For decades, auto insurance rates have been based on standard underwriting criteria: the driver's age and education level, and the make and model of the car.
Now a young Erie firm is developing a sophisticated, high-tech approach that analyzes actual driver behavior – fast acceleration, cornering, swerving, hard braking – to define risk and set rates.
This week, Advanced Insurance Products & Services
got a big boost in its work to further develop an advanced predictive model using its proprietary technology platform as winner of the $50,000 BIG IDEA Business Plan Contest, sponsored by the Ben Franklin Venture Investment Forum and Ben Franklin Technology Partners of Central and Northern PA
Jeff Stempora, Advanced's CEO, explains usage based insurance (UBI) like this: a piece of computer hardware – a sort of automotive black box – monitors driver behavior for around 60 days. From that data, Advanced is building mathematical models that define that driver's risk by creating a risk score – similar to a credit score -- and is creating software that allows the insurance companies to accurately price their coverage.
Stempora started a UBI-related business on the hardware side in Arizona several years ago before launching Advanced last year. "It became very clear that the future was the information," he says. "Very few insurance companies know how to [use] that information from those little black boxes."
With only about one million American vehicles currently insured using UBI, the market potential is huge for UBI to replace traditional methods of risk assessment. UBI, says Stempora, "has created an arms race in the [auto insurance] industry."
Source: Jeff Stempora, Advanced Insurance Products & Services
Writer: Elise Vider