GPS Helps Insurers, Buyers Save Money
Location, location, location. It's been the real estate mantra for some time, but in a static way. Now the insurance industry, among others, is starting to reap the benefits of location in real time with the help of some cool technology that just happens to be free.
Orbiting above the Earth are 24 satellites for which we have Uncle Sam to thank. Part of the Global Positioning System, or GPS, these satellites can pinpoint your nearly exact location anywhere in the world. By using GPS receivers, which are available for as little as $100, the technology can identify your longitude, latitude and altitude as you move. It's great for hikers, boaters, pilots and anyone else who needs to know where they are and avoid getting lost.
The satellites, at 12,500 miles above the Earth, are constantly sending out signals. The GPS receivers are listening for four or more of these signals as you move, essentially triangulating your position based on the amount of time it takes for each satellite signal to reach them. There are no subscription fees, courtesy of the U.S. Defense Department.
In addition to the obvious uses for auto insurance, brokers are using GPS accuracy as a selling point to farmers shopping for crop insurance. Rather than rough sketches of productive farmland that are often used to determine premiums, some firms are using detailed maps generated through GPS-assisted surveys. Accurate to within one meter, the maps eliminate non-productive farmland that could otherwise increase premium levels.
For adjusters, the same technology can increase response times by identifying precise locations of natural disasters and dispatching overhead flights to identify the damage. GPS receivers also can be used by auto insurance adjusters to map the exact locations of vehicles involved in traffic accidents.
Even before those adjusters arrive, GPS technology could save money and lives. Systems using GPS receivers and cellular telephones can automatically relay accident location information to police, resulting in faster response times. Treating victims on the scene just a few minutes sooner likely would increase recovery times, reduce medical claims, and raise the survivability rate, to boot.
And imagine the day when insurance agents will regularly visit potential customers at home, providing auto and homeowners insurance quotes based on their longitude and latitude, not imprecise ZIP codes or other general information. It allows all sorts of possibilities, including premiums based on an accurate calculation of a home's distance from the nearest fire hydrant, and fire and police stations. Customers who were once penalized for living in the wrong ZIP code, albeit very near a good one, no longer will take their business elsewhere.
Shipping companies and other firms with large-vehicle fleets have been using location-based technology for some time to track their drivers. In addition to always knowing the precise location of trucks, the technology helps prevent "moonlighting" and other abuses of a company's fleet by its drivers. Plus, if a truck or rental car is stolen, GPS can track it across the country. In some cases, by remote control, the company can shut off the engine, stopping a runaway vehicle dead in its tracks.
But along with the advantages of always knowing where your customers are comes the politically sensitive issue of privacy. Do customers really want you to know how fast they're driving or where they are traveling? A recent incident suggests that they don't.
A Connecticut man earlier this year filed a lawsuit against a rental car company because it charged him three $150 fines for going over the company's speed limit for vehicles. How did the rental car firm know he was speeding? It uses a GPS system in its cars, which not only knows where the cars are–which is great for recovering stolen vehicles–but also knows how fast they are traveling.
If GPS-equipped technology could save them money, would consumers change their minds? Progressive Insurance Company has been testing a system in Texas since 1998 that charges customers for auto insurance coverage on a monthly basis based on how much, when and where their vehicles are driven. The information is relayed to Progressive using a system comprised of a GPS receiver and cellular technology.
For those customers who live close to work or have seldom used second and third cars, the savings can be significant.
Other efforts to encourage "pay-as-you-drive" auto insurance are underway. The Oregon House of Representatives approved such a bill. Drivers would be charged on a per-mile basis. While such plans are often proposed for environmental reasons, the result would be a reduction in auto premiums for many–and perhaps larger margins for insurers.
With some research indicating the likelihood of an increase in claims on an annual basis as the number of miles driven rises, what ultimately could be viewed as a per-mile "tax" on policyholders could be a good thing for underwriters. Like the gas tax, it might keep drivers in check. And if consumers get to the point where they feel comfortable paying less for insurance in exchange for even more GPS-based monitoring of their driving habits, such as speed, they and their insurers might reap added benefits.
Saying that the business drives technology is what executives expect to hear, especially from the IT folks. But the opposite is also true. Technology drives the business. What business concluded that they needed to speak with someone in real-time over long distances and decided to build a device to do it, like the telephone, for example?
Technology usually precedes the business application. They key is to use the technology to drive business innovation and make decisions that support the business. Data and related standards are at the core of information-centric advances and the payoff can often be realized in some unexpected ways, like GPS.
Gregory A. Maciag is president and chief executive officer of ACORD, the non-profit industry standards association based in Pearl River, N.Y., with offices in Belgium and the United Kingdom.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 21, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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