Insurance companies develop complex mathematical models to determine rates

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Nathan Wilson | Reporter
Insurance specialists called actuaries combine data from traffic incident reports and existing claims to predict the likelihood and cost of insuring their customers against future accidents.
When drivers purchase or renew policies, the quotes they receive are the result of actuaries’ predictions. Some factors actuaries use to determine a driver’s premiums include specific personal information while others are based on broader demographic data.
Drivers must disclose their vehicle’s model, year and features to their insurance company because these determine their automobile’s value and increase the cost for repairs or replacement if a claim is filed for an accident or theft. Many vehicle features increase the cost to insure, but some insurers provide reduced rates for vehicles with safety and anti-theft features that lower the likelihood of accidents or thefts.
Insurance rates are also based on statistical analysis of accident reports and filed claims. Insurance rates tend to decline as drivers age before climbing again as they approach retirement when both their income and daily commute typically falls. Actuarial data does not support the perception that older drivers are more likely to be involved in traffic accidents; instead their higher rates are based on their increased risk of serious injury during accidents.

This article published in the April 9, 2022, print edition

Other demographic factors used to determine insurance rates for decades became controversial for being outside drivers’ control. The Provide Accurate Information Directly (PAID) Act passed by the U.S. Congress in 2020 prohibits insurers from considering factors such as gender, marital status and census tract when determining a customer’s insurance rates. Where a customer lives and works determine the traffic conditions they encounter while commuting, but industry critics believed such factors played a role in discriminatory pricing and argued the use of socioeconomic factors led many majority-minority neighborhoods and cities to pay higher rates nationwide.
Insurers maintain records of a driver’s traffic citations and accident history to develop a sense of their likelihood to engage in future high risk behaviors such as speeding, impaired driving and failure to yield to other vehicles. Since behavior plays an important role in accident risk, many insurance companies offer lower rates for customers who participate in defensive driving courses that teach safer driving techniques.
Katie Wilson of Wilson Insurance in Natchitoches points out some insurers are using mobile apps to collect data about driver’s behavior and better assess their driving habits. “It doesn’t record very much as far as specifics. They’re looking more at what times of day are you driving, hard breaking, fast accelerations.” Insurers used incentives to get their customers to adopt the apps. “When (insurance apps) first came out it was to offer customers who don’t travel very far, who don’t travel very fast, who don’t travel too closely to give them a discounted rate,” she said. “Now for those customers who get a bad grade they will increase your rate.”
Natchitoches Parish Sheriff’s Office issued approximately 3,000 citations and recorded 1,599 vehicular accidents on parish roads, highways and private property during 2021. This amounts to more than four vehicular accidents a day and does not include data from the city of Natchitoches. With sheriff’s deputies attending to more than four vehicular accidents each day last year, Cpt. Tony Moran emphasized the importance of drivers using seatbelts and driving without distractions. “They should be focused on the highway and they’re doing something else taking their attention off the road,” he said. “It only takes one second of you not paying attention to be involved in a crash.”