The Nebraska Department of Insurance says auto insurance companies are increasingly using information obtained from on-board sensors in establishing premium rates. The department is concerned that some of that information may not be complete in insurers’ rate filings for both personal and commercial lines.
The DOI acknowledged that measurements obtained by sensors on such things as timing, location, mileage, acceleration and braking can be useful in the determination of insurance rates. Because Nebraska is a “file-and-use” state, the department says it is not likely to challenge insurers with regard to the judgmental selection of reasonable rating factors, as long as the filing is complete.
The biggest issue with these filings to date has been the submission of incomplete filings, the DOI said, and a file-and-use filing is only valid if it is complete. Filings must provide descriptions and definitions of the driving information that is utilized and a complete filing of the algorithms.
The DOI further clarified use of information from on-board sensors as follows:
- Use of a third-party vendor does not relieve the insurer from the requirement of clear definitions as well as complete formulae and procedures that produce the rates. If an insurer chooses to use a score from a vendor, the department must still be given every aspect of the variables and algorithms used by the vendor to develop these scores.
- If a vendor uses specifications provided by the insurer, there will typically be no need for the vendor to correspond with the department. If, however, the vendor uses a proprietary scoring system that it does not wish to disclose to the insurer, the department will accept documentation directly from the vendor. Under current law, most vendors would not be considered “advisory organizations,” and this discussion presumes that the vendor is not licensed as an advisory organization.
- For the department to accept a “filing” from a vendor there must be written authorization and a statement from the insurer that it agrees that it is not relieved of any responsibility for the honesty and competency of the vendor. The statement must also state that the insurer and vendor will not change a scoring system without a prior filing with the department.
As of the date of this bulletin, the use of these devices and the information for insurance rating is relatively new. The department has received requests that it not disclose the filings as a trade secret. If the insurer asserts that the algorithms are a trade secret, the department recommends that insurers have the algorithms and related information shown separately from the rest of their rating manual.
The publically available portion of the rating manual should show that these devices are part of the rating and should include eligibility rules to the extent applicable. The actual calculation of the factor or tier determination can be included in the portion of the manual where confidentiality is desired. This is similar to the use of credit scoring, where eligibility and tier factors are shown in the publically available portion of the filing, but where the selection of the tier is contained in the section of the filing that is held confidential.
The subject of trade secrets and its relation to Nebraska’s public records law is beyond the scope of this bulletin. However, the department requires specific identification of the part of a filing where trade secret protection is requested and an explanation of why trade secret protection is warranted.
Materials that obviously do not qualify, such as materials that have been publically filed elsewhere, are of common knowledge, or are distributed to agents, will not be considered a trade secret by the department.
Source: Nebraska Department of Insurance
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