An Auto Telematics System for Insurance Premium Rating & Pricing

Abstract

Insurance telematics is a new technology that has been poised to transform and change the way we buy and underwrite insurance by 2020. Insurance Premium is a major variable that determines if a client will buy or take up a policy cover or not. With the current stiff competition being felt in the Industry, the local insurance industry continues to suffer big losses due to unhealthy business practice of competitor undercutting among the insurers to attract more clients but exposing the underwriting companies to potential high risks. This in most cases means that the product is totally underpriced to the extent that it would be uneconomical and unsustainable in the long run for the insurance firms. This research outlines a technology defined model that should be used to determine the ideal premium rate payable in the Motor Insurance industry in Nairobi county taking into account all the variables and the risk exposure of the policy holder. Insurable risk for a motor vehicle cannot be classified as a standard rate percentage item applicable uniformly without considering the distribution of risk in various geo-location regions and the drivers attributes. The developed Systems prototype Model defines a scientifically insurable risk that gives the ideal premium cost comprising of the various real time risk factors taking into account all the variables, unlike the conventional model of underwriting which merely classifies all motor vehicle owners to a broad spectrum based on a written application form and previous records which might not be true. This solution seeks to price or adjust the payable insurance premium on the actual risk. The system model is able to determine the insurable risk based on the drivers attributes, and profile, location of the vehicle in relation to risk geo-locations map, monitoring the driving parameters of the vehicle by the driver, and the driving style. This enable the insurance company determines costs associated with the risk cover based on factual facts which are scientifically determined by the real risks. This model provides accurate and reliable underwriting benchmark to be used to determine the insurable risk. The vehicles operations are monitored from the way it’s being driven, location, and the drivers attributes.