SAN FRANCISCO — The world is a dangerous, unpredictable place — not a bad thing, perhaps, if you’re in the business of selling insurance, making loans or figuring out ways to prevent mishaps. But these days, technology is changing some of the calculations around risk, whether for car insurance, life insurance, flood insurance or even vacation-related accident insurance, and slowly but surely disrupting the financial core of the insurance business.
Financial technology is not just changed by faster computers with more powerful software. Technology also changes things like mobile computing, data collection and what people can measure. Put those together creatively and you change any business involved in calculating risk — in other words, most of the financial world. On a planet covered by location-sensing satellites and cell towers, it is not difficult to put a device in a car and insure people based largely on mileage. That is the basic idea behind Metromile, which began in Oregon in 2012, and now sells insurance in seven states.
Customers fill out the usual information, like age and location — the things traditionally used to guess the likelihood a car will be wrecked or stolen. That data determines a Metromile base rate for insurance, and premiums rise based on miles driven. Metromile’s location-based knowledge lets it warn drivers to remove their cars from a street that will be swept soon, helping them avoid a ticket. The tracking device can hook into a car’s computers, warning the driver when the car might need maintenance.
Expect more. Cellphones, sensors and cheap computing make it possible to value all sorts of objects, including cars, houses, cameras and skis, while gaining insight into how they are likely to be used next. That changes the betting for the risk industry.
Many traditional insurers are already adopting this observational approach and using discounts to sway behavior. Some examples include Progressive Auto Insurance, which has a service similar to Metromile, called Snapshot.
The company Vitality has united with several insurers to offer people lower rates in exchange for logging their health data. It gives people things like Fitbits and Apple Watches to automatically track their activities. State Farm Insurance, in conjunction with the home security company ADT, offers discounts for people who get home monitoring systems.
Insurance, which is after all a business where people take money with a promise to maybe pay for something someday, is a highly regulated enterprise that historically favored slow-moving companies with lots of capital. In this case, however, Mr. Preston says he has an edge on established competition.
The new methods of measurement are affecting lending, too. ZestFinancelooks at thousands of nonstandard variables, including technology use and how people complete forms, to assess a lender’s risk of things like fraud and loan default. Upstart is a lending service that targets younger borrowers, setting rates based on college major and job history, among other factors. Not surprisingly, ZestFinance and Upstart were also founded by former data specialists.
In March, Palantir, a privately held company that has used large-scale data analysis for a variety of tasks, including catching terrorists and determining how banks can efficiently sell subprime bankruptcies, formed a joint venture with Credit Suisse that will use large-scale data analysis to detect insider trading.
See the whole QUENTIN HARDYAPRIL´article of April 6th, 2016, on The New York Times.