Telematics Could Cause 'Seismic Shift' Among Vehicle Insurers
http://insurancenewsnet.com/article.aspx?id=284117
Copyright: (c) 2011 A.M. Best Company, Inc.
Source: A.M. Best Company, Inc.
Wordcount: 686
Devices that monitor drivers' behavior could transform the personal and commercial automobile insurance industries. Among business users, telematic devices are used for everything from driver coaching, improving operations and saving on fuel consumption.
But when the wholesale transformation will occur — hinging in part on widespread acceptance of telematics devices like OnStar, which comes installed in General Motors Co. vehicles, or Progressive Corp.'s Snapshot, which plugs into a designated port — remains to be seen.
"There's a seismic shift that going to occur at some point," said Tom Kavanaugh, director of the insurance practice at PricewaterhouseCoopers LLP, speaking about the use of telematics among personal auto insurers. "We don't know when the tipping point is."
Jim Noble, line of business director for motor fleet at Zurich Services Corp., said telematics is a "game changer when used properly," but is "not a magic bullet." More than just data gathering, the information has to be transmitted, stored, analyzed and acted on, he said.
As the devices become less expensive and more reliable, there is a "huge opportunity" for personal and commercial insurers to differentiate themselves, said Robin Harbage, a pioneer in the telematics industry, having spent two decades at Progressive and who now, as a director at consulting firm Towers Watson, is working with several insurers to help them implement telematics and usage-based insurance programs.
Insurers having a 60% market share in the personal auto market have implemented some version of usage-based insurance in at least one state, according to Towers Watson research, and even more are running or preparing pilot programs.
Usage-based insurance, also called UBI, programs have been implemented in all states, except Hawaii, and 18 states, including California, Texas, Illinois and Ohio, have at least four personal auto UBI programs, according to Towers Watson.
The telematics devices can be part of UBI, but the data they collect can be used for much more than underwriting and pricing. And UBI doesn't have to be particularly technologically savvy or dependent on a device. For instance, MileMeter in Texas offers pay-by-the-mile auto insurance, in bands of four thousand to six thousand miles every six months, with proof of mileage which can be based simply on a photograph of a vehicle's odometer at the start of the contract period and at renewal. The company doesn't use monitoring devices.
The Automobile Club, an affiliate of the American Automobile Association, Sequoia Insurance Co. and State Farm offer pay-as-you-drive insurance in California, based on actual miles driven, verified through various methods. These programs, like MileMeter, are designed for low-mileage drivers.
Among personal auto insurers, Progressive's Snapshot program, now available in 40 states, including Texas, New York, and Florida, has the largest geographical presence. Progressive says with Snapshot, a telematics device manufactured Xirgo Technologies Inc., good drivers can save up to 30% on their car insurance. GMAC Insurance's mileage discount program, offered to OnStar subscribers in 35 states, promises savings of up to 54% a year for people who drive less than 15,000 miles annually.
In contrast, State Farm's In-Drive device currently is only available in Illinois. The device monitors mileage, turning, speed and acceleration, braking and the time of day the vehicle is being driven, and State Farm markets the device saying some drivers can save up to 50% on their insurance. Allstate Corp.'s, DriveWise device is available only to drivers in Illinois, Ohio and Arizona. Allstate says "safe" drivers can save up to 30% with DriveWise.
In addition to California and Illinois, State Farm, the largest private-passenger auto writer in the United States based on direct premiums written according to BestLink, offers its Drive Safe & Save program in just three other states -- Colorado, Ohio and Texas. OnStar can be used to verify mileage in all of those states.
Harbage expects to see UBI rollout among personal auto insurers to increase.
"The number of insurers asking for this information is accelerating even more than I expected," Harbage said.
In addition to GM, auto makers that offer preinstalled monitoring devices include Toyota, Mercedes and Lexus.
To hear the entire interview with Kavanaugh, visit http://www3.ambest.com/ambv/displaycontent/MediaArchive.aspx?RC=192161.
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