Personal auto carriers are rapidly approaching a moment of truthwhen it comes to usage-based insurance programs. That goes both forinsurers that have already launched telematics-based products, aswell as those that for a variety of reasons have remained on thesidelines. 

Early adopters of usage-based insurance (UBI) are gaining awealth of firsthand experience and insights that stand to provide along-lasting competitive edge against insurers that up until nowhave been undecided about whether or when to follow suit, as wellas those either unwilling or simply unable to do so. Trailblazersare rapidly collecting a critical mass of data that can be analyzedto assess driver behavior and provide a basis for greater precisionin underwriting and pricing.  

For example, current rating methods would likely price twodrivers identically if they had the same credit scores,automobiles, and demographics, while living in areas with similargeographic profiles. 

However, what if we knew through telematics observation that oneof the insureds drives their car one-tenth the amount of the other,at less risky times of the day, or on less populated roadways? Inthat case, an insurer would be in a position to potentiallyleverage this new experiential information and underwrite therespective risks posed by the two drivers differently, as well asprice their coverage more accurately.

Having such first-hand driving data at their underwriters'disposal could give existing UBI carriers a considerable leg upover those not using telematics, should the non-users remain on thesidelines for long. For instance, standard carriers could loseprofitable, safer-driving policyholders who are cherry-picked byUBI-capable insurers that are developing the ability to discernrisk more granularly. 

Meanwhile, trying to catch up to the frontrunners in the UBIrace is also likely to be costly—even more so as time goes on andthe early birds get a bigger head start. 

Of course, early adopters still face many challenges inexecuting a viable telematics program. For one, widespread consumeracceptance is no certainty, given privacy concerns for some andskepticism among others as to whether having their driving soclosely scrutinized will benefit them in the end. 

Indeed, a January2014 survey by the Deloitte Center for Financial Servicesexploring consumer use of mobile devices in financial servicesreveals that while about half of the respondents were willing tohave their driving monitored if, by doing so, they might earn apremium discount, the other half is not open to UBI—at least notfor the moment.

In addition, while regulators have been supportive in the earlystages of telematics development, down the road their acceptancemay depend on a number of factors, including the eventual impact onrates for those who fail to meet whatever standards are attributedto "less risky" drivers. There also may be regulatory resistance ifdrivers face higher prices just because they choose not to bemonitored, for whatever reason.

Over our next few blogs, we'll explore these and a number ofother important considerations for carriers that have jumped in andmade a splash in the UBI market, based on our recent report,"OvercomingSpeed Bumps on the Road to Telematics." But we'll also addressthe concerns of those who have not yet taken this path but areinterested in doing so, offering a head's-up about how to overcomepotential challenges when launching telematics-based products.

For example, we'll examine how carriers looking to follow theUBI leaders—but lacking the data, expertise, and/or capacity tocreate their own telematics programs—might leverage thecapabilities of third-party information aggregators to level theplaying field when going up against much bigger competitors withfar deeper statistical pools at their disposal.

Last but not least, we'll explore how confirmed non-UBI carriersmight compete against those offering telematics-based pricing andservices.

Wherever a carrier stands on the subject, we may have alreadyreached the point of no return when it comes to telematics and UBI.The genie is out of the bottle. The industry as a whole is notlikely to go back to relying only on traditional methods ofassessing auto risks. A growing number of insurers will likelyadopt behavioral-based telematics as a way to at least supplementstandard underwriting factors.

Indeed, before too long the use of sensory technologies thatpermit behavioral underwriting by insurers is likely to be expandedbeyond auto insurance into homeowners, life and health coverages,and perhaps even non-auto commercial lines as well, such asworkers' compensation. Smart homes, biometric monitoring, wearabletechnologies, and the "Internet of Things" are all developingtrends that could support and accelerate such telematicsinitiatives. 

But even if UBI is merely part of the natural evolution of autoinsurance underwriting in an increasingly data-driven age, carriersof all stripes will likely need a strategy to respond to those thatembrace telematics. Some will decide to go along for the ride,while the rest will have to figure out alternative routes tosurvive and prosper.