Auto insurers offering UBI should closely examine when accidents happen
TNEDICCA crash data analysis shows a significant opportunity to improve pricing accuracy with time-of-day driving risk
By Karen Albright | June 12, 2024
Usage-based insurance (UBI), where policyholders receive auto insurance discounts (and occasionally surcharges) based on their actual driving habits, continue to proliferate. In fact, several top 10 U.S. auto insurers say more than 40% of their new customers are choosing UBI. Auto insurers offering UBI integrate individual driving data collected from smartphone apps or directly from vehicles into insurance pricing models for more accurate and individualized risk assessment.
Despite recent headlines related to data collection and consumer consent, we expect UBI expansion to continue. If actual driving data was used for everyone today, experts believe most consumers would see their premiums go down and less than one-quarter would see a material increase. From an insurance perspective, carriers using driving data for risk assessment will have a huge competitive advantage over their less sophisticated peers. Insurers relying solely on traditional rating methods will be challenged to keep pace and avoid adverse selection as lower-risk drivers continue migrating to UBI.
When a vehicle is driven is an important UBI pricing variable, alongside how, how much and where a person drives. TNEDICCA has a database of over 30 million police-reported crashes from 44 states. We know precisely where and when crashes occur. We can determine the relative risk of trips based on accident location and time. TNEDICCA and Geoff Werner, a UBI and insurance pricing expert, have collaborated on analyzing time-related insurance risk factors: time of day, day of week and time of year. In this blogpost, we share highlights from our analysis offering key takeaways and considerations for auto insurance pricing.
Highlights from our analysis reveal significant opportunities for UBI carriers
TIME-OF-DAY TAKEAWAYS FOR AUTO INSURANCE PRICING
Crash data insights
The crash rate for evening rush hour on weekdays is 15–20% higher when traffic volume is at its peak. Late-night driving after midnight on weekends is riskiest but only represents 1% of total trips.
Animal collisions peak at night with a distinct seasonal pattern. Deer crash risk increases dramatically during deer rutting season in October and November.
Opportunities for UBI carriers
Improve pricing precision by integrating crash risk variances throughout the day when most driving happens — rather than simply focusing on late-night driving.
Consider using driving data to develop a comprehensive coverage pricing model.
Time-of-day crash data insights by the numbers
While not as dramatic as late-night risk, there is significant variation in daytime crash risk
Unsurprisingly, the riskiest time to drive is after midnight on weekends. The highest risk hours are about 10 times riskier than the safest hours. This generally aligns with how most auto insurers price UBI policies, penalizing customers who drive late at night. However, this approach misses an important nuance given that nighttime crash risk on weekdays is significantly lower than on weekends. In fact, our data show the weekday crash risk from 3–4AM is even lower than during evening rush hour.
Improve profitability with more precise location risk
TNEDICCA’s scope and granularity of data allows for a more precise measure of location risk. TNEDICCA has over 30 million crash records from police reports, pinpointed to the precise location of the crash. TNEDICCA data and analytics are used to quantify the accident risk for each road segment. This enables TNEDICCA to provide a unique risk measure that is based on proximity to accident hotspots — where crash levels are highest.
Late-night driving is riskiest, especially on weekends, but only represents 1% of total trips. There is also considerable risk variation during daytime hours when most driving occurs. The crash rate for evening rush hour (3PM–6PM on weekdays), for example, is 15–20% higher than average. This insight offers insurers an opportunity to enhance pricing models by integrating daytime crash risk patterns for more individualized pricing than a flat late-night penalty.
Animal-related crashes have a distinct seasonal pattern
Animal-related crashes, mostly deer incidents in the Ohio crash data, are highest at night and peak at dawn.The risk of an animal-related crashes falls under comprehensive coverage and has a distinct seasonal pattern different from other types of collisions. Deer crashes increase dramatically during deer rutting season in October and November.
Seasonal crash risk moves with sunrise and sunset times
While the autumn spike in animal crashes is significant, there is noteworthy crash risk variation throughout the year, which peaks during winter months. Ohio has lots of ice and snow in January and February, so a higher crash rate in late fall intuitively makes sense. However, the below-average crash risk rate during summer caught our attention.
We initially hypothesized that reduced traffic due to school vacation might answer why there are fewer crashes during summer. In reviewing crash risk rates by both month and season, we found that the highest crash risk occurs from 5–8AM and 6–9PM, in synch with sunrise and sunset with some variances depending on the time of year. We believe that increased and decreased visibility during these peak driving hours explains why there are fewer crashes during summer when days are longer.
Insurers need to consider the impact of seasonal driving variances
Seasonal driving risk variances exist, and insurers need to consider the impact on pricing. Insurers typically price auto policies based on annual risk, which avoids the potential for see-sawing premiums but also makes it impractical to adjust pricing for seasonal risk variances. Insurance product and pricing managers of both traditional policies and UBI should be mindful of seasonal risk patterns to better interpret quarterly results and avoid potential biases in pricing models.
How insurers can gain a competitive edge by integrating time-of-day driving risk
A closer examination of when accidents happen offers UBI carriers a significant opportunity for better segmentation and more accurate pricing. TNEDICCA’s analysis of time-related driving risk factors is based on a larger volume of crash data than data collected by individual insurers. Our analysis shows that auto carriers offering UBI are not maximizing the full potential of time of day, time of week and time of year to differentiate risk. We also find a very different pattern of risk for animal-related crashes.
Today, most UBI programs focus on late-night driving, which is statistically very risky, but overall, represents just a small portion of overall driving. As UBI programs advance, insurers should consider refining segmentation based on daytime driving risk when most vehicles are on the road. Insurers could even take their pricing models a step beyond with a specific model for comprehensive coverage to account for the unique time-related risk of animal crashes.
For more insights on this topic, read Geoff Werner’s article:
Time of Day Matters for Auto Insurance Risk>>
Ready to make an immediate impact on your bottom line with TNEDICCA Road Risk Scores? Want to know more about how to include time-of-day risk factors in your UBI policies? Let’s start a conversation.
Karen Albright
Head of Operations and Customer Success
TNEDICCA [ti-NED-i-kuh] is an insurtech company that provides auto insurers with proven solutions for next-level territory rating, pricing and underwriting using crash location data models. Our mission is to reduce future road accidents using location-based data and predictive analytics to assist auto insurers, carmakers, navigation service providers and last-mile delivery companies.