Telematics could replace the need for credit scoring in the future: industry analyst

As the insurance industry’s use of predictive analytics evolves, product innovations such as telematics – described as “pay as you drive” auto insurance – may reduce the need for proxy underwriting factors such as credit scoring.In the auto insurance context, telematics involves the electronic transmission of driving data such as speed, distance and braking patterns from a person’s car to an insurer. Based on the information it receives, the insurance company then assesses the risk of that driver having an accident and charges insurance premiums accordingly.”There are a lot of benefits to it [telematics],” said Brian Stoll, director at Towers Watson, who was speaking at the Insurance Bureau of Canada [IBC]’s 11th Annual Regulatory Affairs Symposium. “You get price accuracy, reduced accident frequency and the reduced accident frequency comes from providing scores back to drivers, telling them when they drive well and when they drive poorly…”From a regulatory standpoint, telematics has been received very favourably in the United States to the extent that it really represents driving behaviour and driving experience. It replaces the proxy that is credit score and other tools that have historically been used to differentiate risks that relate less directly to the exposure of individual people driving their vehicles.”Stoll noted telematics is one of a number of innovative insurance programs to come out of the use of predictive analytics, which is a highly sophisticated form of using data to refine underwriting. Others include disappearing deductibles and accident forgiveness.