Roughly two years after Progressive Insurance abandoned its GPS (global positioning satellite) technology-driven usage-based rating pilot, Norwich Union Insurance (NUI, British Sterling 200 billion in assets under management) will begin its own "Pay-As-You-Drive" pilot based on Progressive's method, after UK-based NUI obtained an exclusive license from the Mayfield, OH-based carrier.
Beginning this fall, with the help of IBM (Armonk, NY), NUI will install a telematic "black box" in the automobiles of 5,000 volunteer motorists in Britain. The black boxes inparticipating drivers' cars will log GPS data and periodically transmit it via global system for mobile communications (GSM) mobile protocol back to NUI's information systems.
NUI is proceeding with its pilot on the assumption that in its market it will not have the barriers of high cost and low availability of telematics technology faced by Progressive. "It will take 18 months to a year to see how we can construct a new product and premium base," says Douglas Vallgren, marketing manager for Telematics, NUI. "By that time, we're confident telematic hardware and software will be installed in most cars as they come off the assembly line, and that it will be commonplace over the next five years."
NUI obtained an exclusive license from Progressive to use the latter's Autograph method in Europe. The carrier will rely on Orange (London) for telecom network support, and IBM will take responsibility for overall project management and technology architecture development, according to Mark Breading, global insurance marketing manager, IBM. "We have contracted with Celestica Toronto to design the black box device, and QSSL Ottawa for the operating system," Breading says. Schaumburg, IL-based Motorola "has been involved in customizing some of the pay-as-you-drive software."
IBM regards usage-based auto insurance as the "next wave" for the insurance industry, Breading says. "The paradigm has always been to gather as much information and then establish a price that you hope is right" for an annual period, he says. "What we're talking about here is on-demand," in the sense of variablizing what have been fixed premium costs.
The success of NUI's telematics will depend on a set of "winning conditions," including the availability of a black-box device as standard equipment on a large enough set of cars, according to Boyd Pedersen, a Toronto-based analyst with Boston Consulting Group. "Those conditions are starting to exist in several markets around the world, including Japan and parts of Europe," he says. By licensing Progressive's method, NUI has put itself in a good position, Pedersen adds. "I think the chances of it succeeding in Europe in the nearer term are greater than in the US, because of traffic density, along with the greater advancement and standardization of communications technology there."
The notion that the US is not yet ripe for usage-based insurance is seconded by Progressive. "We have no plan at this time to reintroduce it in the US, citing the same reasons we stopped the Autograph pilot," says Leslie Kolleda, a spokesperson for the carrier. Nevertheless, Progressive is very interested in NUI's results, Kolleda adds, and "we're very interested in marketing it to someone in the US."