Actuaries and Auto Insurance

Have you ever sat back and wondered how your Canadian auto insurance rates are calculated? Numerous factors get tossed into the equation that eventually results in how much you will pay annually for collision and comprehensive vehicle coverage, as well as liability to third parties, should an accident occur.

Here's a look at some of the core components of that calculation:

Where you live?

What type of car you drive?

The cost and availability of parts and labor to repair the vehicle.

Your driving history.

The number and frequency of accidents and theft claims within your geographic location

That's a lot of information to consider and when you look at provinces such as Ontario or Saskatchewan, insurance carriers and their forecasters have mountains of data to gather and process before arriving at specific auto insurance premiums. The job of an actuary is to do just that: take all relevant statistics that influence auto premium and scientifically come up with a competitive premium charged for protecting your assets from the potentially devastating financial consequences of an accident.

What Is Artificial Intelligence?

The terms big data and artificial intelligence (AI) are quite the technological buzzwords these days— and the insurance industry is perfectly suited to harness the power of both concepts. Big data resembles exactly what the name suggests. When mounds of statistics become available across individual provinces or Canada as a whole, super-powerful computers have the ability to corral that data and store it for detailed analysis. With multiple factors injected into figuring Canadian auto premiums, actuaries can now use all those data points to assess more accurately how much a husband and wife should pay to insure a 2017 Toyota Camry and a 2015 Ford Fusion, for example.

Artificial intelligence can be described simply as computers duplicating the cognitive abilities of humans. If you've ever interacted online with an "assistant," chances are good that the customer service presence on the other end is a chatbot, an automated response system designed to answer basic questions or steer you toward a more helpful resource. In the auto insurance world, carriers leverage AI by placing sensors inside a motor vehicle, for instance, to assess driving habits— be they cautious or overly aggressive. The data gets fed back to both carriers and consumers, allowing actuaries to assess risk and perhaps trigger corrective action by reporting unsafe teenage driving patterns to a parent/policyholder.

The Marriage of Actuaries and Artificial Intelligence

With insurance companies seeking to operate more efficiently— and remain viable in provinces where competition exists—  wedding actuarial and computer sciences makes good business sense. Recent joint ventures between Canadian academic and business entities seek to leverage further the application of AI to the auto insurance business. Increased competitive pressure could spell a boon for the consumer as safe drivers reap financial rewards through stable premiums and riskier operators assume higher costs due to frequent claim submissions.

Final Thoughts

As the rising tide of technology sweeps across the nation, auto insurance executives seek to cut costs and provide greater value to its customers. Artificial intelligence takes information and allows computers to effectively design and implement auto insurance ratings models much faster than humans ever could. To see how emerging scientific trends might save you a few dollars, get quotes from more than 30 Canadian auto insurers at InsuranceHotline.