A Primer to Auto Insurance Pricing for Data Scientists

The skillsets of Data scientists can have a wide range of applications. If you are interested in this article, I may guess you are a data scientist who has a wide range of interests and wants to see how your data science skill can apply to the development of an auto insurance pricing model. Does the insurance industry use data science? Yes. The term “insurance” may not sound as rosy as “tech”, but the operations of an insurance business rely on a large body of data science techniques as well as information technology.

An insurance contract is a financial obligation. It has no tangible product. If you list a product on Amazon.com for sale, you know your costs and you add your markup to list your price. The cost is known before you sell the product. But an insurance company does not know its cost at the beginning of a year. So an insurance company has to employ statistical methods to predict the cost. That’s the fundamental difference between an insurance company and other businesses that sell physical goods.

Today data scientists are in huge demand in the insurance industry to model and estimate costs. The modeling of insurance pricing is at the core of the insurance industry. And now with the advance in data science, more data scientists and engineers continue to contribute to insurance pricing.