When the term “telematics” is mentioned—at least in the USinsurance marketplace—most people think of usage-based insurance(UBI). But telematics isn't just for usage-based insurance ratinganymore. Carriers are looking to telematics in claims adjusting,loss control, fleet management, and more as they seek to gaincompetitive advantage.

“I do expect to see more carriers using telematics in automotivebook management and servicing,” says Monique C Hesseling, partnerin insurance consulting, Strategy Meets Action. “We'll also seemore carriers piloting additional services based on telematics,such as roadside support and trip support based on where you areand what your needs are, and other concierge-type services.”

Follow the Leaders
In UBI, Progressive hasstaked a market leadership claim in the personal lines space, andthe company doesn't appear to be relinquishing that spot any timesoon. More than 2 million vehicles have participated inProgressive's Snapshot program since its launch in 2004, and thosevehicles have produced a lot of data—more than 10 billion miles ofit to date and counting.

“We are just wrapping up an investment in a 'big data' systemusing Hadoop, based within Progressive's data center,” says DavidPratt, general manager of usage-based insurance at Progressive. “Wemoved all our Snapshot data into that system, which allows us to doour analysis much more quickly than before.”

Progressive's program, originally introduced as “Tripsense,”continues to require a proprietary device plugged into the insuredvehicle's OBD port. Nearly one-third of Progressive customers atleast give the program a try. After a 6-month installation of thedevice in the vehicle, customers are presented with a range from nodiscount to a 30% savings based on their driving habits and candecide whether or not to continue with the program.

Although it started its UBI program 6 years after Progressive,Allstate has racked up 3 billion miles of data in its Drivewiseprogram, which also uses an OBD device. The program is currentlyavailable in 39 states and, according to company spokespersonJustin Herndon, about one-third of new customers sign up for thediscount program where it's offered.

Analytics are the key to use telematics data for UBI. Companieshold their analytic formulas close to the vest, and Progressive andAllstate are no exception. Pratt says his company's proprietaryapproach is a culmination of years of incremental analysis.

“It's a process of developing hypotheses and testing them,” hesays. “If you are driving and see somebody acting like a jerk, howdo you find ways to measure that behavior? We have the big data setto test those hypotheses.”

Progressive is collecting new types of data for analysis,equipping some of its Snapshot devices this year with GPScapabilities for research into how vehicle location data might beused. “Our theory is that if we know a vehicle's location, we willbe able to build better predictive models. The example I like touse is that we think a mile driven on the highway is safer than amile in the city, but without a distinct location recorded, wereally can't tell between the two. I hope by next year we canimprove the product by adding location data to it,” Pratt says.

Allstate's latest development in Drivewise is using its mobileapp, installed on drivers' smartphones, to collect driving data,rather than relying on an installed onboard device. The smartphoneoption is available in three states, and Allstate plans toexpanding to another six by September 2014.

“A little more than half of all our customers declare themselvesas smartphone users. The [Drivewise] app is a way for us to offerthem UBI through a device they already own and provide them withother value-added services,” Herndon says.

Next page: growth challenges and other uses beyondUBI

Digesting the Data

To some extent, UBI growth in the US—or lack of it—has beenimpacted by Progressive's seven patents around UBI. AlthoughLiberty Mutual won a case this year challenging several of thosepatents, Progressive appealed the decision and claims its patentsare valid and enforceable until the appeal process is complete.Progressive initially sued Allstate for patent infringement,although the two companies reached an agreement that allowedAllstate to continue its program. Progressive now offers licensesfor its patents.

“We've negotiated patent licenses with nine U.S. companies,including Allstate and USAA. We have licenses with six of the top25 U.S. auto insurers,” Pratt says.

The other challenge for companies looking to get up-to-speed intelematics is how to develop their own predictive models, whichrequire a large amount of data over time to generate confidence.Third parties, such as Deloitte Consulting and Agnik Analytics,have stepped up to offer UBI scoring models for insurers.

Insurers can also pursue telematics as a complete service. Octooffers an end-to-end solution based exclusively on a service model.Insurers can pay either a fixed contract cost or a monthly fee,which covers a OBD device, telecommunications, and data.

One of the most recent companies to enter thetelematics-as-a-service space is VOXX Electronics Corp. In June2014, the electronics manufacturer launched its Car ConnectionInsurance Discount Program, which is in partnership with severalinsurers including American Family, Liberty Mutual and The GeneralAutomobile Insurance Services.

Rather than attempt to lure customers to use a telematics devicebased on insurance discounts, VOXX targets its program to customerswho first purchase the company's onboard device and subscribe toCar Connection in order obtain vehicle monitoring services.

