State Farm's Alternate Approach to Usage-Based Insurance

Last week, I wrote about how changes in consumer comfort and wireless technology have led companies to take the full plunge into pay-as-you-drive auto insurance. Progressive and Allstate were kind enough to discuss the development of their telematics devices, as well as the pricing models that go along with the offering.

I reached out to State Farm as well. Its Drive Safe & Safe program works with customers who have Onstar-equipped vehicles. The Onstar system sends the relevant information to State Farm so it can adjust customers' rates. It is currently available in California, Ohio, Texas and Illinois. Below are some questions about the program that State Farm spokesperson Kip Diggs addressed via e-mail.

Insurance & Technology: Is State Farm exploring other ways to get the driving data?

Kip Diggs: We are looking at a variety of different ways to provide the Drive Safe & Save experience to drivers of cars that aren’t equipped with OnStar. We’re unable to discuss those at this time due to regulatory and competitive reasons

I&T: What’s been the challenge in bringing this to market?

KD: Insurance is a highly-regulated industry. Anytime you want to make a change in the way you do business, you have to present your ideas to state regulators and get their approval before you can move forward. This can be a time-consuming process, but we believed it was worth going thru the process to get the desired outcome.

I&T: How does State Farm see this interacting with the business going forward? Would you prefer to have more people on a pay-as-you-drive model than not?

KD: We are always looking for ways to make sure we’re collecting the right amount of premium for the risk. We don’t want our customers paying any more than their fair share. This program breaks the mileage segments out from the traditional two that we’ve always used. We believe this is a better system for our customers and for us. We understand that some of our customers may not wish to participate in the program at this time, but we believe it’s a great option for those who are looking to save.

State Farm also recently released an app for iOS devices that uses the device's built-in accelerometer 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 no data is sent to State Farm from the app, an opt-in program that uses this type of capability might be in the future of pay-as-you-drive programs, to which a number of sources in my article from last week alluded.

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