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Improving automobile insurance ratemaking using telematics: incorporating mileage and driver behaviour data

Listed author(s):
  • Mercedes Ayuso

    ()

    (Department of Econometrics, Riskcenter-IREA, Universitat de Barcelona)

  • Montserrat Guillén

    ()

    (Department of Econometrics, Riskcenter-IREA, Universitat de Barcelona)

  • Jens Perch Nielsen

    ()

    (Cass Business School, City University)

Registered author(s):

    We show how data collected from a GPS device can be incorporated in motor insurance ratemaking. The calculation of premium rates based upon driver behaviour represents an opportunity for the insurance sector. Our approach is based on count data regression models for frequency, where exposure is driven by the distance travelled and additional parameters that capture characteristics of automobile usage and which may affect claiming behaviour. We propose implementing a classical frequency model that is updated with telemetrics information. We illustrate the method using real data from usage-based insurance policies. Results show that not only the distance travelled by the driver, but also driver habits, significantly influence the expected number of accidents and, hence, the cost of insurance coverage. This paper provides a methodology including a transition pricing transferring knowledge and experience that the company already had before the telematics data arrived to the new world including telematics information.

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    File URL: http://www.ub.edu/rfa/research/WP/UBriskcenterWP201701.pdf
    File Function: First version, 2017
    Download Restriction: no

    Paper provided by Universitat de Barcelona, UB Riskcenter in its series Working Papers with number 2017-01.

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    Length: 18 pages
    Date of creation: Jul 2017
    Handle: RePEc:bak:wpaper:201701
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    Web page: http://www.ub.edu/riskcenter/
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    1. Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2014. "Causality and contagion in EMU sovereign debt markets," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 12-27.
    2. Gourieroux, Christian & Monfort, Alain & Trognon, Alain, 1984. "Pseudo Maximum Likelihood Methods: Applications to Poisson Models," Econometrica, Econometric Society, vol. 52(3), pages 701-720, May.
    3. Pilar Abad & Helena Chuliá, 2014. "European government bond market integration in turbulent times," Working Papers 2014-08, Universitat de Barcelona, UB Riskcenter.
    4. Catherine Donnelly & Russell Gerrard & Montserrat Guillén & Jens Perch Nielsen, 2015. "Less is more: increasing retirement gains by using an upside terminal wealth constraint," Working Papers 2015-02, Universitat de Barcelona, UB Riskcenter.
    5. Xavier Piulachs & Ramon Alemany & Montserrat Guillen, 2014. "A joint longitudinal and survival model with health care usage for insured elderly," Working Papers 2014-07, Universitat de Barcelona, UB Riskcenter.
    6. Helena Chuliá & Montserrat Guillén & Jorge M. Uribe, 2015. "Mortality and Longevity Risks in the United Kingdom: Dynamic Factor Models and Copula-Functions," Working Papers 2015-03, Universitat de Barcelona, UB Riskcenter.
    7. Donnelly, Catherine & Gerrard, Russell & Guillén, Montserrat & Nielsen, Jens Perch, 2015. "Less is more: Increasing retirement gains by using an upside terminal wealth constraint," Insurance: Mathematics and Economics, Elsevier, vol. 64(C), pages 259-267.
    8. Jaume Belles-Sampera & Montserrat Guillén & Miguel Santolino, 2015. "What attitudes to risk underlie distortion risk measure choices?," Working Papers 2015-05, Universitat de Barcelona, UB Riskcenter.
    9. Leo Guelman & Montserrat Guillen & Ana M. Pérez-Marín, 2014. "Optimal personalized treatment rules for marketing interventions: A review of methods, a new proposal, and an insurance case study," Working Papers 2014-06, Universitat de Barcelona, UB Riskcenter.
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