they eventually end up charging each individual exactly what it will cost the insurance company to pay each individual's claims plus their profit margin. At that point, the insurance company is a useless middle man and everyone may as well be self-insured.
That doesn't make sense. The only way insurance companies can charge "exactly what it will cost to pay each individual's claims" is if they discover a magic ball that lets them see the future. They know that *on average* the chances for a member of a group to get in an accident are X, but have no way of telling which one of the members of the group will pull the short straw. Improved tracking allows them to define their populations better, and know the value of X more precisely, but even if they trace every move everyone makes, the companies have no way to know beforehand how much a particular individual will cost them.
If you add up the insurance premiums paid by the members of the defined population, you will indeed end up with a bigger amount that the actual costs of accidents etc. But an individual member only pays the premiums, even if he's the one involved in the accident. That's the whole point of insurance.
The problem is different: insurance companies can and do refuse service to people perceived to be high risk - or else, they charge them huge amounts. As they track the customers better, companies will eliminate all members of high risk populations from the pools, so those individuals will have no recourse if something happens to them (which, since they're high risk, very probably will).