WSJ News Exclusive | Cambridge Mobile Buys Rival as Telematics Helps Set Car-Insurance Payments

For decades, insurers have used such factors as age and credit score to determine the prices paid by individuals. Now many maintain that driving habits are a fairer gauge of a person’s accident risk.

In a deal announced early Thursday, Cambridge Mobile said it had closed on the purchase of TrueMotion for an undisclosed price. After combining, Cambridge Mobile is to provide telematics services to 21 of the 25 largest auto insurers in the U.S. based on premiums, with clients including some of the largest auto insurers in Australia, Canada, Japan, South Africa and the U.K.

The deal paves the way for the two Boston-area firms to combine workforces to improve existing offerings sold to car insurers and invent new products. Between them, they employ close to 400 people, many of them computer scientists, data experts and engineers.

Under insurers’ typical telematics programs, customers who opt in are initially charged premiums based on traditional ratings factors such as age, gender, type of vehicle, credit score, motor-vehicle violations and estimated number of miles to be driven. But insurers also then usually give policyholders a small discount upfront as an incentive to try out telematics. The discount increases or decreases based on the driver’s performance. Most insurers don’t bump up rates for people who test as poor drivers, industry analysts said.

Each of the two telematics firms has developed machine-learning algorithms, and each has significant amounts of data and processing power.

“Putting all of those things together will accelerate the development of new telematics features,” said

Harry Huberty,

research director at Novarica, a research and consulting firm that focuses on insurance and technology.

Cambridge Mobile, founded in 2010, received $500 million in funding from

SoftBank Group Corp.’s

9984 -0.80%

Vision Fund in 2018. Its customers include State Farm Mutual Automobile Insurance Co., the nation’s biggest individual car insurer by premium volume.

Founded in 2012, TrueMotion has received more than $80 million in funding from such investors as General Catalyst and Bain Capital. It powers

Progressive Corp.’s

PGR -1.16%

mobile telematics program, among others.

Hari Balakrishnan,

Cambridge Mobile’s co-founder and chief technology officer of the expanded company, said goals of the transaction include “developing ways for telematics to be used in the claims process. This includes artificial intelligence on telematics data to reconstruct crashes and provide an unbiased story line of the incident.”

Another focus will be finding ways to evaluate the quality of autonomous vehicles’ sensor data, artificial-intelligence algorithms and software, said

Ted Gramer,

who was TrueMotion’s chief executive and becomes chief operating officer of the combined entity.

Brian Sullivan,

founder and president of insurance-industry consulting and conference firm Risk Information Inc., said the deal reflects a general belief in industry circles that “auto-insurance premium rates eventually will be based on how people drive,” with a shrinking role for many traditional factors. He said there are consumer privacy concerns with the use of telematics, “but with every passing day, we are carrying a [smartphone] tracking device in our pockets with location services turned on.”

State regulators are reviewing for potential racial discrimination the use of credit scores, education and occupation to determine car-insurance premium rates. Many states allow these factors as actuarially appropriate, though Black Americans are overrepresented in lower credit-scoring categories and underrepresented at higher levels of education and some professional careers that insurers’ methodologies favor.

Cambridge Mobile co-founder and Chief Executive

Bill Powers

will be CEO of the expanded entity.

Write to Leslie Scism at [email protected]