Telematics and usage-based insurance (UBI) are among the hottest topics in auto insurance. Rather than creating broad rate tiers by looking backwards at the performance of a book of business it promises the ability to create more granular pricing segmentation and improve the accuracy of pricing by using a customer's actual driving behavior as the basis for generating rates. The feedback provided to drivers has potential for actually changing driver behavior to safer levels.

Although UBI is not widely available or even widely understood among consumers, the adoption rate of the technology is slowly picking up speed as insurers develop UBI programs to add to their offerings for both personal and commercial lines of business. There are many important areas to assess for carriers considering entering the UBI market. The technology is still evolving, and there are several business models to evaluate. UBI comes with real costs, so carriers need to evaluate their options carefully.

The first area to evaluate is whether UBI fits with a carrier's strategic market. Carriers looking for long-term, "preferred" customers will likely find this a good match with their strategy. But carriers who focus on the sub-standard market, or short-term policies may not benefit from UBI because of the cost of the infrastructure needed to support it.