WHEN GLENN Renwick, the chief executive of insurance giant Progressive, sits down to dinner with his wife in the suburbs of Cleveland, he has, of late, been inclined to chide her about braking.
In March, Renwick plugged a device called Snapshot into the onboard diagnostic computer in the couple's shared car. Through a wireless network, the palm-size gadget sends Progressive a real-time driving report, including the number and time of miles driven, incidents of hard braking or quick acceleration, and speed. When he logged on to monitor the couple's stats, he saw "more hard brakes than I expected."
Luckily for Renwick, bad driving does not result in higher rates. Good driving, however, can bring in discounts of up to 30% on insurance premiums.
Snapshot is the latest bold attempt by Progressive to base policy pricing more on individual behavior than population-wide statistics. Some analysts say the device represents a leap forward for the usage-based insurance movement, one that could revolutionize the industry.
"The insurance industry is a very slow-moving, boring business," says Gregory Locraft, an insurance analyst with Morgan Stanley. "Snapshot and usage-based insurance are the bleeding edge of underwriting trends."
Typically, to assess the cost of a driver's premiums, insurance providers compare people with similar characteristics, such as age and gender. Single 18-year-old men driving Mustangs wreck cars more often than 55-year-old married women in minivans. That means a teen will pony up more, no matter how careful he might be behind the wheel. Not so with usage-based insurance, which asks customers a simple question — how good a driver are you? — and monitors their driving to get unbiased answers.
Though Snapshot rates do account for demos, "drivers can use data to distinguish themselves from a group," Renwick says.
Progressive is now the fourth-largest U.S. auto insurer, with 11.7 million policies and $15 billion in annual sales. But the company has long been an early adopter of technology. "When we came up with the idea in the early 1990s, we got so excited we patented it," says Richard Hutchinson, general manager of usage-based insurance. "In 1999, we did our first pilot; we put the devices in 600 cars in Texas and proved that it could work."
One Snapshot predecessor was as big as a toaster and had to be bolted behind the driver's seat. Thanks in part to these early prototypes, Progressive now has more than 2 billion miles of data to draw from.
"The car-insurance industry is a huge laggard with technology uptake," says Meyer Shields, an insurance analyst with Stifel Nicolaus. "Progressive is appropriately recognized as being a master of data analysis."
Competitors are eager to eliminate that tech lead. In December, Allstate introduced Drive Wise, a device similar to Snapshot, in Illinois, and GMAC Insurance now offers discounts to infrequent drivers willing to track their mileage with OnStar.
An even larger challenge may be persuading privacy-wary Americans to unveil their driving habits to a gadget. In the past, consumers have balked at efforts to track their location with GPS. To be more palatable to guarded customers, Snapshot is not GPS enabled. So while the company may know that you drove 84 miles on Sunday afternoon, it very intentionally does not track where you went. It's also voluntary, and short term (discounts stem from six-month monitoring periods). "We made privacy, and its protection, a primary objective in [Snapshot's] design," says Renwick.
"Even without GPS, Snapshot puts drivers on a slippery slope when it comes to privacy," says Paul Stephens, a director at the Privacy Rights Clearinghouse, a consumer-rights organization. Driving data could be subpoenaed in a court case, and even without location information, much about a rural driver's whereabouts could be reconstructed using the data Snapshot does collect, says Stephens.
"There are some people who would never agree to have this thing in their car," says Shields. He says he'd likely be among them, though he wouldn't mind having such a device to monitor his 16-year-old daughter's actions behind the wheel.
For now, usage-based insurance will likely appeal more to those with squeaky-clean driving records. Attracting such people is itself a savvy business move. "Good drivers subsidize bad drivers," says Locraft, the Morgan Stanley analyst. "Insurance companies are always trying to find the little old lady who leaves her car in the garage."