Risky routes could be newest car insurance rate factor

Putting a price tag on car insurance has always been something of a guessing game. Insurers can’t monitor your driving 24/7, so they set rates using predictive factors such as your age and crash history. But some insurers have drawn up plans for analyzing risk that may change how they charge for auto insurance.

Allstate recently became the latest insurer to file a patent application for a new pricing system that charges customers based on the riskiness of each trip — joining competitors such as State Farm and Travelers Insurance.

Using sophisticated tracking technology, in the future companies could customize drivers’ rates for each trip according to the roads they choose, the weather conditions and the number of passengers, among other factors. Drivers could check the recommended “cheapest,” aka less risky, route via smartphone or other device.

While it remains to be seen what specific technology emerges, companies are signaling how auto insurance pricing might evolve with these patent applications.

Choosing which road to take will become a bigger decision

For most drivers, getting from point A to point B doesn’t take much thought. But under trip-based insurance, you’d have to navigate more carefully — or potentially pay more for the outing.

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Allstate’s patent application proposes assigning “risk values” to stretches of road based on information such as accident patterns, geographic traits, weather and more. For example, turning left at an intersection could be deemed riskier than going straight based on the accident history at that intersection.

Road segments with higher risk values would carry higher insurance costs. The goal is to “promote and reward risk mitigation” among customers, according to the patent. In essence, you could end up planning trips based on how much you’re willing to spend.

Instead of buying car insurance in six- or 12-month policies, you’d buy “risk units” and ration them however you see fit.

For instance, the fastest way to your destination may be riskier, and pricier, than slower routes your insurer recommends. You’d have to decide whether the convenience of a shorter drive is worth burning through your risk units and needing to buy more.

Travelers Insurance describes a similar system in a 2014 patent application, proposing “risk zones” — areas rich in accidents, police activity, insurance losses and other issues — that drivers might face surcharges for using.

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In its 2015 patent application for trip-based insurance, State Farm outlines a plan for tracking a variety of factors, including the length of trips, time of day and the quality of your driving (such as hard braking and tailgating), all of which would determine your insurance price.

The end of traditional insurance premiums?

Buying car insurance in “risk units” would benefit drivers who can stretch their units over long periods. Low-mileage motorists, for example, would make ideal candidates, says Jared Smollik, actuarial director at Verisk Insurance Solutions, an analyst group.

Another possibility, Smollik says, is that insurers will still sell traditional policies and offer trip-based policies to incentivize better driving. Insurers might offer discounts to customers who consistently choose safe routes, he says, without penalizing drivers who don’t fare as well.

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Smollik acknowledges it may be years before vehicles have the technology to support this new system. But he points out that current usage-based programs already can give drivers a rough sense for what a trip-based policy might be like.

Several companies already offer such programs, which track behaviors such as speeding and hard braking to refine drivers’ rates. Customers who test the waters with usage-based insurance may realize its benefits, he says, and find it easier to transition to trip-based pricing.

The bigger threat to implementing trip-based insurance is the challenge of collecting enough information about roads to accurately rate their risk level, as Allstate is considering.

People have explored assigning risk scores to roads before, Smollik adds, but it’s a long and impractical process because of the amount of observation needed.

“It’s not an issue of technology,” he says, “but one of data.”

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Alex Glenn is a staff writer at NerdWallet, a personal finance website. Email:aglenn@nerdwallet.com.

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