Editor's note: Jim Sadler is CIO ofXchanging.

The joys of the open road. The wind in your hair. Just you andsome music on the radio. But are you really alone in the vehicle?Increasingly, we're accompanied on our travels by a little blackbox, or even our own smart phones masquerading as little blackboxes, betraying our driving style and habits back to some unseendata warehouse.

Meet your new co-driver: telematics. No longer just a technonerd's laboratory experiment, telematics—simply defined as the useof wireless devices to transmit data in real time back to anorganization—is becoming big business in the automotive industry,and has the potential to transform the entire insurance businessacross almost every personal and commercial line.

Telematics as a mainstay

By 2017, it's estimated that more than 60% of the world'svehicles will be connected, actively monitoring the safety andsecurity of vehicles and drivers. In fact, Progressive, whichlaunched the first telematics product in 1998, has reported that itaccounted for more than $1 billion in premium revenue forusage-based insurance policies (i.e. paying according to how manymiles you drive or how well you drive).

Progressive is forecasting that over 25% of the entire U.S.automotive-insurance premium revenue will be generated viatelematics by 2020, representing more than $30 billion.

Whereas much of the development has been around usage-basedsystems, telematics devices are now far more detailed in theinformation they provide when it comes to the insured's drivingbehaviour including the time of day, travel, location, speed andacceleration.

In a way, this is risk that can be modelled to the infinitedegree. Your insurer now knows everything about your drivinghabits. They're not relying on an actuary's interpretation of how a35 year old with 15 years' experience might handle a six year oldPorsche Boxster 3.4 S. Even though the ability to discriminate bygender when pricing an automotive policy has been ruled illegal,why should insurers be bothered? Not when they now have access toinformation that is far more insightful than the statistical broadbrush of yesteryear.

Beyond automotive usage

The ability to then use telematics and profitably tap into amarket where 92 percent of drivers are reported to believe thattheir premiums should largely be based on the way they drive shouldbe very attractive.

Very exciting, but why stop at automotive when it comes todeveloping insurance policies that truly reflect the actualrisk—not simply an actuary's perception of risk? The life sectorfor one could benefit. How about an app that measures your vitalsigns such as blood pressure, heart rate and overall physicalhealth in real time and feeds information continually back to yourinsurer? The Quantified Self Movement is already pioneering the useand development of self-tracking tools that help people make senseof their personal data. Are you fitter than the average 40 yearold? Then telematics could be a way for you to secure lowerpremiums.

Commercial lines such as property could also benefit. What aboutsmart buildings that are able to relay information about theiroperation in real-time? If a window is left open overnight, perhapsthat information could signal a security risk to the owner so itdoesn't happen again. But premiums could also be adjusted toreflect the changing risk profile.

The insurance business really does have an opportunity totransform the way it does business from the pricing of risk rightthrough to claims handling and day-to-day communication with itsclients.

Of course, there is a price to pay. It was Greta Garbo whopleaded 'I want to be alone.' To that I say 'good luck' in anelectronically connected world where your every move can bemonitored and assessed. But if it leads to a more relevantinsurance product and a cheaper one for many, then I'm sure it's aprice that most will be willing to pay.