Usage-based insurance cost determination system and method

• US 7,937,278 B1
• Filed: 01/06/2006
• Issued: 05/03/2011
• Est. Priority Date: 01/18/2005
• Status: Active Grant

• Current Assignee: Allstate Insurance Company (Allstate Corporation)
• Original Assignee: Allstate Insurance Company (Allstate Corporation)
• Inventors: Fiete, Stephen, Cripe, Frederick F.
• Primary Examiner(s): Patel; Jagdish N
• Assistant Examiner(s): Poe; Kevin
• Application Number:
  US11/327,559
• Time in Patent Office: 1,943 Days
• Field of Search: 705/4
• US Class Current: 705/4
• CPC Class Codes: G06Q 30/0284 Time or distance, e.g. usage of parking meters or taximeters
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A system and method for calculating and applying insurance costs. For vehicle insurance under one embodiment of the present invention, insurance costs are calculated on a per-mile basis in a nonlinear fashion, assigning different levels of risk based upon the distance driven by a customer. In one embodiment of the present invention, the first miles or kilometers driven by a customer are assigned a greater level of risk than later-driven miles or kilometers. The present invention provides an actuarial method that more closely conforms the cost of insurance for a particular vehicle to its annual mileage by creating a Rate Per Mile Factor (RMF), where the RMF is expressed as a function of annual mileage.

Claims

1. A method of determining a distance-based premium for vehicle insurance for a customer, comprising:

inputting into a user terminal an actual or estimated customer distance driven for the customer over a designated time interval;

transmitting from the user terminal to a computational platform the actual or estimated customer distance driven for the customer over the designated time interval;

determining in the computational platform, a rate per distance unit factor for the customer based upon a plurality of criteria, wherein the rate per distance unit factor over an initial driving range is greater than the rate per distance unit factor over a subsequent driving range;

executing in the computational platform a per distance unit based premium calculation based upon the customer'"'"'s determined rate per distance unit factor; and

determining, in the computational platform, a distance-based premium for the customer using the per distance unit based premium calculation.

2. The method of claim 1, wherein the rate per distance unit factor is based upon a rate per distance unit equation for a rate per distance unit curve.

3. The method of claim 2, wherein the rate per distance unit equation is determined by:

inputting a plurality of distance data and loss data;

correlating the distance data with the loss data, the correlation exhibiting a curve with non-linear distance-based relationship;

applying a curve fitting technique to the correlated distance data and loss data to find an equation that closely matches the exhibited curve.

4. The method of claim 2, wherein the rate per distance unit curve includes a curve portion where the rate per distance unit driven over the subsequent driving range is less than the rate per distance unit driven over a further subsequent driving range.

5. The method of claim 1, wherein the distance unit comprises a mile.

6. The method of claim 1, wherein the distance unit comprises a kilometer.

7. The method of claim 1, wherein the determined distance-based premium for the customer is based in part upon criteria selected from the group consisting of the age of the customer, the geographical location of the customer'"'"'s residence, characteristics of the vehicle driven by the customer, the customer'"'"'s driving record and combinations thereof.

8. The method of claim 1, further comprising adding an additional factor to the determined distance-based premium to determine a modified premium, the additional factor being based at least in part upon criteria selected from the group consisting of the age of the customer, the geographical location of the customer'"'"'s residence, characteristics of the vehicle driven by the customer, the customer'"'"'s driving record and combinations thereof.

9. An electronic device, comprising:

a processor; and

a memory unit operatively connected to the processor and including a computer program product for determining a distance-based premium for vehicle insurance for a customer, comprising;

computer code for providing an actual or estimated customer distance driven for the customer over a designated time interval,

computer code for determining a rate per distance unit factor for the customer based upon a plurality of criteria, where the rate per distance unit factor over an initial driving range is greater than the rate per distance unit factor n over a subsequent driving range,

computer code for inputting the customer'"'"'s determined rate per distance unit factor into a per distance unit based premium calculation, and

computer code for using the per distance unit based premium calculation to determine a distance-based premium for the customer.

10. The electronic device of claim 9, wherein the rate per distance unit factor is based upon a rate per distance unit equation for a rate per distance unit curve.

11. The electronic device of claim 10, wherein the rate per distance unit equation is determined by:

inputting a plurality of distance data and loss data;

correlating the distance data with the loss data, the correlation exhibiting a curve with non-linear distance-based relationship;

applying a curve fitting technique to the correlated distance data and loss data to find an equation that closely matches the exhibited curve.

12. The electronic device of claim 11, wherein the rate per distance unit curve includes a curve portion where the rate per distance unit driven over the subsequent driving range is less than the rate per distance unit driven over a further subsequent driving range.

13. A method for determining a rate per distance unit equation for use in calculating a distance-based driving insurance premium, comprising:

providing a system comprising a user interface, a processor and a memory unit;

inputting into the system via the user interface a plurality of distance data and loss data;

engaging the processor to correlate the distance data with the loss data, the correlation exhibiting a rate per distance unit curve with non-linear distance-based relationship; and

applying a curve fitting technique to the correlated distance data and loss data to find an equation that closely matches the exhibited curve.

14. The method of claim 13, wherein the rate per distance unit curve includes a curve portion where a rate per distance unit factor over a subsequent driving range is less than the rate per distance unit factor over a further subsequent driving range.

15. The method of claim 13, wherein the application of the curve fitting technique includes identifying a plurality of parameters which, when used in a rate per distance unit equation, minimizes differences between actual claim counts and fitted claim counts using the rate per distance unit equation.

16. The method of claim 15, wherein the differences between the actual claim counts and the fitted claim counts are measured by using a squared error between the actual claim counts and fitted claim counts.

17. An electronic device, comprising:

a processor; and

a memory unit operatively connected to the processor and including a computer program product for determining a distance-based premium for vehicle insurance for a customer, comprising;

computer code for inputting a plurality of distance data and loss data;

computer code for correlating the distance data with the loss data, the correlation exhibiting a rate per distance unit curve with non-linear distance-based relationship; and

computer code for applying a curve fitting technique to the correlated distance data and loss data to find an equation that closely matches the exhibited rate per distance unit curve.

18. The electronic device of claim 17, wherein the application of the curve fitting technique includes identifying a plurality of parameters which, when used in a rate per distance unit equation, minimizes differences between actual claim counts and fitted claim counts using the equation.