[vc_row][vc_column][vc_single_image image=”7070″ img_size=”full”][vc_column_text]
[/vc_column_text][/vc_column][/vc_row]
In recent years, auto insurance companies have begun promoting programs that capture personal data by tracking customers’ driving habits directly from devices installed on cars or cell phone apps as a way to lower the cost of their policies. These programs, referred to as “telematics” or “usage-based insurance (UBI),” promise insurance premiums based on a particular consumer’s driving habits, enabling safe drivers to save money. While these data harvesting programs may in fact be a boon for safe drivers, consumer advocates note that telematics may replace already inappropriate price-setting methods, such using as socio-economic and other non-driving related data, with more insidious risks which include unfair pricing, racial bias, abuse of personal consumer information, unfair claims settlement practices, and anti-competitive practices among insurers. It is therefore vital that state legislatures and insurance regulators take appropriate action to promote pricing transparency and consumer privacy to prevent these abuses from occurring.[1]
With a massive $250 billion in insurance premiums written in 2019, the automobile insurance market is a significant factor in the composition of the American economy.[2] Most major auto carriers promote their own telematics programs[3] as a cost-saving alternative to more traditional premium pricing. Newer, smaller insurers, such as Root and Metromile, use telematic and UBI programs as their core business model. Third-party vendors like Cambridge Mobile Telematics (CMT) and car manufacturers such as General Motors and Honda, have partnered with such companies as State Farm, Allstate, and Liberty Mutual to collect driving information and crash data following a motor vehicle collision to be used in underwriting and price-setting.[4]
Personal data collected from devices installed on vehicles or from cell phones is used to set rates for new policies, adjust renewal premiums, and in usage-based, “pay as you drive” programs. Beyond setting and adjusting prices, little else is known about how insurers use the personal data collected. Carriers and third-party vendors do not disclose the full scope of their programs, particularly when it comes to the algorithms or artificial intelligence programs that analyze the data raising concerns about actuarial accuracy, pricing fairness, and consumers’ rights of privacy.[5] [6]
“Consumers have little power how data is collected or used by data brokers and vendors, and many state insurance regulators have only limited authority over the ways that insurers use big data… certain big data methodologies may hide intentional or unintentional discrimination against protected classes.”[7]
Absent sufficient oversight, data collected by telematics programs could be used for purposes not related to a consumer’s driving history such as cross-marketing, price-optimization, or unfair pricing based on misapplication of data. For example, telematics systems reportedly analyze the time of day when a customer drives and algorithms tend to penalize night-time drivers, which could result in higher premiums for individuals required to work night shifts, regardless of their driving history.
Another concern is whether participation in telematics programs is voluntary or mandatory, and whether policy holders are penalized for choosing to opt out. Consumers who value their privacy and want to protect it may be denied access to the insurance market and affordable coverage. Many insurance carriers incentivize enrollment in telematics programs in exchange for permission to share the personal information of their customers, but the savings gained through these programs should be correlated to safe-driving statistics, not just participation in the program.
Consumer and privacy advocacy groups have identified several areas of concern that should be addressed by the auto insurance industry and governmental regulators:
Transparency of Data Collection: Beyond the number of miles driven, insurers and vendors rarely disclose all data being collected by telematics programs. Other factors such as driving location, time of day of driving, weather conditions, and types of roads used are also being tracked.
Set Standards for Data Collected and Used: Strict limitations on data collected by insurance companies should be established to ensure only information clearly related to the risk of a claim is used in setting and adjusting premiums.
Transparency of Algorithms: Telematics-based rating systems should be disclosed in plain language to consumers, consumer advocates, insurance regulators, and policymakers to evaluate what factors and weight are given in calculating premiums and cost-savings.
Test for Disparate Impacts: Insurers should perform and publish regular studies to analyze and identify any telematic algorithms that result in disparate impacts to protected classes of consumers, such as higher rates or barriers to coverage.
Restrictions on Data Usage: Data collected by telematics devices should be used only for evaluating risk, and not shared or sold to third parties without a customer’s permission.
Oversight of Contributory Databases: Telematics-based data obtained through, or shared with, contributory databases should be treated similarly to consumer reports and subject to oversight by the FCRA, CFPB, and state regulatory bodies.
Freedom for Consumers: The right to change enrollment status and use of telematics should be reserved exclusively to consumers, not insurance companies. Consumers should also be provided an annual statement detailing what information has been collected, and how it was used to rate their policy.
Provide Ongoing Signals and Benefits to Consumers: If utilized, insurers should review the data collected on a regular basis and adjust (decrease or increase) policy rates based on a customer’s driving history and their respective risk of loss. Ultimately, that is the purpose and intent of these programs as advertised to the public. [8]
Except in a few select states, insurance regulators have yet to develop a systematic approach to evaluate how insurers collect, utilize, share, and safeguard consumer information obtained through these telematic programs. The Washington Department of Insurance requires insurers provide actuarial support for telematics data and the algorithms used in setting premium rates. Personal data collected by telematics programs cannot be recorded or transmitted without the car owner’s specific consent, and insurers are required to provide clear notification about their privacy policies to customers. [9]
If you or your patients ever have questions about their auto insurance coverage, especially when related to a claim, feel free to contact us. We are always glad to help.
[1] “The Witness Against You: Your Car.” By Ed Leefeldt and Amy Danise. Forbes. March 26, 2021.
[2] National Association of Insurance Commissioners, “2019 Market Share Report for Property/Casualty Groups and Companies By State and Countrywide.”
[3] Progressive (“Snapshot”); State Farm (“Drive Safe and Save”), Allstate (“Drivewise”), GEICO (“DriveEasy” cell phone app) to name a few.
[4] “Auto Insurers Can Now Use Smartphones to Reconstruct Crashes.” Business Wire. January 9, 2020.
[5] Karapiperis, D. et.al., Usage-based insurance and vehicle telematics: insurance market and regulatory implications. CIPR Study Series 1, 1-79. (2015).
[6] “Minority Neighborhoods Pay Higher Car Insurance Premiums Than White Areas With the Same Risk.” By Julia Angwin, et.al. ProPublica and Consumer Reports. April 5, 2017.
[7] “Report on Protection of Insurance Consumers and Access to Insurance.” Federal Insurance Office. November 2016, pg. 6.
[8] “Watch Where You’re Going: What’s Needed to Make Auto Insurance Telematics Work for Consumers.” By Douglas Heller and Michael DeLong, Consumer Federation of America. May 26, 2021.
[9] Id.
