A study released by Quality Planning Corp (QPC), a San Francisco-based analytics company that helps insurance companies price insurance, reveals that a person’s physical home address, not just ZIP code, can predict the likelihood of an auto accident. The research, which consisted of an analysis of 15 million policyholders and 2 million auto claims, shows that people who live within a mile of a church or other religious institution are much less likely to be involved in an auto accident, as opposed to those who live within a mile of a restaurant.
In fact, living within one mile of an eating establishment increases the risk of auto accident by about 30 percent, while living within a mile of a church decreases the risk by 10 percent.
Wondering what other neighborhood locations increase the risk of accident? Living near grocery stores, schools, and banks all weighed in as high risk areas. Conversely, living near a doctor’s office, airport, or community park showed the risk of accident to be substantially lower.
“It’s important to remember,” says Bob U’Ren, QPC vice president of marketing, “that these observations are indicative of the area and we would naturally expect higher accident rates in higher traffic areas.”
Makes sense. But while some of the results seem predictable, other results are surprising. For instance, churches and elementary schools are ubiquitous in most neighborhoods, yet their accident rates are at opposite ends of the spectrum.
U’Ren adds, “There are also comparatively fewer homes and apartments, and generally lower vehicle use, close to parks and forests. But who would have thought it is more dangerous to live by an elementary school than a liquor store?”
The study does not really contemplate why certain areas demonstrate increased risk, but undoubtedly research on the subject will continue now that QPC has been able to refine auto risk assessment from the ZIP code level down to the street level.
“It’s well known that auto insurers use a policyholder’s ZIP code to calculate the risk he or she represents,” comments Founder and CEO of QPC, Dr. Daniel Finnegan. “New technology enables us to be even more accurate in determining the level of risk associated with a policy by identifying the specific risk factors associated with that policyholder’s home address.
“In our research to develop a new predictive loss model for auto insurers, we have identified more than 500 variables that are highly correlated to auto accidents, many of which are specific to a policyholder’s home address. Among the more interesting variables we found are hail storms, crime rate, topography, traffic patterns, occupation, street width and chiropractors per capita.”
QPC’s new predictive loss model assists auto insurance companies in their efforts to minimize rating error. The ability to assess risk at the street level, and not just based on ZIP code, provides a better predictor of property/casualty insurance losses, enabling insurers to rate more accurately. More accurate rating can mean better financial stability for the companies.
But what does more accurate rating mean for you? Well, some analysts argue that more accurate rating could mean a decrease in auto premiums. While this may be true for some drivers in certain locations, the opposite could also be true. In other words, auto premiums could go up if you happen to live near, say, an elementary school. And chances are good that you do.
Before you start house hunting for a place in the middle of a forest within a mile of a church, know that insurers are not likely to use these partly ambiguous correlations just yet to adjust auto premiums. More research is needed to understand why these risk factors influence auto accidents, and what can be done to mitigate those risks.