Let's be frank. There is a lot of disenchantment with the way automobile premiums are being determined. There are now accusations swirling about new levels of alleged discrimination taking place, this time based on income, educational level and occupation. When the issue hits the pages of The New York Times, you know government regulation isn't far behind.
Assessing auto insurance risk based on factors such as education and marital status may or may not be fair, depending on many situations. But other factors impact the accuracy of risk assessments and premiums as well. For example, outdated rules engines tied to legacy applications may even skew and warp ratings, as I discussed in a post a couple of years back.
Big data may be coming to the rescue. There's more and more of a push to tie premiums to actual, documented driving habits, which is the most accurate form of risk assessment there is. And, as observed by Mario Rodriguez, director national technical compliance at Sedgwick, the ability to track and capture driving patterns for each individual is now attainable through event data recorders (EDR), the “black-box” recorders now put in every vehicle. EDRs, combined with telematics devices, provide a powerful and accurate documentation of driving habits, independent of any of the traditional lifestyle, economic and situational risk factors that have been part of auto insurance.
Rodriguez cites National Highway Traffic Safety Administration, which estimates that some 91 percent of cars on the road today have EDRs. However, insurers have been reluctant to tap into EDR data, he says. Right now, it's a hot potato, since, unlike telematics, it involves data collected without the vehicle owner's consent.
For one, there are legalistic questions about who owns that data. It could be the car owner, the auto manufacturer or even law enforcement.
“It’s kind of a tricky issue, as each automobile manufacturer has its own proprietary approach to EDR,” Rodriguez points out. He also notes that “there is currently a hodgepodge of legislation governing EDR — some states allow it, some don’t. In fact, out of privacy and other concerns, some states even have mandates that nullify use of EDR data.” So insurers have heretofore have been reluctant to touch it.
Rodriguez, for one, says it's time that EDR data is released and made available to the insurance industry for claims settlements. But it's going to take some internal industry collaboration, legwork and evangelizing. As he puts it: “As an industry, we need to encourage standardization of EDR technology and adoption of uniform state laws governing its use. We need to start more pilot programs and work to train our adjusters on how to maximize the data contained in EDRs. Insurers should include language in their policies granting them immediate access to the technology in the event of an accident. And, we need to encourage car manufacturers to do more to expand utilization of not just EDR technology, but other collision and accident avoidance tech. Let’s not just record data — let’s do more to prevent accidents.”
Joe McKendrick is an author, consultant, blogger and frequent INN contributor specializing in information technology.
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