Use Case: Usage-based car insurance models like Allstate’s Drivewise and Progressive Snapshot

Problem:
Flat-rate premiums often penalize safe drivers and reward risky ones due to a lack of behavior-based pricing.

Math-Based Solution:

• Devices installed in vehicles collect data: speed, braking frequency, time of driving, mileage.

• Multivariate regression and decision trees assess risk levels per driver.

• A Bayesian updating model revises risk scores over time based on new driving behavior.

• Markov Decision Processes model transition between risk states (e.g., low → medium → high).