“Consumers choosing telematics are likely to be better-risk drivers, and so those without a telematics program get selected against—without knowing it,” she says. “This will become like a war game; if you aren't in it and investing, you will have a poor book of risk.”

Over time, with better knowledge of how to price, insurers can shift this product to the mainstream market, particularly as more cars have embedded telematics installed, better informed regulators, and better informed consumers, according to Stagg-Macey.

Insurers that are considering the launch of a telematics program need to answer several key questions—much like with any new product—explains Stagg-Macey. Those questions include:

• What are the distribution channels and what investment is required?
• How will the product be priced and underwritten?
• Will this product be handled differently in the claims process?
• How will the product be marketed?
• What IT capability is needed to deliver this?
• What analytics is required to support operations?

With telematics, adds Stagg-Macey, there are some additional questions such as the use of a telematics device: Will you use smart phones, or OBD? Does this require a network for installation of the device? What telecoms network are you using? How are you collecting this data? And how much of the data will you collect?

Stagg-Macey believes consumers are holding back the widespread use of telematics today, although she feels some insurers still have doubts.

“Most insurers accept that the technology and process around telematics has arrived, but what is less clear is whether insurers can convince consumers that there is some value,” she says. “In theUK, where telematics is aimed at the largely uninsurable young drivers, there is a fairly easy proposition to be made to the consumer. What is less clear is how to take this to the broader population.U.S.insurers are making some headway, positioning telematics insurance around the aspect of safety. That is something that appeals across the age groups.”

Main adopters of policies in the U.S. that are dependant on telematics include Progressive, State Farm, and Allstate—three giants—and Stagg-Macey explains that the central issue is the size of the carrier's personal auto (and to a lesser extent commercial auto) book of business.

A secondary consideration, she adds, is the capability of a given insurer to apply current or new actuarial and analytic techniques to a large amount of telematics data, which can include new and unfamiliar types of data (e.g. times of day driven, types of braking incidents, etc.)

“The personal auto business is highly concentrated in theU.S.among the largest players, who fight fiercely for market share,” says Stagg-Macey. “Currently we are not aware of any smaller insurers pursuing telematics initiatives, but over the next few years they will follow the bigger more successful players. And there is always a chance a well-financed, geographically-focused smaller insurer could mount a breakout telematics strategy.”

How haveU.S.regulators been treating this approach? Fortunately, the feedback insurers have been receiving from state regulators is fairly sympathetic to the approach used in telematics, according to Stagg-Macey.

“There is some debate in how much data and how it is used, but broadly, regulators are comfortable with the premise of customers being charged for a product that is linked to usage or behavior,” she says. “This is seen as equitable.”