What are more entertaining than auto insurance commercials? The likes of Mayhem, Flo, Little Piggy and the Gecko, to name a few, are fun and amusing, but the companies they represent are very serious about what you’ve been doing while driving. When applying for a policy, the questions asked concerning accidents, moving violations, other convictions, vehicle type, usage and current coverage are the same for all companies. The inquiry might seem intrusive, but it is necessary in determining a premium, or even qualifying for a policy, and don’t think you can leave out any negative driving history. Often, learning to drive is easier than acquiring car insurance.

Car insurance is not an investment per se; it is a guarantee of protection, which could include any number of investments one has made, and the cost is variable. Claims activity is a very important component of establishing premiums, and imperfect driving is a major cause of them. According to the official U.S. website for distracted driving, Distraction.Gov, distraction-affected crashes killed 3,328 people in 2012—not to mention the 421,000 people injured by distracted driving that same year.

Each insurance company decides on a system to determine rates for each type of driver in every geographical area, plus its own discounts and surcharges. The goals of all insurance companies are similar: to make enough money to cover policyholder claims and overhead business expenses; to balance risk with higher rates for those with claim activity and discounts for those without; and most of all, to stay competitive with other insurers in their market.

Credit-based insurance scores (CBIS) were introduced in the early 1990s and use certain elements of a person’s credit history to predict how likely a consumer is to have an insurance loss, as research shows there is a correlation between credit characteristics and claims. The theory is that drivers at the bottom of the credit heap file 40-percent more claims than drivers at the top. A bad credit rating can increase insurance premiums more than 20 percent. The system is flawed because someone with a bad driving record, but good credit, could pay less for insurance than someone with an excellent driving record, but a spotty credit report. Companies must notify customers of their use of CBIS, and though it’s unlikely your insurance score will ever be perfect, paying bills on time and limiting the number of credit cards you apply for and open will help.

Dwight Hakim, director of telematics for Verisk Insurance Solutions, says the adoption of the financial credit score as a rating variable for premium underwriting was an innovation in its time. Insurance industry watchers have called out telematics as the next big thing. Telematics is a technology associated with communication for a motor vehicle; General Motors’ OnStar program was an early example of telematic capabilities and services in automobiles. Many brand-name telematics programs fall into categories: usage-based insurance (UBI), pay-as-you-drive (PAYD) and pay-how-you-drive (PHYD). These acronyms imply that the factors affecting premiums are generally how much, when and how well, as well as where the vehicle is driven.

Personal-lines insurance carriers that cover more than 60 percent of insured passenger vehicles have or are actively pursuing telematics-based UBI programs in every state. Tracking technology is nothing new, but it appears there may be an opportunity for a new auto insurance commercial character: Big Brother. iBi