The company, which made its name as a maker of vehicle-based personal navigation devices (PNDs), said it had teamed up with UK-based insurance firm Motaquote to offer its first new insurance product, called Fair Play, which gives the safest drivers lower premiums.
"Our entry in the insurance market with our proven fleet management technology puts us at the forefront of a move that could help to revolutionize the motor insurance industry," said Thomas Schmidt, managing director TomTom Business Solutions.
Schmidt said the focus in 2012 is to expand the product to other insurance firms in Europe, where he expected thousands of customers to use the plan.
The scheme gives drivers control over their own policy by using driving ability and behavior to allocate premiums, rather than risk factors used by insurers such as postcode, gender, and age or vehicle, Schmidt told Reuters.
"Drivers using the insurance product will have a TomTom tracking unit fitted in their vehicles, allowing driver behavior and habits to be monitored by insurers and by improving driving style, you can drive down your premiums," Schmidt said.
Consumers that agree to the plan will pay for the TomTom tracking kit themselves and start paying lower premiums immediately, providing the driver takes on the feedback from the TomTom tracking device, according to TomTom's Richard Piekaar.
TomTom's Business Solutions unit, including its fleet tracking division, which use the same tracking technology to track and monitor truck drivers, fetches around 5 percent of group sales, or an estimated 65 million in euros in 2011.
Analysts were skeptical about the actual growth potential of the new insurance product but several agreed Tomtom's move to monetize its rich data base of real time and historical driving data is a good sign.
"It is positive they are looking for alternative business models and are being innovative. Linking the insurance market to telematics is new, but there are uncertainties with regards to the business model," said Martijn den Drijver, SNS Securities analyst.
TomTom faces intense competition in its core PND market as consumers increasingly opt for free or cheap navigation software as well as cooler gadgets like smartphones and tablet computers.
It is now targeting higher-growth areas and new markets. It increasingly sells navigation devices built into car and truck dashboards, rather than the standalone versions, and sells mapping data and real-time traffic services through smartphone apps and other devices.
TomTom, whose founders have a majority stake in the company, competes in the PND market with Garmin and in the commercial digital map market with Google and Nokia Oyj.
(Reporting By Roberta B. Cowan. Editing by Jane Merriman and Andrew Callus)