Within GIS, global positioning systems (GPS) offer insurers specific advantages associated with the technology's real-time nature. "This is still largely an untapped resource, but in the next year I think we'll see more companies investing in GPS," speculates Paul McDonnell, senior vice president of BearingPoint's (McLean, Va.) insurance practice.
GPS can determine a user's geographic location within 25 feet under any weather conditions, making it a valuable tool for claims adjusters responding to catastrophes that may have resulted in the destruction of street signs, landmarks and other orientation points, McDonnell notes. GPS also can enable insurers to track adjusters' movements in order to more efficiently dispatch them and increase their productivity.
Auto insurers recognized the underwriting and risk analysis advantages of GPS technologies early on. In 1998, Progressive (Mayfield Village, Ohio; $1.4 billion in premium revenue) implemented a telematics system that could track miles and minutes driven, as well as the hours at which a car was driven, to assess risk more accurately for underwriting personal auto policies. The system supported a pilot program designed to determine whether or not auto insurance premiums could be calculated on a usage basis.
The pay-as-you-drive program stalled because of two main hang-ups, explains Bearing Point's McDonnell. "First, there was the expense of the technology, and [second], some people considered the notion of the insurance company using this technology invasive," he says. Those concerns have been mitigated somewhat by the popularity of GPS in cars for its navigational, security and safety features. General Motors (Detroit) currently installs OnStar (Troy, Mich.; a subsidiary of GM) GPS in 50 vehicle models.
In 2004, Norwich Union (Norwich, U.K.; $515 billion in assets) adapted Progressive's patented methodology to launch its own pay-as-you-drive pilot, utilizing a black box that harnesses IBM's (Armonk, N.Y.) Cross-Telematics Wireless Automobile Solutions and Onstar GPS. Norwich Union declined to comment on the pilot, but industry observers say that Norwich's experience is likely to encourage other insurers. "In the next five years, we will see more insurance companies creating policies more usage based to make sure they are getting the proper return and reduce overall risks," BearingPoint's McDonnell asserts.
Since auto and home insurance constitute the majority of the P&C industry, better ways to provide auto insurance likely will offer the most significant changes in that industry in the next five to 10 years, believes Piyush Singh, CIO, RLI Corp. (Peoria, Ill.; $820 million in revenue). "The companies that come out with new and more profitable business models in the auto industry will probably have the most far-reaching impact on the end consumer," he says. "Online monitoring of drivers' driving habits along with GIS capabilities can be combined effectively to truly have analytical models developed that provide a dynamic scenario for managing risk versus the current mode of static risk evaluation."
Sensing technologies also could influence the risk picture in auto and other types of property insurance. For example, retinal monitoring can be used both to avoid accidents and measure a driver's performance - a capability that could be meaningful for insurers, according to Georgette Piligian, CIO, corporate systems, MetLife (New York; $320 billion in assets). "If a driver's eyes move out of a certain range for, say, four seconds, it could trigger certain automatic reactions," Piligian says. While such technologies have complex privacy implications, she adds, "The ability to pick out patterns can help distinguish good driving behaviors from bad, which could potentially have dramatic effects on the pricing model."
Technology that detects emotional changes through sound analysis could enhance customer service, in Piligian's view. "If companies want to create a superior customer experience, it might depend on not only understanding the profile of the customer, but perhaps also understanding the customer's emotional state before they have a situation that's out of control," she says.
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio