Risks of Being on Bleeding Edge

Progressive Insurance, a company that has a history of using technology to gain a competitive advantage, was again on the cutting edge of IT several years ago when it announced its real-time usage-based auto insurance pilot program. However, this time around, Progressive may have been a little too cutting edge.

Progressive (Mayfield Village, OH, $10 billion in assets) launched Autograph, a real-time rating pilot based on GPS (Global Positioning Satellite) technology that calculated rates on how much a policyholder drives, in 1998 in Houston. Autograph, which was expanded across Texas in '99, was discontinued this past summer, according to Maria Henderson, Autograph manager Usage-based insurance calculates insurance rates primarily on how much, when and where the insured vehicle is driven. Autograph, which was awarded a US patent in 2001, was shown to save policyholders in Houston an average of 25 percent of what they were previously paying.

Costly Technology

However, Progressive decided to discontinue the pilot because of the limited and costly availability of GPS technology. For instance, the aftermarket installation of a GPS system was prohibitive from a cost and logistics standpoint, according to Henderson.

"The reality is that this idea is just slightly ahead of its time," Henderson says. "Vehicles don't come off the assembly line with the necessary technology GPS and cellular built in, and retrofitting vehicles with the technology and using another company to track the data is a very costly way of calculating usage-based auto insurance." Policies sold in Texas required the use of an aftermarket electronic vendor for installation of the GPS and cellular hardware, according to Henderson. The collection of the data was performed by another vendor that passed the information to Progressive for billing. Henderson would not name the other technology providers that participated in the pilot.

"However, we did learn that it is technologically feasible and that customers liked it," Henderson adds. Although she would not give the exact number of policyholders who participated in the pilot, she did say the total number of participants was in the hundreds.

Even though the pilot has been discontinued, Henderson sees Progressive using real-time rating technology in the future. "We remain committed to using technology in innovative ways, including ways to reduce the cost of auto insurance for consumers," Henderson says. "We are talking with a lot of OEMs, telematics experts and others, and are working on solutions so that we can again be the first to offer usage-based insurance—this time to consumers throughout the country. But we have no immediate plans for usage-based insurance," nor is there a time frame for a new roll out.

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio