As the obstacles are overcome, telematics programs will grow, Celent says. In line with comments made last month by Moody's, Celent says insurers who do not offer such products will “find themselves insuring shrinking pools of poorer drivers—who will appear to be normal drivers if traditional rating factors are used.”

Celent says insurers' benefits, though, will go beyond being able to more accurately price risks. “Claims-improvement opportunities include improving fraud detection, for example by using accelerometer readings to gauge the G-force during impacts and settle whiplash claims more accurately; and reducing lead time between accidents and first notice of loss, which increases the likelihood of achieving a speedy and fair settlement before the involvement of third parties,” the report explains.

Celent says location data can also help “sniff out fraud gangs.”

Insurers can also provide insight on what is happening with the vehicle itself, with respect to CO2 emissions and fuel consumption. “This data can be fed back through the customer portal to support decisions around lowering the cost of driving,” says Celent.

The report says, “Insurers can use telematics to directly influence how policyholders drive. At a minimum, [insurers] benefit from the phenomenon in which merely knowing that a device has been installed leads some drivers to moderate their speed and brake more safely.”

Celent adds, “At the extreme, insurers can actively improve driving habits by providing ongoing feedback based on telematics data.”

The “next evolution” of telematics-based products, Celent says, will be to use the device to provide a varying degree of data about how the car is driven, and then using that dat to calculate a premium. “The enhanced version of pay how you drive uses telematics data to provide feedback to the policyholder about how they drive with the intention of improving their driving,” says Celent.

Robin Harbage, director of usage-based insurance for Towers Watson, commenting on where sees telematics-based products today compared to years past, says “In my opinion, 2011 has served as the tipping point for telematics and usage-based insurance. Until now, a few key players were pushing quite hard. Today, almost all major players have a public program or internal pilots.”

While widespread use is “less mature,” Harbage says that is not hindering regulatory acceptance of the concept. “Regulators almost bend over backwards to help insurers as long as insurers have provisions to be very transparent to policyholders about data privacy, what they're collecting and how they're using it,” he says, adding that the warm reception from regulators occurs because telematics replaces proxy variables with data that actually shows why losses occur.

He says the biggest challenge is use of data. Harbage explains, ”Because this is so new, insurers don't know exactly what information they should collect. It's not as simple as plugging something in and capturing data. The devices can record quite a bit of data; frequency, accuracy and validity can vary. Think about the end result. What do you want to do with the data?”