Can AI predict your car’s insurance premium? Let’s find out

Artificial Intelligence (AI) is the ‘it’ thing of the hour, with everyone talking about it and exploring ways to integrate it into different work areas. One such area seeing hints of AI tech is insurance. Across the globe, insurance companies are using AI and machine learning to make better decisions about risk and pricing. Therefore, when someone asks, ‘Can AI predict car insurance premiums? The answer is yes, in fact, it’s already happening.

In the Philippines, the car insurance market is also catching up with this technological advancement. With millions of registered vehicles and a corresponding demand for coverage, AI tools are helping insurance providers and clients. One of which is providing more accurate, fair, and transparent premium pricing.

But several questions surround AI’s involvement in insurance. For instance, how exactly does AI determine policy premiums, and is this new trend good for car owners? In this article, we’ll break it down for you, so let’s get started.

Car insurance premiums: An overview

What is a car insurance premium? It is the amount a car owner pays an insurance company in exchange for protection against financial loss from accidents, theft, fire, flood, vandalism, etc. Think of it as a membership fee, paid annually or monthly, in exchange for coverage if something happens to the vehicle. The table below gives key highlights about insurance premiums -

Term	Meaning
Car insurance premium	Price paid by car owners against an insurance policy.
Frequency	Can be paid monthly, quarterly, or yearly, depending on the provider and policy terms
Purpose	To maintain coverage and protection against loss or damage
Determined by	Several factors determine it, including age, car type, location, and driving record.

Also Read: All you need to know about credit score and its impact on car insurance cost

What factors affect car insurance premiums?

Usually, insurance providers determine the premium based on the following factors -

• Vehicle’s age and model; the newer & expensive the car, the more the premium
• Driver’s age and experience; young & relatively new drivers usually end up paying high rates
• Driving history; the more traffic violations and tickets, the higher the premium.
• Location; Drivers living or driving in areas with heavy traffic and high accident frequency experience higher rates
• Coverage type; the more coverage, the higher the insurance cost

Traditionally, these factors have helped insurance providers calculate premiums for decades, but are they accurate or perfect? The answer is not so much, and thus AI came into the picture, transforming the insurance landscape.

Traditional vs. Modern AI approach

As mentioned, for a long time, insurance providers have relied heavily on tables and data to calculate premiums. However, this method relies on averages rather than individuals; doing so for the increasing number of car owners in the country would be very time-consuming and tedious.

Furthermore, two drivers with the same car model and age could end up paying the same premium, even if one is careful and the other loves the adrenaline rush of high-speed driving.

On the other hand, AI enables providers to perform individual risk assessment effectively and effortlessly. Meaning, the premium here would reflect the owner's personal driving behaviour rather than a general statistic.

Also Read: Philippines car insurance expiry FAQs: Renewal, grace periods, and more

Role of artificial intelligence in insurance

Do you know that AI is transforming the global insurance industry? It is revolutionising the scene by helping insurers assess risk; the algorithms help forecast accident likelihood, streamline claims, and detect fraud. By analysing thousands of data points, AI helps providers and insurers make better decisions.

Regarding Filipino insurers, they are expected to use AI to improve customer satisfaction and to calculate real-time risk scores for drivers. Furthermore, personalised pricing can be an absolute game-changer, especially for responsible drivers who deserve a low premium.

AI predicting car insurance premiums

How does AI assess risk and calculate insurance premiums? AI doesn’t just guess or generate random information; instead, it studies data and generates valuable results. In the case of insurance, it first studies data such as previous claims, repair history, weather & road conditions, and the routes most often travelled to create a unique driving profile for each policyholder and ultimately a premium that fits the bill.

Advantages of using AI in the insurance industry

More accurate & fair premium
One of the most significant advantages of using AI is the assurance of fair premiums that reflect a client's actual driving risk. Here, high-risk drivers will pay more than responsible drivers.

Reduced fraud
AI is expected to minimise common fraud in the auto insurance industry, such as fake claims and false information.

Faster claim processing
An AI-powered claim processing system or customer support chatbots will speed up the process, substantially reducing wait times.

Personalised policies
There won’t be one-size-fits-all coverage with AI; instead, each car insurance applicant is expected to benefit from customised policies.

Common concerns about using AI in the insurance field

Data privacy issue: One of the top concerns about using AI in the insurance industry is data protection and privacy. The providers need to ensure the data collected remains safe and is used responsibly, with consent.

Algorithmic bias: If the AI works with skewed or incomplete data, it’s likely to miss its own faults, leading to biased results. It is therefore recommended that insurers prepare an ethical framework for AI.

Tips to lower AI-predicted premiums

• Regularly get your vehicle services
• Maintain a clean driving record
• Drive safely, avoid sudden stops & overspeeding
• Keep a track of your driving performance
• Compare quotes before renewing the policy

How to choose the right provider?

In a world where AI is becoming a reality, make sure to choose a provider that is transparent about its AI integration and ensures data privacy. All this, along with standard requirements such as fast claim processing, 24/7 customer support, and optimal coverage.

Also Read: Why should you avoid making small car insurance claims in the Philippines?

Bottom line

AI is reshaping almost everything in the insurance industry, and it is no different. This artificial tool, in all its glory, will change how premium is calculated, how clients are serviced, and how risk is assessed. This results in advantages such as faster claims processing, fair pricing, and smarter coverage.

Definitely, there are challenges like data privacy and transparency, but the overall outlook seems promising. In short, whether you like it or not, AI is the future, and with time, all its shortcomings will be resolved. So, in the future, you can expect an ecosystem that’s safer, efficient, and affordable.

 

Also Read: What's not covered under your car insurance policy?