Few applications exemplify the potential of big data to revolutionize business processes within the insurance industry more than telematics.

Telematics, which is also known as usage-based insurance, combines wireless hardware mounted inside insured vehicles with a software backbone that automates records and analyses the data. While personal lines automobile insurers such as Mayfield Village, Ohio-based Progressive Casualty Insurance Co. and Northbrook, Ill.-based Allstate Insurance Co. offer telematics-based policies, the technology is more entrenched in commercial lines.

For example, commercial truck fleet insurers are using telematics to monitor actual vehicle operations and assign rates accordingly.

In a white paper, David Melton, managing director-global road safety at Liberty International and Chris Carver, program manager onboard advisor at Liberty Mutual Agency Corp., wrote that telematics also affords insurers the opportunity to proactively manage risk and help prevent losses.

“Telematics, with its ability to capture data and monitor performance, is an emerging tool we can use to great effect for continuous improvement,” according to the white paper, “Managing Commercial Auto Risk by Managing Driver Behavior.”

“It is this ability to measure actual events that allows fleet managers to assess and manage driving behavior before a collision happens.”

Telematics also benefit fleet operators, the authors contend, by improving on-time delivery, reducing fuel use, and lowering maintenance expenses. “In return for their focus on safety and an emphasis on risk reduction, these fleets are seeing additional returns in improved safe-driving performance, fewer collisions, and lower claims losses,” the report said.

Mark Breading, partner at Boston-based insurance research and advisory firm Strategy Meets Action, said telematics portends some profound changes for the insurance industry.

“Now that we have ubiquitous sensors and embedded chips, we can actually understand the real-time risk that any insured object is subject to,” Mr. Breading said. “The whole insurance model of using historical data to determine risk and set rates may go away. Telematics completely changes insurance from a reactive, indemnity model to a proactive, loss-control model.”

Yet this shift to real-time risk information will require a commensurate investment in big data technologies that can handle the massive amounts of data generated, he said. With a fleet of vehicles submitting data on a variety of factors, including vehicle speed, vehicle position, acceleration and braking data, traditional data architectures and legacy systems are insufficient for the task.

“Telematics is the first killer app for big data,” he said.

Moreover, telematics is posed to move beyond vehicle insurance. As sensors and semiconductors continue to shrink in size and decrease in cost, they will become more ubiquitous in commercial structures, giving an underwriter a betters sense factors such as how a new piece of equipment, changes the risk profile of factory.

“If you are insuring a commercial property, there are lots of opportunities (to use sensor data) to look at the individual perils and how those play into the overall risk and what the rate should be,” Mr. Breading said.