How the Neighborhoods You Drive through Could Soon Affect Your Car Insurance

route-based insurance technology

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Ever put much thought into the series of highways and streets you take to work, school, or the grocery store? (Other than whether it’s the fastest way to get from A to B?)

For years, insurance companies have been tracking your driving habits. With the introduction of telematics, which track your speed and driving behavior, companies are able to monitor just how aggressively you drive – and potentially penalize you for it.

But now, companies are adopting increasingly sophisticated route-monitoring insurance technology and tracking a wider range of variables and behaviors. The new technology considers more than a driver’s behavior, and instead considers more environmental factors that may be out of the driver’s control.

Major insurers have recently filed patents for devices that would monitor the riskiness of your chosen route and your driving environment – no longer just your driving behavior. And with annual insurance premiums already averaging $1,323 nationwide, that change can have a significant impact on your budget.

route-based insurance technology

How Route-Monitoring Insurance Technology Works

Insurers have developed monitoring hardware and software which would track location and examine it against a range of new factors which would indicate the riskiness of the environment in which a person is driving:

  • Weather conditions where/when you drive
  • Neighborhoods through which you drive (and how accident-prone the route is)
  • The crime rates where you park

The system uses these factors to price your route’s risk, changing how we look at insurance rating factors, which has traditionally been more about risks associated with driver traits, driving behavior, and vehicle type.

To date, three leading companies have filed patents for route risk-based systems.

1. Allstate: Risk Units – Pay More When You Take a Riskier Route

In 2016, Allstate filed a patent for a new pricing system that would charge customers based on the risk of their trips. The system would evaluate conditions like road choice, weather and number of passengers. Based on the conditions, the system would “price” different routes, suggesting safer and cheaper alternatives.

Under Allstate’s proposal, rather than buying a plan six or 12 months at a time, you would purchase “risk units.” You could budget these units according to planned travel or urgency. For example, if you are in a rush, you could use more units to take the more-dangerous-but-faster route; if you have more time, you could opt for the safer-and-longer alternative to save money. According to Allstate’s route-monitoring insurance technology patent, risk may be determined by factors including:

  • Weather conditions
  • Time of day
  • Population density
  • Road condition
    • traffic density
    • type of road
    • road geometry
    • road hazards
  • Driver behavior
    • new route
    • commonly used route
    • braking rate
    • acceleration rate
    • cornering
    • trip duration
    • swerving
    • distracted driving

Further, Allstate’s patent indicates that the risk units can be calculated and change in real time, and that they may even aid the drivers by alerting them to changes in risk and suggest improvements:

“In some examples, the risk unit consumption rate may be determined or calculated for a particular trip. Additionally or alternatively, the consumption rate may be calculated or determined in real-time or near real-time, such that the rate may change as the user’s driving behavior changes, as the type of road changes, as the environmental conditions change, or the like. Thus, for example, if a user is driving at speed higher than the speed limit and it is raining, the consumption rate may be higher than if the user is driving at the speed limit and/or there is no precipitation.

…The risk unit consumption rate module 214 may generate and/or display to a user suggestions for improving the consumption rate. For instance, the system may generate an alternate route that has been determined to be safer than the user’s current route and, thus, by taking the alternate route, the consumption rate may be reduced. In another example, a user may be driving faster than a posted speed limit. The system may generate a notice to display to the user (e.g., via a computing device 212a-212f) indicating that, by slowing down, the user’s consumption rate may be reduced.”

With Allstate’s plan, customers would have to weigh convenience against cost during every ride, whether it’s the daily commute or a trip to the airport.

If you're in a rush, you could take the more-dangerous-but-faster route, but it could cost you.

2. State Farm: 3-D Motion Sensing for Individual Drivers

Last year, it was revealed that State Farm had filed for a patent for risk-evaluation technology with 3-D motion sensing data. Using several factors to evaluate the driver and route, the system would use those factors to determine a level of risk and set a corresponding price.

