Someday your cellphone may tell the insurance company which car you're driving and how well you're operating it.
Insurers are testing smartphone apps that can monitor and report real-time driving data, which the companies can then use to predict whether drivers will file claims and to price the policies accordingly. Developers say the technology will take pay-as-you-go car insurance programs to a new level.
"It's just amazing what phones can do," says Dave Ferrick, president and CEO of Agero, a vehicle safety and information services company in Medford, Mass. "With the technology in consumers' hands today, they're carrying around as good a telematics sensor as those in the vehicle."
Today's pay-as-you-go , or usage-based, car insurance programs use technology in the vehicle to track a customer’s driving habits and give a safe driving or low-mileage insurance discount based on the data. The programs are voluntary. For customers who sign up, most insurers provide free telematics devices to plug into the vehicle's diagnostic port. About the size of a deck of cards, the device tracks such factors as mileage, frequency of hard braking and time of day driving, and reports the data back to the insurance company through a wireless connection. Some insurers partner with communications services such as General Motors' OnStar program to provide monitoring.
Now carriers are looking at using drivers' own cellphones to provide the data. Equipped with GPS technology and accelerometers -- devices that sense acceleration -- smartphones know where you are, how fast you're going and in what direction.
Phones make it easier to introduce pay-as-you-go insurance plans
Some insurers already are putting that capability to use in driving safety apps. State Farm's Driver Feedback app, for instance, measures acceleration, braking and cornering and gives a score for each factor as well as an overall score for each recorded trip. The information is for the customer's use, not the insurance company's.
It's only a matter of time before insurance companies introduce apps for assessing risk and pricing policies.
The shift to using phones would eliminate the need to provide telematics devices, which would cut costs and enable insurers to roll out usage-based insurance programs faster, says David Lukens, director of vertical marketing for LexisNexis Risk Solutions, which helps companies predict and analyze risk.
LexisNexis is introducing a smartphone-centered solution for insurance companies to use. The product features a smartphone app that collects driving data and includes computer models for predicting risk based on the data collected. In addition, it includes a small device to plug into the car's diagnostic port to recognize the phone and to record trips if you forget to take your phone with you. But the device is a simpler and cheaper piece of technology than the telematics equipment that insurance companies provide customers today.
"The phone does almost all the heavy lifting," Lukens says.
And the phone provides more-specific data than today's telematics devices. The current pay-as-you-go insurance programs track how and when the car is driven. The LexisNexis smartphone app does that, plus tells insurers who is driving. With that information carriers will be able to assess the risk of each driver. The insurer, for instance, will be able to distinguish your driving habits from those of your spouse and your teenager, and then rate each of you separately. The insurer may then weight each of your driving scores according to the number of miles you log. The technology also will enable the insurer to rate you according to which car you drive and use the personalized data to coach you on how to improve your driving, Lukens says.
Taking pay-as-you-go apps for a test drive
Lukens says insurance companies are testing the product, and some may start incorporating it into their pay-as-you-go programs by end of the year.
Other companies are also producing technology for the market. Ferrick says insurers are testing a smartphone app Agero developed for pay-as-you-go programs, and he hopes to announce a formal relationship with an insurer in the next few months. Agero, which provides roadside assistance programs and claims management services, has the cloud-based technology to make a natural entrance into the market, he says.
"We can use the horsepower we have internally and partner with other companies," Ferrick says.
Progressive Insurance has an open call for app developers to create solutions for using phones to measure driving behavior.
"This is a very entrepreneurial space right now and we're seeing promising results," Dave Pratt, Progressive's general manager of usage-based insurance, said in a recent a press statement.
Progressive says its Snapshot pay-as-you-go program leads the industry with more than 10 billion miles of driving data on some 2 million vehicles collected since the company introduced the program in January 2008.
The current program determines a driver's discount based on mileage, time of day driving and hard braking. In the coming year, the company said, it will test GPS-enabled devices to see how factors like highway versus city street driving predict losses. Besides testing smartphone technology, the company is also looking at using telematics technology that's already built into the car. General Motors led the pack among automakers in building OnStar into its vehicles, but other automakers have followed, such as Toyota with Safety Connect.
New zip for pay-as-you-go car insurance programs
The move away from plug-in telematics devices will give usage-based insurance a "new lease on life," according to Ellen Carney, a principal analyst at Forrester Research, a global research and consulting firm headquartered in Cambridge, Mass.
"New mobile apps will prompt digital insurers to take another look at offering usage-based car insurance," she writes in the September 2012 report, "The Future of Insurance is Mobile." "Many insurers are drawn to the value proposition of usage-based insurance -- underwriting the safest, low-mileage, defensive drivers and getting lots of driver behavioral data in exchange. Smartphone apps -- and even the vehicles themselves -- will capture new kinds of driver, auto, and even roadway intelligence to create new proprietary risk-reward algorithms that fundamentally create a personalized car policy."
Lukens says this will be good for consumers, too, because it will lead to more accurate pricing. But that may take some convincing. To address privacy concerns, he says, insurers will have to be transparent about the data they're collecting and how they're using it.
He sees the potential for better communication between insurers and their customers as the companies share data to help keep drivers and their families safe. Today most people talk to their insurance companies only after an accident.
"This is going to change the dynamic," he says.