Analyzing the influence of telematics-based pricing strategies on traditional rating factors in auto insurance rate regulation

This study explores how new driving data from devices like GPS and telematics, which track behaviors such as speeding, braking, and mileage, can be used to make auto insurance pricing fairer and more accurate. Traditionally, insurance relies on general factors like age, gender, or vehicle type to estimate risk, but these methods may overlook individual driving habits. We want to see if adding telematics data to the models would change how risks are assessed and if it would improve fairness in pricing.

We compared three approaches to predicting claim amounts and frequency: one based on traditional factors, another on telematics data, and a third combining both. We used advanced techniques to simplify the large amount of telematics data while keeping it meaningful. We found that telematics data, such as driving patterns and behaviors, improves predictions for how often someone might file a claim but doesn’t add as much value for estimating the cost of claims. Surprisingly, combining traditional and telematics data didn’t drastically change the pricing for most drivers, showing that traditional factors still play a critical role in insurance pricing.

For drivers, this means insurance pricing could become more personalized, rewarding safe drivers with lower premiums. The use of telematics data also promotes safer driving habits, as people know their behavior is being monitored. For the industry, these findings highlight the potential of using telematics to refine risk assessments while still adhering to regulatory fairness standards. This could lead to fairer pricing models that balance both old and new methods, ensuring no group is unfairly advantaged or penalized.

This research bridges traditional insurance methods and modern technology, paving the way for smarter and fairer insurance pricing. While telematics data adds valuable insights, its true power lies in complementing—not replacing—traditional factors. This balanced approach benefits both consumers and insurers, promoting fairness, transparency, and safer driving habits.Xie, S. (2024). Analyzing the Influence of Telematics-Based Pricing Strategies on Traditional Rating Factors in Auto Insurance Rate Regulation (external link, opens in new window) . Mathematics, 12(19), 3150.