site, is out to change that. It introduced a new score on Tuesday that will help consumers understand where they stand in the eyes of a car insurance company and where they have room for improvement.
The "Insurability Score" will take into account a person's driving record, credit history, insurance history, vehicle usage as well as personal characteristics like education level, marital status and age. Scores range from 400 to 950, with the most options and best rates going to those on the higher end.
"Insurance is a very meaningful part of people's lives and their fourth-largest expenditure, but people just don't seem to understand it," says Joshua Dziabiak, co-founder and chief operating officer.
Similar to how banks and lenders use credit scores in borrowing decisions, most insurance companies have used some type of score for the last two decades to assess an applicant and the risk they pose. However, while that score is used to spit out a quote, it is unbeknownst to a consumer.
That used to be the case with credit scores. The three-digit scores that reflect a person's history with loans and credit cards were once secret and known only by financial institutions that used them to assess potential borrowers. However, since being introduced 28 years ago, they've become widely available for free to consumers either through Credit Karma or, more recently, through consumers' own credit cards.
In fact, machine learning is already making itself felt in the insurance sector, leading to an informal classification between legacy or traditional insurers and the so-called insurtech players exploring the possibilities provided by data-intensive processes.
Car insurance is big business for many insurance companies: the law requires all vehicles to be covered, and what’s more, in most countries drivers must have a policy for each vehicle they own, regardless of whether it is being used or, as with most cars, they are parked up 95% of the time.
In response, Metromile suggests pricing policies on how often a vehicle is being used. The company has already attracted around $300 million from investors to design systems that not only charge on how many miles you drive, but also to automate accident reports based on the vehicle’s sensors. Other companies, such as Zubie, plug a device into a car’s OBD port to monitor use, the type of driving, or even to warn when a part needs replacing, basing the price of a policy on the driver’s score. Arity, a spinoff of the U.S. giant Allstate, has come up with a platform aimed at linking certain types of driving with accidents.
by using a smartphone app to create a portfolio of low-risk users: 90% of drivers have never had an accident and 95% obey traffic signals. Trying to discover fraudulent claims is the leverage the company intends to offer competitive prices: users keep the company’s app active while behind the wheel, building up a picture of how they drive, and can also be used to establish the circumstances of an accident and thus expedite payment in the case of a genuine claim.
Root, a company I’ve already talked about, offers a policy specifically for Tesla cars in which the owner pays less the longer the vehicle is used in self-driving mode, reflecting the data showing autonomous driving is inherently safer than having a human behind the wheel, and has come up with apps that use a smartphone’s sensors to determine how somebody drives, rather than basing the cost of a policy on where they live, how old they are or other socio-demographic factors used by algorithms and that have been shown to be discriminatory.
Are insurance companies taking a proactive enough approach to using technology now that so many of us carry a powerful computer around with us and vehicles can easily and cheaply be fitted with sensors? Old habits die hard and many companies will resist basing policy costs on car use or how we really drive; perhaps they’re right and such an approach is not sustainable.
Is the insurance industry living on borrowed time or will there be a race to generate spinoffs or acquisitions that will allow it to save face despite its technological backwardness? Aside from the changes the automobile insurance industry will have to make to deal with the transition to autonomous vehicles, many of them in fleets, the use of technology could help lower the cost of policies. The question is whether the traditional players, the so-called legacy insurers, are simply biding their time.
There's A New Way To Figure Out Why Your Car Insurance Costs So Much
While The Zebra won't provide consumers with the exact score that insurance companies use, it will use a lot of the same information to generate a score that helps consumers understand their risk level. Insurance companies are typically looking at a score that takes into account a person's credit history, as well as driving record, in order to help predict how likely a person is to be in an accident or file an insurance claim. (Insurance companies are prohibited from using credit scores to set prices in California, Hawaii and Massachusetts).
The Zebra will break down what factors work in a consumer's favor (i.e. continuous insurance coverage, paying insurance premiums on time), what they can improve (working on increasing their credit score) and factors outside their control (when a previous car accident will disappear from their record).
The score will be available for free to users who create an account on the site and input several pieces of information, including their zip code, vehicle information and insurance history.
Credit Karma also offers an auto insurance and home insurance score from TransUnion on its website, but doesn't include personalized information on what might be impacting it.
The Zebra, an Austin-based company that was founded in 2012 and has raised $61.5 million from Accel and other investors, allows drivers across the country to shop for car insurance from more than 200 providers in seconds. It is now working to expand beyond car insurance and is considering consumer-facing scores for other types of insurance, like health insurance or homeowner's insurance.
Where It Costs The Most -- And Least -- For Car Insurance
If one were to believe the sheer volume of television commercials being broadcast to that end, we are a culture that’s obsessed with our car insurance rates. GEICO alone reportedly spent nearly $2 Billion last year telling a rapt nation it could save money in a manner of minutes by switching carriers.
And while most of us would rather leave money in our pockets than on the proverbial table, other than shopping our business among competing companies, fine-tuning our policies and choosing a vehicle that’s inherently cheaper to insure, there’s little we can usually do to alter the intractable factors that more profoundly affect our annual premiums.
These include one’s age, marital status, address, credit rating and driving record. Among them the one consideration that’s firmly within one’s control is where he or she lives. All else being equal, someone residing in a crowded and crime-ridden urban area can expect to pay considerably more for coverage than will a similar motorist with the same car in a quiet suburb of the same city.