This technology would evaluate the individual driver, rather than viewing a family as a unit. So if one person drives well in the rain and another does not, the technology would recognize that and charge more during storms for the one driver who was less comfortable in rain. It would evaluate how each person drives under different conditions, such as at night, in the snow or with passengers, and change the pricing for each driver.

The patent says: “A server gathers motion sensing data from one or more motion sensing modules and clusters the motion sensing data into movement categories. The server then assigns an indication of risk to at least some of the movement categories and combines the motion sensing data from a plurality of movement categories to generate a collective measure of risk associated with the driver of the vehicle.”

In plain English?  State Farm’s technology would monitor bumps and shakes during a drive and penalize drivers with more erratic movements.

3. Travelers Insurance: Risk Zones

Similarly, Travelers Insurance filed a patent that would set premiums based on customer “risk zones.” Under this policy, the company would determine customers’ rates based on several factors, such as where they live and where they work. If they spend a lot of time in higher-risk areas, such as in parts of the city where more crimes and accidents occur, their rates would be higher.

According to Travelers’ patent: “Risk data utilized to define risk zones may include, but is not limited to, car accident data, police logs or reports, insurance loss data, hospital data, veterinary data, forest and/or wildlife data, and/or environmental data. In some embodiments, risk data and/or risk zones developed therefrom may comprise sub-categories, such as the type of motor vehicle accident being categorized into car vs. car, car vs. truck, car vs. deer, car vs. guardrail, etc., and/or being segmented into different times of day, days of the week, weeks, months, seasons, etc.”

Travelers’ proposal appears to be one of the of the most intensive approaches to insurance, evaluating everything from insurance claims and police activity in the area. It’s a holistic view of insurance that takes a wide range of environmental factors into consideration, but it could put drivers at a disadvantage if they commute to or through unsafe areas (which is the case for a lot of major metropolitan areas). Rather than just considering where people keep their cars at home, where they work and drive becomes a significant factor.

Travelers’ shares the reasoning behind the product in the patent: “While insurance companies often attempt to educate their customers regarding ways to minimize risk, general risk-avoidance strategies or best-practices are often insufficient to prevent reoccurrence of various accident and/or loss events. Therefore, it would be desirable to provide information and/or other mechanisms to customers that would help reduce occurrences of accidents and/or losses.”

True, and we definitely agree with educating and informing consumers (ahem, Quoted), but we hope to see insurance companies clearly convey exactly how and what factors might impact their rates, and what they can do about it.

icy road driving

The Impact on Customers

For customers, risk- or route-based insurance technology could mean changes to insurance policies and new options when selecting a policy. As any changes would likely be optional at first, drivers who live and work in the suburbs or in rural communities with a relatively short commute could see their costs go down. In areas that have few accidents and little incidence of crime, the sensors will evaluate them as “low-risk” and price them accordingly. Drivers who opt to take safer measures like waiting to drive until a storm has passed, too, could end up saving.

A risk-based pricing system likely would not make sense for families in urban, high-traffic areas. Because of increased accident rates and population, and an increased likelihood of driving through a broad spectrum of neighborhoods, costs would generally go up.

To bring down costs, drivers could opt for a risk-based policy and change their behaviors – but sacrifice convenience. Rather than taking spontaneous trips, they could plan well in advance or choose a longer route to reduce premiums. They might also consider carpooling, having only one driver in the household, or just reduce driving altogether. But with the potential for big cost increases, the changes and sacrifices may be worth it.

The Next Wave of Risk Assessment

In the past few years, we have seen seen insurance companies introduce technology that evaluated premiums and offered discounts based on a driver’s behavior. The new risk-based patents take it another step, removing the driver’s behavior from the equation and determining price based on environment and external factors.

While none of the proposals are in place just yet, they demonstrate that the insurance industry as a whole is looking towards risk-based assessment and pricing going forward. The new approaches will likely be an optional way for consumers to price their insurance premiums rather than traditional methods.