Auto insurance companies are not your friends. No matter how friendly, funny, or protective they seem, insurance companies are out to make money, a lot of it. You supply that cash and competition for your dollar is high, which is why they sell themselves to you with cute little talking animals, reassuring father figures, and delightfully wacky ladies named Flo. But after you sign on the dotted line, your auto insurance company has every incentive to prove that you’re a risky driver and raise your rates before you ever file a claim.
Now, thanks to the blossoming tech of in-car telematics, they’re aiming to monitor drivers more closely than ever before.
A history of surveillance
Insurance companies routinely perform multivariate analysis based on a variety of personal factors including age, sex, marital status, education level, type of job, home location, credit score, annual mileage traveled, ticket and accident history, length of driving experience, and the type of vehicle insured. That analysis yields an impressively accurate picture of their risk exposure for any driver.
Insurers also put their thumbs on the scale by donating radar guns and other monitoring equipment to police forces around the country. The stated goal is to reduce traffic violations that lead to claims, but the backside of that program is that drivers who receive tickets see their insurance premiums rise, and local governments get a revenue boost from fines.
This traffic enforcement system was — and is — inefficient. Drivers exceed speed limits more or less constantly, yet the average driver gets caught only once every couple of years. The proliferation of red light cameras, photo radar cameras, and other automated enforcement tools has increased citation rates and reduced the cost of cops on the street, but they’re still limited to one place at a time.
Advancing automotive electronics and connectivity over the past 20 years now allows the insurance companies to cut the cops out of the equation entirely and potentially achieve total information awareness. They want to know where you are and what you’re doing at all times. But in order to do that, they have to get you to agree to be watched.
Understanding ‘Pay As You Drive’ systems
The notion that you should pay insurance only for the miles you actually drive makes a lot of sense. A person with a 50-mile commute has more exposure to accidents than a person with a one-mile commute, right? Why should they pay the same amount for insurance?
The short answer is that they don’t, but insurance companies historically relied on their customers to report their annual mileage driven. The first step towards the insurance information revolution came with devices that reported actual mileage. That’s known in the insurance industry as Usage-Based-Insurance (UBI) or Pay As You Drive (PAYD).
But these days, technology is giving them an extra hand. The GPS in your car’s navigation system (or your phone) knows exactly where you are at all times, and newer cars record G forces, brake force, throttle position, overall speed, and so on. Your car is also capable of transmitting all that information through its data connection. The general term for all of that is “telematics,” which is the merger of telecommunications and informatics. Motorsport uses this info to measure performance, but the result is that the insurance industry wants to use telematics to move to a model of Pay How You Drive (PHYD), and that’s where things get sticky.
What they offer you to sign up
In order to convince customers to adopt telematic reporting, insurance companies are offering discounts generally ranging from 5 percent to 30 percent on premiums in exchange for your data. That’s the bait, but the hook is that those discounts are dependent on whether the insurance company likes what they see from you.
The hook is that those discounts are dependent on whether the insurance company likes what they see from you.
For example, Liberty Mutual has recently announced a new “RightTrack” program in partnership with Subaru and its Starlink connectivity service to report driving data in exchange for discounts.
“When enrolled in RightTrack, all customers will receive an initial premium discount of 5 percent for the enrolled vehicle. After completing the 90-day review period, they will receive a final RightTrack premium discount of up to 30 percent on a go-forward basis,” Jeff Wright, Vice President of Usage Based Insurance at Liberty Mutual, told Digital Trends. “There is no penalty for using this new technology – only the possibility for even greater discounts. This program is designed to incentivize consumers to take a greater, more interactive role in the insurance discounts they may receive.”
That’s not a bad deal, and some government regulators are enforcing regulations that confine insurers to discounts for good drivers, not penalizing “bad” ones. Check with your state insurance commission to find out what rules apply to you.
