Insurers writing nonstandard auto can face several significant pricing challenges due to the breakdown of these alternative driving risks. In some cases, there’s a lack of information on prospective applicants—maybe they’re first-time drivers or hold an international driver’s license. In other cases, there’s information in the applicant’s history that keeps them out of the standard preferred risk pool.
However, in both of these cases, drivers may in fact, warrant better pricing than their history (or lack thereof) suggests—but without concrete data, insurers may rely on less precise proxies when establishing premiums.
Vehicle telematics and usage-based insurance (UBI) programs tackle these pricing challenges head on, providing nonstandard auto insurers with an opportunity to gain a clearer view of driver risk even when traditional rating information is missing, while also giving applicants with complicated histories a chance to drive themselves back toward more favorable premiums.
The evolution of telematics and UBI
Telematics is a method of monitoring an asset, in this case a vehicle, using a range of onboard sensors that detect driving behaviors such as acceleration, cornering, and braking intensity, among other data points. After this information is captured, it is transmitted by radios inside connected cars, plug-in dongles or smartphones. Mature telematics programs then employ advanced analytics that refine raw data into actionable insights.
The technology was adopted by fleet services to monitor commercial vehicles and has since penetrated the consumer auto market.1 In the 2000s, one of the top 10 auto insurers embraced the use of driving behavior data as a new method to rate risks and offer discounts for safer driving habits, and telematics-based insurance was born.
As the auto insurance market becomes ever-more competitive, there is an imperative for insurers to identify new sources of rating information, such as telematics data, to get a closer view of a driver’s risk. Telematics data sources are growing: the global telematics and connected car market is expected to reach 75 million units by 2023.2
Insurers that have successfully implemented telematics programs are poised to grow their market share by providing discounts that can attract safe drivers, and those that have not could be at greater risk for adverse selection. Furthermore, the value of telematics extends beyond segmentation and pricing, and includes new conduits for customer engagement that can help insureds improve their driving habits or deliver other value-add services.
Data-driven results on nonstandard auto risks
The nonstandard auto market is comprised of a diverse risk pool that includes young and even first-time drivers who may not qualify for standard-preferred coverages due to a lack of driving history. It may also include those applying for coverage with an international driver’s license, where loss and claims history may be opaque or nonexistent. However, these applicants may represent attractive risks that an insurer wants on their books. With quality, historical data, you can achieve greater insight into the driver’s behavior and better determine which risks you’ll want to retain and which you won’t.
With a telematics-based program in place, nonstandard insurers can utilize real-world driving information to better segment these risks. Using historical driving behavior data, such as what is available through the Verisk Data Exchange™, insurers could gain a more thorough understanding of whether these drivers should be charged nonstandard premiums or should qualify for discounts. They’ll also be better equipped to determine whether these nonstandard risks are retention worthy.
Sometimes information on an applicant in the nonstandard auto market may be the type the driver would prefer to forget—such as past violations or lapses in coverage. A UBI program could be valuable here as well, providing drivers with the opportunity to eventually lower their premiums through a proven commitment to safer driving. Insurers with UBI programs can identify and recruit drivers committed to safer practices, even if they have a record of past infractions, with the promise of lower rates validated by telematics data. There are a range of opportunities to utilize telematics and UBI within the nonstandard auto space.
Know the score on real-world driving data
The Verisk Data Exchange™ is a first-of-kind hub that is ideally suited for both nonstandard and traditional auto writers looking to launch a telematics program or to support their current product development, rating, profitable growth, and risk retention initiatives. Containing nearly 170 billion miles of driving data from over 6 million connected vehicles, the Exchange is growing at a rate of nearly 200,000 new vehicles every month from major automakers including General Motors, Honda, and Hyundai. The Verisk Driving Score, a loss-based predictive model that can help you sharpen rating and segmentation capabilities, has been filed and approved/implemented in 43 states and is compatible with connected car data as well as third-party dongles and smartphone-based solutions.
Learn how the Verisk Data Exchange, its multisource data compatibility, and advanced analytics capabilities can support your goals across the life cycle of a telematics program. Additionally, learn more about Verisk’s innovative suite of solutions for the nonstandard auto market.
- “History and Evolution of Telematics,” OmniM2M, August 6, 2015,
< https://omnim2m.com/history-and-evolution-of-telematics/ >, accessed on May 22, 2020. - Shipments of embedded OEM telematics systems worldwide between 2019 and 2023, Statistica, April 6, 2020,
< https://www.statista.com/statistics/252370/connected-car-system-shipments-worldwide/ >, accessed on May 22, 2020.
