Insuring telematics' success

  • 11-Jun-2010 04:07 EDT

Progressive’s telematics unit plugs into the diagnostic bus to gather data used to determine insurance rates.

Insurance companies are beginning to join in the telematics movement, using connectivity to determine how many miles vehicles are driven. Their interest in gathering data that will help them set rates based on usage may become an important factor spurring the growth of independent telematics.

Insurers are exploring a range of usage-based models and pay-as-you-drive programs. Though some companies have been testing ideas for a while, trial programs are more the norm than national plans.

“The insurance industry has just begun to scratch the surface of the potential for using this technology to assist our business customers in mentoring their drivers, reducing risk, and potentially lowering their insurance premiums,” said Christopher Carver, Onboard Advisor Program Manager for Liberty Mutual Insurance.

Liberty’s efforts are typical of the industry’s moves. Just over a year ago, Liberty launched Onboard Advisor, a telematics program for small to medium-size businesses that offers a commercial automobile insurance discount ranging from 2-40%. In another experiment in Europe, Liberty lets auto dealers in Poland purchase insurance by the day.

In the U.S., Progressive Casualty Insurance Co. is also testing the technology. Its MyRate program was introduced in 2008. Since then about 100,000 people have signed up, a spokesman said. About one in four people who are offered enrollment when they buy new policies currently accept.

A primary goal for insurers is to attract safer drivers by offering them discounts based on actual driving data. Cars driven less often, in less risky ways, and at less risky times of day get a discount. Many observers feel the insurers who get in early may gain the biggest benefits.

“The first adopters will get the best candidates,” said Scott McCormick, President of the Connected Vehicle Trade Association. “They can offer better prices to the low-risk drivers, and higher-risk drivers won’t be willing to pay higher prices so they’ll go elsewhere.”

At present, many insurance companies are using proprietary technology. Liberty’s Onboard Advisor product is a self-contained GPS and accelerometer-based product that does not require access to the vehicle databus.

“Currently, differences between vehicles make it difficult to easily pick up data from the databus for every make and model on the market,” Carver said.

Progressive is also using proprietary hardware, utilizing a small device that is installed in the vehicle’s onboard diagnostics port. It measures mileage, time of day, and how often drivers slam on the brakes, the spokesman said. The device does not include a GPS, so Progressive can’t monitor where drivers go. That dramatically reduces privacy concerns.

However, other companies are leveraging installed hardware. The nation’s largest telematics supplier, OnStar, recently extended its services beyond its initial link with GMAC Insurance.

Last fall, OnStar and State Farm teamed up to provide Ohio drivers auto insurance premium savings. State Farm’s Drive Safe & Save program bases insurance premiums on the number of miles driven, offering savings of 5-10%.

Other companies are stepping in to support this data gathering. Enterprise software giant Oracle developed what it calls the Connected Vehicle architecture. It handles the challenges of creating remote monitoring systems, collecting data and turning it into useful information that can be billed to customers.

Though insurers and drivers focus on pocketbook savings, this evolution could also have broader societal impacts. A 2008 Brookings Institution report on pay-as-you-drive insurance predicted that, if all U.S. drivers paid for accident insurance per mile instead of lump sums, driving would decline by 8% nationwide. That would reduce carbon dioxide emissions by 2%, and oil consumption would drop about 4%.

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