But even if your state enforces limits on insurance telematics, you should remember that the standards you must meet to receive your discounts are completely under the control of the insurance company, and they may change over time. More important, not all insurers will guarantee a discount if they don’t like your driving. For example, here’s what Progressive has to say in its Snapshot Common Questions FAQ:
“Most Snapshot customers do earn a discount based on their safe driving; however, riskier driving habits based on these factors indicate a greater likelihood of being in an accident and may result in a higher rate at renewal — depending on the state you live in and when you signed up for Snapshot.”
Again, using this technology could end up costing you.
What can insurance companies monitor?
Many drivers would be shocked to learn how much personal information can be transmitted by a modern car. Many insurers offer their telematically-monitored customers an online “dashboard” that records every trip, with a map of the route and the number of incidents of what the insurance company considers less-than-perfect driving. Your insurer’s telematics are can record every place you drive to and the route you use to get there. Big Brother never had it so good.
Your insurer’s telematics are can record every place you drive to and the route you use to get there.
Not all telematics systems are capable of reporting the same data. Some telematics are now being driven by your smartphone, while some are implemented through the infotainment system in your car, and some work via a plug-in device in the OBD-II port of your car. For example, your phone can’t reliably read acceleration or braking, but the car’s electronics can. Further, different insurance companies choose to monitor different factors.
“The RightTrack discount is based on the following driving habits: the number of miles driven, the time of day or night a customer drives, rapid acceleration, and hard braking. The discount is a combination of these four factors and accounts for the need to react differently in special circumstances,” Wright says.
Monitored factors listed by various insurance companies and insurance industry groups include:
- Vehicle speed
- Time of day
- Other vehicle status information such as fuel consumption
The way this data is interpreted is key. Insurance companies insist they understand that good drivers occasionally have to make panic stops, so a few hard braking incidents won’t tarnish your reputation. Plus, Liberty Mutual’s system offers real-time advice to keep you in the good zone. However, most telematics do not reveal how they want you to drive around corners, or what they consider a troubling tendency to accelerate too fast.
Location and time are particularly interesting data sets, because you could be labeled a higher risk based on the claims history of the roads you use, or the neighborhoods you drive through – neither of which are based on the quality of your driving. The time of day when you drive is also evaluated, because insurance companies have higher claims histories from roughly 11 PM to 5 AM. This means you could be downgraded if you work an unusual schedule.
Who can see your data?
The bottom line on personal data always comes down to access. You need to know who gets to see the data that your car is generating, and what they are allowed to do with it. Insurance companies generally agree that your data will be kept confidential, to a point.
Your insurance company could be required to turn over your data to law enforcement.
“Liberty Mutual values and respects our customers’ privacy. We will not share personally identifiable usage data we collect with any third party except to service our customers’ auto policies, for research, or as required by law,” Wright says.
The key phrase is “required by law,” meaning that your driving data could be subject to subpoena by a court, or the insurance company could be required to turn over your data to law enforcement to comply with future state or Federal laws. This is not theoretical, but it’s also not entirely bad. For example, telematic data from a stolen vehicle helped the FBI track down the terrorists who bombed the Boston Marathon, and many automakers can remotely disable your car if it’s stolen.
Though it’s unrelated to the insurance industry, you should also be aware that any data collected by your car may also be transmitted back to auto dealers and to the automaker. The same technology that allows the dealer to notify you when it’s time for routine maintenance, or to alert you if your car reports a faulty component, can also report detailed information about your driving history.
How will this play out?
A 2011 white paper by IHS Technology predicted that “by the end of 2018, the percentage of new cars available for sale in the U.S. market with embedded telematics will soar to 80 percent.” If anything, that prediction was conservative, as automakers rush to democratize technology features. Then, according to a 2013 report by technology intelligence service ABI Research, “global insurance telematics subscriptions [are predicted] to grow at a compound annual rate of 81 percent from 5.5 million at the end of 2013 to 107 million in 2018.”
Chances are good that your car is already equipped to report on your driving. The main question is whether you will grant permission for it to do so. Be sure to read the fine print before you agree to participate in any monitoring program, and decide for yourself if the benefit being offered is worth the privacy you’re signing away.