The usage-based car insurance market is getting crowded, and an announcement last month from—of all companies—Sprint may mean even more widespread availability of usage-based coverage options.
Usage-based coverage refers to policies with prices that are in part based on the actual behind-the-wheel habits of the drivers being insured. Coverage providers get that driving data with the use of telematics devices—small electronic thingamajigs about the size of a pack of cigarettes that plug into the diagnostic port located under the steering column of newer cars. They collect data on acceleration, braking, and when and how often the car is driven, and the insurer then adjusts the price based on how safe the drivers of the insured car are, giving cheaper insurance to safer policyholders.
Up until recently, Progressive was the only insurer to have a usage-based coverage program that was anywhere close to being considered widely available. Customers have access to their program, Snapshot, in more than 40 states across the country. Meanwhile, Progressive’s competitors’ programs are only available in a handful of states.
But last month Allstate told Online Auto Insurance News that it would be offering its Drive Wise usage-based program in seven new states by the end of the year (bringing total availability to 10 states), State Farm’s program has been expanded to 14 states, and Sprint just announced a successful partnership with Esurance on a usage-based trial program in Arizona that was recently expanded to Texas.
The real meat of Sprint’s announcement, though, was the fact that the telecommunications company is launching its Integrated Insurance Solutions product, which utilizes its 3g network and its own telematics interface to care of all the back-end technology for insurers looking to launch such a product.
If the price is right, it could be a game changer for smaller insurers who want to break into the usage-based insurance market but can’t afford the cost of developing their own usage-based systems. Why would insurers so badly want to use such a system? Here’s one thought: because it could help them price policies more accurately.
Last month, Progressive announced that an analysis of the information culled from about 1 million Snapshot policies showed that actual driving data was “more than twice as predictive of claims costs as any other factor.” As Sprint said in their announcement, it could enable “insurance carriers to improve driver risk assessments, reduce costs, and improve profitability.”
The main hurdle will be the cost of Sprint’s product and how well it holds up in light of patents held by Progressive. As we wrote in an article about Progressive’s place in the usage-based market, the company that writes Flo’s paychecks is said to hold about four major patents related to usage-based pricing. Three of those patents, according to a Brookings Institution paper, “involve a ‘monitoring system for determining and communicating the cost of insurance.’”
Whether Snapshot and Sprint’s program can exist side by side remains to be seen. If they can, it could mean a whole lot more policyholders will have more options when it comes to enrolling in usage-based programs down the line.