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After more than a decade of experimentation, auto insurer Progressive Corp. is on the verge of a nationwide unveiling of a new type of insurance that charges customers based, in part, on real-time information about how well they drive.

With a small device that plugs into a car's onboard diagnostic computer, Progressive can measure when a policyholder uses their vehicle, how far they drive and how hard they brake. Customers who volunteer to install the device can get a markdown on their auto insurance of as much as 30% after 30 days, and lock in a discount when they mail the device back after six months.

In the highly competitive world of auto insurance, setting prices based on data gathered directly from a customer's car is a major step forward, and gives Progressive a leg up on its rivals—for now, at least.

But rivals also see the advantages of using an onboard system, generically called "telematics," to gather more information on their customers, and are working on similar programs. In December, Allstate Corp. started offering a competing policy in Illinois, and State Farm and other insurers are experimenting as well.

Their work prompted Credit Suisse insurance analyst Vinay Misquith to warn in December that Progressive's temporary advantage may not last for long. As the other players enter the market in coming years, Mr. Misquith theorized they will collectively reduce profit margins on the safest risks, though he argued that the largest insurers—like Progressive, Allstate and State Farm—could "use their scale and better technology resources to more effectively price, gaining market share from smaller players."

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Posted 12:15 PM

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