Insurance Telematics is the overnight sensation that's been more than a decade in the making. And while telematics, usually associated with usage- or behavior-based insurance, is frequently portrayed as a revolutionary idea, it has failed to live up to its potential. Until now.

A confluence of technological and societal trends is finally pushing programs like Progressive's Snapshot, State Farm's Drive Safe and Save, Travelers' IntelliDrive, and others, into the mass market. In September, according to Robin Harbage, director at Towers Watson, 26 states had four-or-more personal auto usage-based insurance (UBI) programs, and Ohio had eight. Progressive has programs in 42 states and the District of Colombia and has written more than a billion dollars in UBI auto premium in the past 12 months.

"Scale is driving costs down. Groups are putting together end-to-end offerings, so it's no longer the technical hurdle it used to be," says Richard Hutchinson, usage-based insurance business leader at Progressive. "Longer term, you are seeing the next generation emerge from discussion to piloting. The advent of mobile technology has revolutionized how Americans feel about sharing information."

Sensors and chips are now in things and places never previously imagined, and are generating data that never before existed, creating new consumer services and business opportunities. Thanks to ever-smaller devices and constant connectivity, we think differently, too. We're conditioned to download and use apps to track everything from the next, cheapest gas, to calories consumed and burned on a morning run, as well as our routes, times and performance.

Most UBI programs in the United States are not based on smartphones, but they could be. To insurers, wireless carriers now offer machine-to-machine communications services and packaged UBI solutions, which include hardware sales and service, support, analytics and connectivity, on a turnkey basis. Other third-party vendors have operational systems, with tens of thousands of current users, in the European Union, United Kingdom and elsewhere. In the United States, insurance telematics products plug directly into an automobile's On-Board Diagnostic systems port (OBD II), where they have direct access to data about the car and how it's being driven.

Direct access to vehicle data, in conjunction with connected vehicle services, now commonplace on new cars, gives automakers a deep foothold into the insurance telematics market. Partnerships such as that between State Farm and Ford, as well as the opportunity for an aggregated UBI market, in which insurers essentially bid to write an individual's coverage based on their personal driving data, may soon have a profound effect on the insurance industry.

"They speak in loud voices about how this is going to change everything, how we have never been able to do this before," muses says Jim Noble, senior risk engineering consultant Zurich Services Corp. "But there are others who say this is just an evolution. Many parts of it are revolutionary, but for other parts, it's just the next step. It is just the movement toward what we need to do for better granularity and to better understand."

Granularity is the issue around which the success of insurance telematics revolves. From its earliest days, the insurance industry has been data centric. However that data was historical, demographic or otherwise extrapolated from group behavior. That goes away with telematics. By objectively identifying people who, for example, corner and brake too hard, or drive too fast, too much, or too late, telematics offers the ability to understand individual risk in real-time, and adjust premiums accordingly.

The Hesitation

From the consumer's perspective, the technology can seem intrusive, and who owns their data is an open question. From the insurers' perspective, the granularity of the data means a massive influx of it, and how the company manages that data, and respects consumers' privacy, is crucial to mass adoption.

"Every insurance company is looking at what information is available, and what data could be used," says Randy Birchfield, Allstate VP of product operations. "Some insurance companies don't even collect location data via GPS. They simply collect other data elements around how many miles have you driven; what time of day the vehicle is being operated; how fast it's being driven."

While Progressive has successfully offered discounted UBI premiums in its effort to scoop up market share, most insurers will not succeed by offering discounted premiums while taking on expensive projects. The opportunities for most insurers likely reside in customer segmentation and retention efforts, the opportunity to market value added services, like real-time feedback; distracted- and teen-driving programs; gamification and behavior modification; and customer support enhancements, such as geolocation-enabled claims and emergency services and data-driven subrogation efforts.

"It's all about risk mitigation; it's about helping the industry become proactive and partnering with customers and individuals to help reduce their risks," says Mark Breading, partner at Strategy Meets Action. Perhaps more importantly, insurance telematics offer an opportunity for differentiation in a commoditized market, he explains. "But it's not a slam dunk. You have to do it right. And that's why you've got to get the marketing right; you've got to get the product design right. It's no simple thing. You look at somebody like MileMeter in Texas, and they entered the market with a bang, totally based on telematics. That was their business model and they had heavy marketing, but they failed." Milemeter has filed its withdrawal plan with the Texas Department of Insurance, according its website.

While insurers agree telematics data is incredibly rich, and the possibilities for customized coverage and value added services is nearly endless, insurers need not shoot for the moon when implementing a telematics program, cautions Towers Watson's Harbage. "Don't over spend on the technology, because whatever infrastructure you put in place, it will be different in two years," he says. "Decide what you want the service package to look like when you finally offer it to your insureds; how you want it to integrate with your brand; how it should look. Do all that strategic planning up front and decide what you want. And then go to market instead of testing a widget."

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