Q&A: Progressive's Usage-Based Insurance Licensing Program Explained

Advances in technology have rocketed telematics-powered usage-based auto insurance (UBI) into the mainstream. Automakers and mobile carriers have joined insurers in trying to establish a model for collecting, transmitting, and using driver data in a way that benefits all stakeholders.

Mayfield Village, Ohio-based Progressive has a strong argument for calling itself the first U.S.-based insurer to explore telematics as a means of rating drivers. As long as 10 years ago, its original pilot, called Autograph, resulted in the company being awarded multiple patents. Now called Snapshot, Progressive's UBI program is by far the largest in the country: It's available in 43 states and has more than one million enrolled drivers.

Progressive has been defending its turf in court. It's sued other large insurers including Allstate, State Farm and The Hartford. Now, in an attempt to avoid litigation, the company offers the ability for competitors to license their UBI patents. Though the company only charges a licensing fee of .02% — small potatoes compared to the potential size of the UBI market — staying out of the courts means staying out of the market: Licensees may not use any data collected to rate auto insurance until April 1, 2015.

Insurance & Technology reached out to SMA analyst Mark Breading, who was responsible for a research brief released today on the Progressive licensing program and agreed to help break it down even further.

Insurance & Technology: How does this licensing agreement affect companies already in the market with UBI programs?

Mark Breading, SMA: Most of the companies that are already in the market, especially the bigger ones, are in legal action right now. I'm sure that there are discussions going on behind the scenes on how to resolve those, and this may provide a new restart point for some of those discussions.

I&T: Why is licensing from Progressive better for larger insurers (defined as over a billion in premium) looking to enter the UBI market?

MB: It may not be. If you're not in the market yet, its an easier decision. Even though you can't rate until April 1, 2015, it would take that long to develop a program anyway. For larger insurers who have already started work on UBI, they have to make their own decision about whether they license and restart, or continue their current paths and work through the courts.

I&T: What about for smaller insurers?

MB: They can move forward without fear of litigation if they go this route.

I&T: Could this have any affect on vendors who provide turnkey telematics programs?

MB: I don't think that it affects them in terms of any legal implications. It all comes down to whether you are an insurance company rating insurance based on this technology. Vendors, whether they're component vendors offering a black box or systems integration or some other part of the solution, aren't just selling to insurance companies. Even insurance companies can use this for other purposes besides rating anyway, like offering driver feedback. In fact, vendors could use this as impetus to say it's time to move and do pilots.

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio