Telematics programs utilized by auto insurers to set premiums or offer discounts to their customers to usually have “confusing and opaque” rules, and gather more details than is essential, an investigation by Consumer Reports has found.
In its in-depth take a look at telematics options offered by the nation’s 10 largest auto insurers, CR also found “serious privacy tradeoffs” with a few programs, noting that telematics data may also be used for marketing, or with a claims adjuster in the event of a loss of revenue. Companies generally require 24/7 use of a customer’s smartphone's place to gather data, and aren't always clear about how the information is going to be used.
CR noted the technology behind usage-based insurance does have strengths, for example by linking premiums or discounts for an individual’s driving performance, and providing drivers with a financial incentive to become more careful.
Yet even there, the content, “What You’re Giving Up Whenever you Let Your Car Insurer Track You In return for Discounts,” found that a minumum of one popular metric, hard braking, appears to set an unreasonably low threshold, and could encourage drivers to operate yellow lights when they should stop, or coast through stop signs to prevent higher premiums.
CR noted that millions of drivers have decided to sign up for a telematics program, attracted by promised premium discounts of as much as 40 percent for drivers who subscriber and drive safely. Based on a 2022 J.D. Power survey released in June, playboy notes, 16 percent of U.S. auto insurance customers have signed up for a telematics program, and the other 34 percent say they'd try one.
The magazine’s investigation dug in to the details of how these programs work, unearthing some details that are “otherwise unavailable towards the public.” Included in the investigation were programs provided by Allstate, American Family, Farmers, Geico, Liberty Mutual, Nationwide, Progressive, State Farm, Travelers and USAA. Of those, only Geico didn't respond to CR’s requests for information.
“It took quite a while simply to compile the information to begin with,” Kaveh Waddell, the writer of this article, said in an interview with Repairer Driven News. “This speaks to our findings, that is that it’s not terribly consumer friendly, it took this kind of immense, mind-numbing, concerted effort to gather all this information, after which to go multiple rounds with the companies to confirm it.”
Waddell noted that, occasionally, CR discovered that information on a company’s website wasn't any longer correct. In other cases, companies provided information in response to CR’s questions which was much clearer compared to material in their policies or on their websites. “There’s a lot of transparency that's still wanting,” he said.
In fact, the findings led CR and also the Consumer Federation of the usa to around the 10 insurers to create their telematics programs more “transparent and accountable.” The organizations’ letter asks insurers to become more forthcoming concerning the data they collect from telematics customers, the factors they use to rate their driving, and also the reasons each of those factors is relevant.
Data and insurance claims
The article notes that insurers might be using the data for purposes consumers may not have considered — as in case study of insurance claims. Virtually every company studied reserves the right to use data in that way, “which means that information about your car's movements in the seconds before a crash might have important ramifications,” CR said.
As a good example, the content provides a scenario where the insured is hit with a drunken driver, but whose telematics data suggests that they were speeding at the time of the crash. It’s possible that the data might be accustomed to reduce coverage or deny claims altogether, Bob Hunter, a former Texas commissioner of insurance and director of insurance in the Consumer Federation of the usa, told CR. “A large amount of insurance providers prefer to locate an angle to deny claims, and telematics happens to be an angle,” Hunter told playboy.
Waddell offered another way by which telematics might lead to insurance claims: fraud detection. If someone constitutes a claim, and their data doesn’t show proof of a crash, “then that may raise some sort of an automatic red flag,” he said.
“Many of these 10 insurers state that they are able to and do use telematics data for for claims,” he explained. “Only one of 1 of that group saying they do utilize it say they only use it with affirmative consumer consent, meaning that many of them might just be ingesting that data, using it without necessarily asking your permission first simply because they got it whenever you registered.”
The article notes that several companies say they are able to use telematics data for “targeted marketing.” Progressive reserve the right to use personally identifiable information gathered through telematics for marketing its own products; Farmers, Liberty Mutual and Nationwide have a provision for such use within their written policies, but say they aren’t currently using telematics data by doing so. Nationwide’s provision is there “to preserve the company’s capability to achieve this later on,” a business spokesperson told CR.
