Telematics and radio frequency identification (RFID) technologies can enable insurers to do a more targeted job of underwriting and pricing, but privacy concerns may stall their adoption.
Q. What is the potential for telematics in insurance? Which telematics technologies show the most promise?
A. David Huber, The Progressive Group of Insurance Companies: Advances in telematics will ultimately support our company's goal of finding innovative ways to lower the cost of car insurance for all consumers. In fact, we're currently piloting a system called TripSense that allows customers to share data from their vehicles' onboard diagnostics systems to earn up to a 25 percent discount on their insurance. The ability to determine an auto insurance rate based - at least partially - upon monitoring, recording and communicating data representative of operator and vehicle driving characteristics opens up an entirely new pricing methodology. The control and choice that usage-based pricing gives to customers could be very appealing.
A. Bruce R. Hudson, META Group: Telematics-derived data (e.g., driving style, locations, time of day, etc.) can supplement statistically derived risk profiles with real-world behavior. Using this information, insurers would be able to customize risk profiles on an individual basis and more deeply understand their exposure. With data from telematics, a risk profile could be customized for the individual and his premiums adjusted accordingly. Beyond the benefit for insurers, the greatest benefit may be for our society - that the driver changes his behavior when faced with the economic consequences of his decisions.
A. Peter Van Alstine, Cross Country Automotive Services: The most often identified uses for telematics in insurance are those that ultimately change the end customer's insurance experience or enable the insurer to better define risk and therefore pricing. Examples of these would be driver behavior modification based on the awareness of being observed or new rate offerings based on actual usage rather than estimates. While valuable, these uses could be regarded as disruptive and have uncertain value propositions to both the customer and the insurer. However, the opportunity for an insurer to more accurately price risk through objective data should be a positive outcome for both the driver and insurer.
In addition, there are other areas in which telematics can have a dramatic and positive impact on the operations of the insurer, thereby benefiting the customer without such disruptions. One application is enhanced accident management, in which telematics can work to reduce the costs an insurer incurs from duplicate and expensive towing, impound/storage, customer rental vehicle charges and other charges that a telematics-enabled vehicle may be able to avoid if properly equipped with the right telematics technology.
Q. What factors will determine if and when telematics is adopted by insurers?
A. Huber, Progressive: There are at least four questions, in Progressive's view, that must be answered before telematics becomes more widely used. First, is it economically viable and technically feasible? Second, do we have a handle on the data standards, connectivity and common protocols that influence the economics and technical feasibility? Third, can we justify it actuarially? The TripSense pilot is designed, partly, to help us determine if there's some relationship between how, when and where vehicles are driven and the likelihood of an accident. And the most important question: Will telematics be accepted by consumers?
A. Hudson, META Group: The cost and availability of devices are not the main inhibitors of telematics. Indeed, much of the data desired by insurers is already captured by vehicle systems. The challenge lies in aggregating, extracting and making that data available to insurers, either in real time or in batch download. This will only occur with consumer demand and acceptance; it will not be driven by either existence of the technology or by insurer demand. As an example, just look at the growth of the OnStar service. There is a clear consumer value delivered, so clear that consumers are willing to pay monthly for it. Consumers understand and accept the bargain with OnStar: In exchange for some personal data and money, they receive a valuable service. Insurers need to take note and develop a strong value proposition for customers. Additionally, insurers must ensure that there are clear and enforceable privacy regulations governing what details can be gathered, how data can be used and how data will be protected, stored and shared.
A. Paul Dolbec, Sun Microsystems: At the end of the day, insurers and reinsurers want to lessen their exposure, reduce loss ratios and increase underwriting profits. Telematics technology provides the industry with a variety of benefits to meet its goals while improving its customers' experiences with vehicles and, potentially, watercrafts. In this instance, the core value is to reduce the incidence of claims. Insurers that encourage the use of this technology through lower premium rates (similar to air bag and theft-deterrents discounts) will provide the means to the consumer to be safer and thereby reduce the number of accidents. This scenario is magnified for commercial enterprises that have fleets of cars and trucks.
Q. What are the privacy and security issues related to the use of telematics? How can insurance companies address these issues?
A. Huber, Progressive: Understanding and managing privacy and security concerns are critical for consumer acceptance of telematics - and not just as it relates to insurance. Within our industry, carriers, agents and brokers, and other technology players must agree and make it very clear that the customer "owns" his or her data and then provide a system that allows customers to choose whether to share that data with their insurer or agency.
A. Hudson, META Group: The shift to insuring individual risk profiles based on real-world personal data must be finessed and should be evolved slowly step by step to avoid rejection by customers and legislators. As tempting as it may be to view this as a technology issue, this is fundamentally an issue of trust and service. One mistake in deploying the technology or telematics-based policies could set back progress by years, or more importantly damage the insurers' brand. Insurers must approach this from a long-term benefit perspective rather than from a short-term ROI mind-set.
Q. What is the potential for radio frequency identification in insurance?
A. Huber, Progressive: RFID is still cost-prohibitive. We're committed to applying technology in innovative ways to help lower the cost of auto insurance for all consumers, but, at the same time, we don't have plans to act as a driver of raw technology development.
A. Van Alstine, Cross Country Automotive Services: RFID is a broadly enabling technology, providing benefits as diverse as weapons tracking and retail goods distribution optimizing. The ability for roadside service providers, public safety officials and service facilities to accurately and immediately obtain insurance information from either a vehicle or its owner/occupant via RFID could offer substantial savings in time and cost. Privacy issues likely will dictate an explicit opt-in or grant of access by the customer if personal information is to be provided.
The Experts: Telematics/RFID
Product Development Manager
The Progressive Group of Insurance Companies
Bruce R. Hudson
Program Director, Technology Research Services
Worldwide Manager, Insurance Sun Microsystems
(Santa Clara, Calif.)
Peter Van Alstine
Vice President and General Manager, Insurance Market
Cross Country Automotive
Peggy Bresnick Kendler has been a writer for 30 years. She has worked as an editor, publicist and school district technology coordinator. During the past decade, Bresnick Kendler has worked for UBM TechWeb on special financialservices technology-centered ... View Full Bio