What Information Do Auto Insurers Use in Telematics Programs to Calculate Your Rates? Consumer Reports Has the Answer
Since the 1990s, major auto insurers have established telematics programs, which use consumer-generated driving data to calculate auto insurance premiums. These companies use information gathered from plug-in devices and mobile apps to track a variety of information. While these programs show some promise for promoting safe driving and more accurately calculating rates, they also pose risks of unfair pricing, racial bias, and abuse of personal consumer information. Auto insurers have been promoting telematics programs to consumers, but for too long there has been a lack of useful information about how the programs evaluate drivers and the scope of the data used. As a result, consumers have found it difficult to determine what information determines their premiums and to meaningfully compare the programs.
To fill this gap, Consumer Reports (CR) recently conducted an investigation of telematics programs run by America’s largest auto insurers. They found that auto insurers collect substantial amounts of information to calculate insurance premiums for participants as well as data that may be used for other purposes. The four most common behaviors used by insurers to calculate premiums are:
· the number of miles driven,
· the amount of hard braking done by drivers,
· the time of day driven, and
· any phone use that occurred while driving.
Here is a link to their article, which contains information about these programs and what information insurers use to determine premiums.
In telematics programs, auto insurers connect a device to your car or use a mobile app on your phone to collect information about your driving habits, which is then used to calculate your insurance premiums. Theoretically, if consumers drive safely and avoid risks, they could receive discounts based on their behavior. The promised discounts vary widely, from up to 15% for Farmers to up to 40% for Nationwide.
Using the official product websites, terms of service, privacy policies, and license agreements, Consumer Reports investigated the telematics programs of America’s ten largest auto insurers: Allstate, American Family, Farmers, GEICO, Liberty Mutual, Nationwide, Progressive, State Farm, Travelers, and USAA. All the insurers (except GEICO) responded and confirmed the information collected during the investigation.
The companies vary widely in what information they collect and use to calculate consumers’ premiums. Some companies gather data about how quickly drivers accelerate, some gather data on their speed, and some gather data on the amount of hard braking. One example is Allstate’s Drivewise, which collects information on hard braking, speed, and the time of day that consumers drive. Another example is State Farm’s Drive Safe & Save, which collects information on fast acceleration, hard braking, sharp cornering, speed traveled, the time of day traveled, and the distance traveled.
Some telematics programs are more open than others, but all ten of them require consumers to surrender a substantial amount of privacy. All ten programs gather large amounts of detailed data on consumers, and nearly all of them state in their terms of service that, in addition to using the data for premium-setting, the companies can also use this data to analyze insurance claims.
Without strong oversight, insurers could use telematics to unfairly discriminate against drivers based on qualities beyond their control. For example, almost all insurers use the time of day driven to calculate premiums; many workers in low-wage jobs work long hours or night shifts, which could result in them paying higher premiums because they have to drive and from work at those hours. Another possible example is that all ten insurers use hard braking to calculate premiums as well. Hard braking could be a sign of poor driving, but it could also indicate that drivers are alert and taking action to avoid crashes. In both cases, these factors could result in higher auto insurance costs for people who would have trouble affording them.
Furthermore, the telematics fine print often states that insurers have the right to use your information for marketing purposes. Several insurance companies state they can hold on to consumers’ information for as long as they want. The information can include in-depth maps of your driving trips, when you made them, and your driving behavior. And the companies have provided no information on how they will use your data.
How should consumers respond to these programs, and how can you get the best deal? Contact your state insurance department and advocate for stronger oversight of telematics, and carefully shop around to compare them.
Chuck Bell, Programs Director at Consumer Reports, states that “telematics programs vary significantly from company to company, so it’s critical that you thoroughly research the programs you are considering, and carefully compare the details of how they work. Consumers should proceed with caution before signing up for telematics programs given how secretive insurers are about the data they collect and how it will be used to evaluate claims.”
You can find this story on CFA’s website.