“Most of them said that they'd notify the consumer and allow customers to opt out before they [use collected data for marketing],” Waddell told RDN. “But you know, all this is simply promises at this time.”
Justin Brookman, CR's advocacy director for consumer privacy and technology, was critical of insurer’s use of telematics data for marketing. “Consumers are sharing their data to get insurance pricing based on their personal habits; they're not expecting the businesses to repurpose that data to try and market products for them,” he explained within the article.
Waddell noted that “this information has a really, really long half life. Most of the companies that we checked out state that they can hold on for this data indefinitely. A couple of them said about Ten years, or 10 years.” Some referred CR for their record retention policies, but wouldn't disclose those policies.
“If changes are made down the line around marketing or sharing of information, maybe you’ve already shared that information,” Waddell said. “There is a little small insufficient transparency — I would say more of a lack of transparency around data use than there's even with just the factors which go into pricing your discount.”
Defining safe behaviors
Speaking of discounts, what characteristics define a safe driver? Waddell was surprised to find there was so little consensus.
“I believe one thing that surprised me, is how much variation there is from business to business,” he explained. “I mean, you might think going in as I did that safe driving is protected driving, right? Like, should you don’t slam around the brakes, and also you don’t text on the road, you’re likely to be a secure driver — along with a safe driver for Allstate is going to be the same thing like a safe driver for USAA. But in the finish, they categorize tracking behaviors very differently…. Irrrve never really were left with a satisfying answer as to why there’s a lot variation.”
On top of that, insurers are vague about how they define risk factors, CR found. For instance, Geico’s DriveEasy product page says the organization rates customers on driving “smoothness” and “the rate where [they] are cornering,” but doesn’t provide specifics.
A low threshold for ‘Hard braking’
The article requires a close look at so-called “hard braking,” a metric utilized by all 10 programs examined. Most of the programs define “hard braking events” as a deceleration of Six to eight mph during the period of 1 second. But when CR simulated various braking scenarios at its Connecticut test track, their drivers found that exactly what the programs would consider “hard braking” instead felt routine and safe.
Waddell said there’s a concern that some drivers will avoid getting dinged for hard braking, and choose to roll through stop signs or yellow traffic lights that call for any stop.
“You wouldn’t want a user to think when they slam on the brakes once, poof! There goes their premium into into the stratosphere,” Waddell said. “If you need to hit the brakes to avoid running over a young child going after their football, please do so.
“There is a reason why there must be a little bit of forgiveness, for lack of a better word, included in these algorithms to be able to take a maneuver that may in the aggregate look risky, however in as soon as because the safest possible move ahead,” he said.
The CR article raises a red flag about another metric: time driven. The concern here is that this measure, the only one in a roundabout way related to driving behavior, punishes individuals who work the 3rd shift, typically blue-collar or service occupations. Because those jobs are disproportionately held by Blacks, Latinos and people with low incomes, use of the factor can reinforce discrimination, Douglas Heller, an insurance coverage expert in the Consumer Federation of America, told CR.
Other metrics used one of the 10 insurers included phone use, distance driven, acceleration, speed and cornering.
Surprise! Your fees are going up
Some insurers say they will raise customers’ premiums when they exhibit risky driving behavior. These companies may include Allstate, Geico, Progressive, and Travelers, with respect to the state the customer lives in. American Family, Farmers, Liberty Mutual, Nationwide, State Farm, and USAA say on their websites or in their terms of service that, for the time being, risky driving won't lead to higher premiums.
“I wouldn’t state that they’re like terribly secretive about [using telematic data to boost premiums or reduce discounts]. However it could be kind of hard to understand what actually constitutes unhealthy driving that might lead to a surcharge on your premiums, as well as where that is relevant, because it does change from one state to another,” Waddell told RDN.
Some consumer advocates, Waddell noted, are fine using the idea that premiums could go up. “They really support the the ability for programs to surcharge, because it sort of more evenly attaches pricing to risk,” he said. “If you’re a poor driver, you may end up with a minimum telematics discount if there’s no surcharge available. But when it’s available, if you actually get charged a lot more than that’s a bit more fair, a little bit more attached to the risk you pose towards the insurer, obviously, but additionally to others on the road.”