Mobile Advancements Lead to Rise in Usage-based Insurance

Better device design, improving pricing models and growing consumer acceptance are contributing to a rise in available usage-based insurance programs. And as companies look for ways to leverage the main selling points of the mobile channel, two mobile device strengths -- ubiquity and GPS capabilities -- could contribute to mobile's use as a telematics enabler.

Many telematics devices use components typically associated with mobile devices already. Richard Hutchinson, general manager of usage-based insurance for Mayfield Village, Ohio-based Progressive ($1.1 billion in net written premium), explains that the company's Snapshot device uses a phone chip and existing cellular networks to transmit data back to the insurer. "It had to be approved as a wireless device, go through AT&T reviews and through the FCC," he notes.

Northbrook, Ill.-based Allstate's Drive Wise device also uses a common mobile phone component: a SIM card. While proprietary devices currently provide the best opportunity, according to Dan Kraft, director of product innovation for Allstate ($6.4 billion in Q1 2011 P&C premium), "There's potential for the smartphone to play in this space as a platform," he says.

Tom Kavanaugh, a director with New York-based PricewaterhouseCooper's Diamond Advisory Services who has studied the telematics arena, elaborates on the potential for mobile devices to promote usage-based coverage. "Clearly there are additional challenges that come from the data being pulled from the mobile device, but it helps insurers get past the economic equation -- the mobile device is already in everyone's pocket, so you don't have to worry about getting the device to people's cars," he explains. "And from a penetration standpoint, everyone's already got one."

State Farm ($951 million in 2010 net income) recently released an app for iOS devices that uses the devices' built-in accelerometers to measure acceleration, braking and cornering during a car trip. At the end of each trip, the driver is provided a score and a log of potentially dangerous driving activities. Though Bloomington, Ill.-based State Farm has no announced plans to use the app for pay-as-you-drive insurance, it shows that existing mobile phones possess the capability to record the type of data used in usage-based insurance programs.

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