Progressive's decision to raise premiums for policyholders whom Snapshot reveals to be poor drivers is no more than actuarial common sense. The insurer is saying that whenever its telematics data indicates a higher premium for a given policyholder, it will charge that higher premium. That policyholder can find a lower premium and move to another insurer, but that carrier will experience higher losses for a lower premium. In insurance, this is known as the other insurer experiencing adverse selection.

In a way, this new development in the Snapshot program is no more than an extension of Progressive's well-known Comparison Rate program, which gives a potential policyholder an indication of how much a Progressive policy will cost versus a policy from other leading insurers. Progressive is offering Comparison Rates for about 15 lines—ranging from Auto and Home to Life, Health and pet.

At its most basic level, being a successful insurance company is simple. Understand the risks that are submitted to your underwriters, and charge the right premium for those risks. Progressive is not a stupid company. With this announcement, Progressive is signaling that its Snapshot telematics program lets it charge a more accurate and higher premium to certain risky drivers—and it jolly well will do it.

There are some big questions still to be answered. Even companies that are not stupid occasionally make mistakes. It is possible that Progressive is underestimating the amount of business it will lose when certain Snapshot policyholders leave after seeing their premiums increase. Progressive also may not raise risky drivers' premiums by a sufficient amount for the actual losses incurred.

Other Auto insurers will have to do their own analyses, using either internal telematics or external aggregated data. If their data leads to the same conclusion, they will have to follow Progressive's lead. The iron law of the competitive market applies: Eat or be eaten.