Growing number of auto insurers using analytics for customer buying behaviour, pricing

An increasing number of auto insurance companies in Canada and the United States are using enhanced analytics to understand customer buying behaviour and price products, according to a new study from analytics software firm Earnix.

At 48%, larger insurers (with over $1 billion in gross written premium) were more likely to use “segment-level demand models to estimate the effect of rate changes,” according to the company, which collected responses from 73 executives and pricing professionals at insurance companies selling auto coverage.

However, 62% of smaller insurers assume no change in customer demand as a result of rate changes, an assumption that Earnix says is “far less accurate.”

Larger insurers also lead with price optimization, or scientific pricing, which uses mathematical algorithms for determine optimal values of rating factors for specific business goals, while also meeting regulatory requirements.

Among larger insurers, 74% use such algorithms today, or plan to in the near future, compared with 52% of smaller companies, Earnix said.

A majority (72%) of respondents said they do consider competitor’s prices when setting their own.

In terms of challenges for the pricing process, though, respondents ranked competitor data in the top three, along with “effectively incorporating knowledge of customer price elasticity” and “predicting the business impact of new rates.”

“The results signal that auto insurers recognize the potential benefits of advanced customer analytics for their bottom lines,” noted Meryl Golden, Earnix’s general manager for North America Operations.

“Consequently, we anticipate continued uptick in the use of enhanced customer data by companies of all sizes in North America over the coming years.”