As Acceptance Of Tracking Tools Grows, Consumers, Auto Insurers Set To Reap Rewards

Helping drive adoption: The technology that makes these programs possible has improved and become more affordable.

Indeed, while the basic technology has been available for well over a decade, cost had always been an inhibiting factor. For example, Progressive, the pioneer of usage-based auto-insurance programs, shelved a late-1990s Texas-based telematics initiative to monitor driving habits because it was not cost effective.

"We found out it could be done, but it was just too expensive," says Richard Hutchinson, general manager of usage-based insurance for Progressive.

It took about six years before the insurer dusted off the idea and started a second pilot program, called Trip Sense. The on-board (installed in the trunk) diagnostic system worked, but there was no way to transmit the information conveniently. Customers had to unplug the system, download the information and send it to Progressive.

In 2008 came a breakthrough: MyRate, which was launched in 18 states.

"We attached a cell phone to [the device] to wirelessly transmit the data," says Hutchinson. "This made it simpler for customers. Our product-design knowledge improved."

PRIVACY CONCERNS UNFOUNDED

Progressive has just hit the market with its newest version, Snapshot, which plugs into a car's diagnostic system.

Launched in conjunction with an all-out advertising campaign, Snapshot is now available in 33 states, and the insurer plans for the program to be in more than 40 states by the end of the year as regulators,  legislators and customers realize the potential benefits—and come to accept that insurers have no intention of spying on policyholders.

Privacy advocates have objected to the usage-based programs; however, insurers looking to use them say they have no desire to track where drivers are.

"There will always be a segment that will accuse us of trying to be 'big brother'—the big insurance company looking to stick it to policyholders—but that is just not the case," says Dan Kraft, director of new product and service development at Allstate.

Both Progressive and Allstate say no GPS data is collected. "We're trying to help, not spy," says Hutchinson.

Furthermore, rates will not be increased based on data collected by the on-board systems, according to both Progressive and Allstate.

ALL ABOARD: ALLSTATE, STATE FARM

Allstate, the largest publicly traded property insurer in the U.S., jumped on board the telematics train late last year with Drive Wise, currently available only in Allstate's home state of Illinois.

Kraft says Allstate's program will be expanding in the third quarter, a tad later than the insurer had anticipated. Allstate had looked to expand the program as early as the second quarter of this year.

"We need to make sure this is a compelling value proposition," Kraft adds.

State Farm in 2009 entered the market with its usage-based program, Drive Safe & Save, in partnership with OnStar, a subsidiary of General Motors. OnStar provides users with an on-board security, communications and diagnostic system.

The program is now available in California, Illinois, Ohio and Texas and tracks the miles driven by drivers with an active OnStar account.

Auto Club of Southern California also offers a usage-based program in California.

KEEPING TRACK (OF SAVINGS)

The Progressive and Allstate programs track miles, too, but the devices used by these insurers also keep tabs on the time of day a car is in use and record hard or extreme breaking. Allstate's devise also records speed.

Customers of both insurers can follow along, accessing their results on secure websites.

Grouping the insurers together, savings for consumers can range from nothing to about 30 percent.

Progressive can tell customers if they are eligible for a discount after 30 days of monitoring, and the discount will be applied. After the company's six-month policy term, the device is removed and returned to the company.

Allstate customers get a 10 percent discount for joining during the first policy term. The policy switches to the performance-rating approach thereafter.

State Farm offers a 3 percent discount for signing up. After 100 days of odometer readings, a discount will be calculated.

THE LEGISLATIVE LANDSCAPE

Lawmakers and regulators, according to the industry, are recognizing the benefits of this technology: better driving habits, fewer miles driven, fewer accidents and less pollution.

"Acceptance has been good once we explain" and assuage privacy fears and assure consumers their rates won't go up, Hutchinson adds.

Still, the AIA is keeping on eye on legislation. "We don't want [lawmakers] to mandate an approach," Snyder says. "It's an area we're monitoring closely.

Hutchinson says Progressive has asked states for trade-secret protection in its rate filings. "We've worked on this for 15 years. It's a huge investment. We don't think it would be right for someone to be able to go in and pick up our algorithm."

Data collected from the installed devices, or via OnStar in State Farm's case, will not replace other factors used in underwriting, such as type and age of the car, experience of the driver, safety record, and where a car is stored.

But the data has the potential to push customers to change their driving habits. And it could give insurers a better overall understanding of auto-insurance risk.

For example, insurers should eventually be able to document if speeding is, in itself, dangerous—or where it is most dangerous.

"The hope is that by providing this information, we can help drivers better understand—and give them an incentive to change—their behavior," says Kraft.