Leveraging Vehicle-Centric Data to Enhance Profitability
As the post-pandemic world has begun to return to normal and drivers are back on the road, many insurers have seen a deterioration in claims performance, with the frequency and severity of loss ratios rising to pre-pandemic levels. In 2022, the national average loss ratio for private passenger automobiles had risen roughly 4% compared to 2021 and it continues to trend upwards.
What tools can auto insurers use to help improve profitability?
Telematics is one option. While the adoption of telematics in Canada has been slow, and it hasn’t driven major improvements in underwriting performance, or increased sophistication in pricing models, it does allow insurers the potential to differentiate and price drivers based on their driving behaviour.
Another (and more readily available) option is vehicle history data. Vehicle-specific information such as registration and branding, odometer readings, service history, as well as accident and damage records can provide valuable insights on a vehicle and can help insurers to assess risk exposure and price new risks.
How does it work?
Let’s look at an example. Assume there are two 2020 Honda Civics with the same trim and configuration. One has three previous owners, been involved in two accidents, and hasn’t been serviced at regular intervals. The second has had one owner, been in zero accidents, and has been consistently serviced at regular intervals. Do these two vehicles represent the same risk exposure? Should they be priced the same for insurance purposes? Most actuaries would probably say no.
Taking a vehicle-centric approach to underwriting and pricing allows insurers to price premiums more accurately and select better risks. This type of data driven approach can help insurers to increase profitability, strengthen underwriting capabilities and make their premiums more competitive in the market.
Vehicle history data can also help insurers on the claims side of the business. Fraud indicators, branding information and lien searches can help claims departments triage losses faster, improve the settlement times of a total loss and find efficiencies in their claims processes. All of these can contribute to keeping loss costs down.
CARFAX Canada can provide insurers with a rich library of vehicle history data that can be customized to meet the needs of the business. Plus, CARFAX Canada offers a benchmarking tool that allows insurers to see how their book of business stacks up against the industry, helping to identify areas of opportunity.
For more information, or to request a no-cost data evaluation, visit our website or email us at [email protected].
 Comparison of the average difference in ‘Auto – Private Passenger’ loss ratios from the 2022 and 2021 Canadian Underwriter Stats Guide.