Here's the Way to Make Car Insurance Fair

Thursday July 26, 2018

Here's the Way to Make Car Insurance Fair
  (Source:Root Insurance Co.)

First, the bad news.
Traditional car insurance is unfair. Here's how it works. (This will be as painless as possible -- promise.)

Basically, when you shop for car insurance the traditional way, you have to answer a ton of questions. You know the drill. Page after page of questions about your marital status, location, gender, history, etc. There's a purpose to all those questions: once you've given them all your information, insurance companies put all your answers into an algorithm. Then they use the algorithm to put you into a category called a "risk pool." And whatever price is assigned to that risk pool? That's the price you're getting. Your price is based completely on your category.

Need an example? Take a look.

With traditional car insurers, your rate is a demographics game. [1]

Yep. It's largely a demographics game. The number one factor here is your driving record. Fair enough. But then there's also credit score, age, and marital status -- all things that don't necessarily say anything about your driving ability. (Do all single, 30-year-old males in Franklin County drive the same? Nope.) Notice anything missing? Root Car Insurance did.

Here's where things get good.
Here's Root's pricing algorithm. In some ways, these graphs look similar. But take a look at the number one factor in Root's pricing model. That's the game-changer.

"In some ways, these graphs look similar. But take a look at the number one factor in Root's pricing model. That's the game-changer. [1]

The single largest factor in Root's pricing structure is your driving.
When you take a test drive with the Root app, it captures data about how you drive. From that data, Root calculates your individual driving score. And that driving score is the single largest component in the price Root quotes you.

Did you get that? Your driving is the single largest factor in your Root quote. That's a big deal.

Now, do they also consider other factors? Sure. They use several standard factors which are mathematically predictive of risk or fraud. At this point, it would be irresponsible for Root to ignore them (although they're committed to eliminating as many factors as they can as technology progresses and artificial intelligence gets smarter). But, by pricing primarily based on your driving, Root is inviting you to prove the number guys wrong, to show them with your driving score that you're better than your category.

And Root didn't stop there.

Here's what saves you the most $$$.
You probably already know that Root doesn't insure bad drivers -- but you might not know just how much money that's saving you. Why? Most of the car crashes are caused by a small minority of bad drivers. You know -- the people who cut you off in traffic, swerve into and out of lanes, and tailgate you all the way to work. These are the drivers who cause most of the losses to an insurance company.

Don't believe it?

The bottom 30 percent of drivers cause half of all accidents. [2] That's why Root only insures good drivers.

The bottom 30 percent of drivers cause half of all accidents. Or, put another way, the bottom tier of bad drivers cause about four to five times more accidents than the top tier of good drivers.

Those are incredible numbers. And, if you're a good driver, you're probably wondering how much these statistics are costing you. The answer? A lot. Some of Root's members have shared that their previous insurance rate was about twice as much as what they're paying with Root. And that's largely because they were paying for accidents caused by bad drivers.

While the old system works just fine for traditional insurance companies, Root didn't think it was either fair or acceptable in the 21st century. So they're changing it up.

Root doesn't insure the 30 percent of high risk drivers. At all. And that decreases the accidents they have to pay for by 50 percent.

That saves them a lot of money. And so they pass those savings right along to good drivers. That's why, if you're a decent driver insured with Root, you're probably paying a lot less for your car insurance.

There you have it. The secrets to an insurance revolution. Do with them what you will. (Although, nudge-nudge, wink-wink -- download the Root app, take a test drive, and get in on the savings yourselves.)

1. Based on market research and Root proprietary data.
2.Snapshot Final Report. Progressive Insurance. 2012.

Disclaimer for savings: Based on national reviews reported by actual customers.
Disclaimer for coverage: Coverage is available in the event of a covered loss. Exclusions may apply.
Form 1. Not available in all states.
ROOT is a registered servicemark of Root Insurance Company, Columbus, OH.

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Fair Car Insurance sponsored by Root

This story is part of our special report titled Fair Car Insurance sponsored by Root. Want to read more? Here's the full list.

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