Believe it or not, insurance companies do not want to overcharge you. They want to charge just the right amount — as little as possible — just enough to cover any potential claims you are likely to file. Insurers want to charge the least they possibly can without losing money so that they can compete with other insurance companies for your business. To a large degree, what makes an insurance company successful is its ability to accurately predict your future accidents, illness, and catastrophes.
The more they know about their customers’ risk factors, the less they can charge. If an insurer knows little or nothing about the risks of his customer, then he must “pad” the premium to account for all possible catastrophes that the insurance company will have to pay for. On the other hand, if an insurer knows with relative certainty the likelihood of his customer getting into a car accident in the next year, he can charge just what is needed to cover the predicted expense.
This is clearly evident in Allstate’s new driver monitoring program, Drive Wise, which tracks the average speed and frequency of short-breaking of drivers. Customers who enroll in the voluntary program receive an immediate 10 percent discount on their policy, regardless of what the result of the monitoring shows. How can Allstate afford to do this? The reality is that even though insurers can hypothesize with fair accuracy about driving habits based on the information a policy holder provides about his or her life, this monitoring program will increase the accuracy of such predictions a hundred-fold. The increased predictability of a customer’s accident rate means that insurers can cut back on some of the padding and charge less. For good drivers enrolled in the program, their discounts could be as much as 30 percent.
Drivers and policy makers should embrace any method insurers utilize to increase the accuracy of their rate setting. Whether it is age, gender, education status, geographic location, credit scores, or a digital monitor, anything that helps insurance companies accurately predict risk will result in greater savings and more just rates for all.