New Product Helps Insurers Rate Drivers Based on Where They Drive

The Insurance Services Office (ISO) recently debuted a new rating rule meant to help insurers price policies based on not only how often a car is driven but how often a car is driven in certain geographical areas.

The GeoMetric rating rule is available to insurers who can license the information from ISO that, through a “set of instructions,” can help them set up pricing policies for telematics-program enrollees, according to the ISO.
Insurers typically take where a policyholder lives into account when setting rates but generally can’t quantify where they drive and the risk associated with driving in those areas. The GeoMetric rating rule could help fix that problem.

According to a press release from the ISO, drivers who live and garage their vehicles in high-risk areas but drive through lower-risk areas may end up getting a discount of up to 25 percent.

ISO told Online Auto Insurance News (OAIN) that the rule was designed “in a discount-only fashion” and that there’s a “substantial number” of insured drivers who often drive their cars in less risky places than where they garage them.

“By assessing the risk of actual driving locations while protecting policyholder privacy, GeoMetric reports make it easier for insurers to use the GPS information collected via telematics to identify and award discounts to safer risks,” Kevin Thompson, ISO’s president of insurance programs and analytic services, said in a statement.

According to ISO, the rating rule is approved in 19 states and is awaiting word on 14 other states where it has been filed for consideration. The company declined to specifically say which states GeoMetric is under consideration or has been approved.

ISO also said that GeoMetric is the first telematics-based program the company has sought approval for in filings with multiple state regulators.

ISO Assures Privacy with GeoMetric

Telematics technology has piqued privacy concerns over the tracking data that it generates. In California last year, an Esurance pay-as-you-drive program solely measuring distances traveled was approved by the state’s regulatory department, but regulators were still reviewing usage-based programs like Snapshot and Drivewise.

Pat McConahay, a spokeswoman for the California Department of Insurance (CDI), said that typically private information, such as the times of day a driver uses his or her car, could be used by insurance providers to determine rates if telematics programs are approved. Rate-setting on those factors are iffy because they are outside of policyholders’ control, according to McConahay.

“One example might be charging more to a customer for their occupation that forces them to drive at night,” she told OAIN.

ISO touched on the topic of privacy, saying GeoMetric divides geographic locations into numbered “bands” based on claims data. Each of these bands “represents the set of all locations across the U.S. presenting a particular level of risk.” So a certain area of Oklahoma could hypothetically be denoted as the same “band” as a certain area of Florida if they both had similar loss records. GeoMetric would look at what band a person is driving through, not what geographic location they are driving in.

“These bands are not geographically contiguous; therefore, knowing the band number in which a vehicle is operated does not reveal the location where a vehicle is actually operated,” the company said.

“In order to protect privacy, ISO does not plan to permanently store GPS coordinates once the reports have been produced, nor does ISO require any information regarding who is actually operating the vehicle at any given point and time,” the company said.

Telematics Gaining Steam in Industry

With several major insurers utilizing the telematics in highly publicized products like Progressive’s Snapshot and Allstate’s Drivewise, the information technology has become a buzzword in the insurance industry.

Telematics allows for actual driving-based data on moving vehicles to be transmitted and received in real time, a function behind discount programs that car insurers have used in increasingly popular programs that reward motorists who exhibit safe habits behind the wheel, including driving fewer miles and braking hard less often.

According to ISO, GeoMetric’s rating rule can easily integrate with insurers who already use telematics.

“The rule can function alongside other telematics-based insurance rating procedures to the extent that those procedures do not consider the same types of information as the GeoMetric rating rule,” ISO told OAIN. “For example, telematics-based programs that utilize information such as mileage—which does not directly correlate with how often the vehicle is operated areas in less risky areas than the garage—could conceivably be used simultaneously with the GeoMetric rating rule to determine premiums.”

GeoMetric collects data based on 90-day periods or more. The rating rule determines insurance discounts based on overall mileage “traveled in areas less risky than the garage location.”

“Any trip distance could conceivably qualify an insured for a discount so long as the vehicle travels mostly into less risky areas,” the company said.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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