“We believed that if we could put the right hardware and backendfeatures and services together, it would be compelling forconsumers to purchase the device on their own without an insurancecomponent. Our research showed that consumers wanted a feature-richsolution that includes knowing where their vehicle was, how teendrivers were doing, vehicle health and so on,” says Thomas C.Malone, president of VOXX Electronics Corporation.

“For insurers, we take the 'connection' out of the equation byconnecting them to a piece of hardware that consumers purchase ontheir own. Insurers don't have worry about the hardware anddistribution,” Malone adds.

The Car Connection Insurance Discount Program uses Agnik'sanalytics and delivers a score to insurers. But whether telematicsas a service will take off remains to be seen.

“It depends on the philosophy of the insurance company and howcomfortable actuarial and leadership is with a 'black box' approachto data. If they are okay with working with a data environment thatis not 100% their own, they will be okay with the service-basedmodel. However, some carriers will want to have full ownership oftheir data and how they analyze and use it,” Hesseling says.

“There may one day be standardization of telematics data, but weare a long way from that,” says Nino Tarantino, CEO of OctoTelematics North America, explaining that including a OBD device isa key component to Octo's service offering. “Insurance companiestoday still need something they can own and control and customizeit for their purposes. Every company has its 'secret sauce.'”

Beyond UBI

A common non-rating use for telematics already in play is fleetmanagement for commercial lines insureds.

“Telematics in the U.S. was actually first and foremost appliedin commercial lines to manage fleets. It helped with drivingbehaviors, rest times, planning routes, determining the mostefficient utilization of vehicles, and so on,” says Hesseling,pointing to fleet-safety programs from insurers such as Zurich,Liberty Mutual and The Hartford.

ProSight Specialty Insurance is one of the most recententries in fleet telematics in commercial lines. Designed forlong-haul trucking, charter and school busses and taxi fleets,ProSight's SecureFleet offering combines an integrated vehicle dataand video event recording system with a driver coachingprogram.

The SecureFleet program captures information such as G-forces onthe vehicle and real-time information from the engine controlmodule and other vehicle safety systems. That data is analyzed touncover risky driving behavior. ProSight covers the cost of thedevice, with the policyholder responsible for installation costsand a $50 annual connection fee per vehicle.

ProSight expects to recover its program expenses throughimproved loss ratios and believes policyholders will cover theircosts as well. “For our customers, we estimate that the ROI ishigh, driven through reduction in loss frequency, lower costsassociated with vehicle maintenance, and increased claimsvisibility when there is a accident,” says Jeremy Zottneck,transportation executive at ProSight.

When a risky event is identified, the system is designed tocapture 10 seconds before and after the incident. The SecureFleetteam wirelessly reviews each event and scores and prioritizes itfor coaching. In addition, safety and fuel economy are tracked atthe driver level and benchmarked across fleets to helptransportation companies understand where gains can be made.

With the program recently introduced, it's too soon to tell whatthe ultimate penetration will be, but Zottneck is optimistic. “Weinclude the program in the [auto insurance] quote for any companythat qualifies, and we are pushing it as aggressively as possible,he says. “We see this being a game-changer in the transportationinsurance space.”

Personal lines insurers are also looking to leverage telematicsin claims. “All our partners are considering using our telematicsdevice to get benefits for their claims management,” Tarantinosays. “Rather than asking users to return the device after theyhave used it to score the policyholder, they are keeping it in thecar to capture more data at the moment of the crash.”

Octo is in a test program with one insurer that involvesaggregating device-level data with third-party data, allowingclaims adjusters to better assess what happened at the time of anaccident.

“The device is able to capture risk events—acceleration,braking, cornering, fast lane changes. We are enriching that withcontextual data—the weather, traffic information at that particularmoment, and so on, to see if conditions matched with those reportedby the driver, or if driver behavior lessened or worsened the riskof external conditions,” Tarantino says.

The Future of Telematics

“We are moving toward a more mainstream adoption of at leasthaving a minimal telematics offering for customers,” says SMA'sHesseling.

“Our insurance partners are going very fast with telematics. Wehave seven programs in the U.S. and three in Canada,” Tarantinoreports. “In 2014, we have more than doubled our average monthlyshipment of devices compared to 2013. Our partners arerolling out more programs in more states, and are training moreagents.”

“We are exploring new technology to make it even easier forcustomers to share driving data with us. One way of doing thatwould be collaborating with vehicle manufacturers to shareOEM-device data with us. Another would be using mobile phones todetect driver behavior so that we wouldn't have to ask customers toplug devices into the car,” says Progressive's Pratt.

“I'm confident that usage-based insurance will continue togrow,” he adds. “It's such an easy action—plug in a device, payless for insurance. That will become more and more appealing forthe customer.”