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The Future Is Now

Existing telematics technology can provide valuable data for risk selection and pricing, but consumers have privacy concerns.

Though the adoption of telematics faces obstacles, the technology is likely to succeed in the long run, according to the presenters of "Developments in Telematics and Vehicle Safety Technology," a session delivered at November's ISOTech insurance technology conference in New Orleans. More than 3 million drivers currently subscribe to telematics services - a figure that is likely to increase to as many as 7 million by 2010, according to Christopher Sirota, project manager, vehicle/driver/event monitoring services, commercial lines information division, ISO (Jersey City, N.J.).

"Telematics will have a considerable effect on our industry," Sirota told attendees. "It can provide accurate information for underwriting that we've never had before - accurate, detailed, real-time data."

Sirota argued that the promise of telematics for insurers is great, considering that $4.2 billion is "leaked" annually from the bottom line, owing to bad information in three areas: risk selection, pricing and losses. "Insurers need data to crunch, and this technology will give us new and better data," he said. A further benefit of telematics, he added, was a "halo effect" - drivers who know they are being monitored are likely to behave more conscientiously.

That effect has been seen in crash data recorder implementations, Sirota noted. Nationwide (Columbus, Ohio; $148 billion in assets) saw decreased accident rates in its own fleet of vehicles after installing "event recorders" manufactured by Salt Lake City-based Independent Witness.

Telematics' ability to monitor drivers' behavior in real time, however, is the reason the technology faces obstacles to adoption in the first place. "It's doubtful that the average person would submit this information willingly," asserted Robert U'Ren, VP, underwriting and business development, for ISO subsidiary Quality Planning Corp. (San Francisco), referring to consumers' fears that the technology is a threat to their privacy. As a consequence, he said, insurers will face significant marketing costs to promote telematics. Accordingly, one of the most successful markets for insurance-related telematics is likely to be commercial fleets, U'Ren continued.

According to U'Ren and Sirota, among insurers currently pursuing telematics initiatives are Progressive Insurance (Mayfield, Ohio; more than $11 billion in annual premium), which is piloting a non-real-time program that gives drivers the option of submitting data for a discount, and GMAC Insurance (Winston-Salem, N.C.), which is piloting a mileage-based discount program for subscribers of OnStar's (Troy, Mich.) services.

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

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