Click below to listen to our Consumerpedia podcast episode on telematic data collection.

Many auto insurers now push customers to sign up for real-time monitoring of how, when, and where they drive. If your company deems you a “safe” driver, your premiums might be lowered by as much as 30 or 40 percent—or nothing at all if the insurer decides you’re high-risk.

This “telematics” technology is often referred to as “usage-based insurance.” For some drivers, data can be uploaded directly to insurers from their connected vehicles; for others, monitoring is done via company-supplied smartphone apps.

Insurers say these programs better measure each driver’s risk, and reward policyholders least likely to have accidents or claims. The tracking might also encourage customers to change their driving habits or drive less frequently: An insurance industry survey done in 2022 indicated that 48 percent of respondents using telematics said they made significant safety-related changes after participating in the program.

But consumer groups, including Consumer Reports and the Consumer Federation of America (CFA), urge caution. They say stronger regulations are needed to ensure these data collection programs actually benefit customers.

“Without effective oversight, telematics programs could result in unfair pricing, improper use of personal information, racial and ethnic discrimination, and data security, among other concerns,” the CFA warns.

Nine of the 10 largest insurers in the U.S. now offer telematics programs. They have catchy names, such as Snapshot (Progressive), Drive Safe & Save (State Farm), and DriveEasy (GEICO). With most insurers, tracking programs are optional, but a few—including Metromile and Root Insurance—require that all customers sign up for monitoring.

For the optional programs, those who sign up typically receive an immediate discount of 10 or 15 percent, with the promise that premiums will decrease more later. With some insurers your rates could rise if their algorithms determine you’re a higher-risk driver.

Most Companies Share Few Details on Data They Collect and What They Measure

When Consumers’ Checkbook reviewed several insurance company websites, we found that many offer vague descriptions of what they track and even fewer details on how they determine safe or unsafe behavior. Common datapoints include “quick acceleration” (or “smooth driving”), “hard braking,” “speeding,” “fast cornering,” “distracted driving,” “mileage,” and “time of day.”

But what do terms like “hard braking” and “distracted driving” mean, and how much weight do these and other factors carry when computing a driving score? There’s a glaring lack of transparency.

A Consumer Reports investigation similarly found the information provided to be “confusing and opaque.”

“The devil is in the details, but not all of the details of how these programs work and how your premium rates will be affected are easy to understand or publicly disclosed,” said Chuck Bell, a policy advocate and insurance expert at Consumer Reports. “It really should be a clear agreement with the insurer as to what information they’re collecting and what you’re being judged on. The data factors they are using shouldn’t be a surprise.”

Among the insurer programs CR studied, only GEICO clearly explains what “distracted driving” means: “Handheld phone calls and active phone use when driving faster than 6 mph.” Also, “touching your phone for any reason (GPS, minimizing screens, unlocking your phone, etc.) could negatively impact your drive score,” its website warns. This includes another passenger using your phone, “since the app cannot distinguish who is using the phone during the trip.”

Clearly, this data collection is far from foolproof. As Progressive acknowledges on its website, the technology “lacks the ability to know when you’re driving defensively—like braking suddenly and swerving to avoid hitting an animal or pedestrian.”

Automobile testing experts at Consumer Reports concluded that telematics programs “can unintentionally encourage people to drive more dangerously—for instance, to avoid penalties for ‘hard braking,’ telematics customers might choose to simply roll through stop signs.”

And insurers aren’t interested in tracking customers solely to judge whether you’re a careful or hell-on-wheels driver: CR found that most insurers reserve the right to use these data to analyze insurance claims, “which means that information about your car’s movements in the seconds before a crash could have important ramifications.”

Data collected by your insurance company’s software or your vehicle could be used to determine whether you were at fault for an accident—or even as evidence against you in a criminal case.

Big-Time Privacy Concerns

Michael DeLong, a research and advocacy associate at CFA, sees the potential benefits of telematics—if the data collected are used to move the industry away from using what he calls “harmful factors” that are not connected to accident risk and lead to many people paying more.

But DeLong worries that insurers will instead use telematics “to unfairly discriminate.” For example, a customer could be tagged as “low-income”—and therefore a perceived higher-risk customer—based on location data showing where they live and where they drive.

Insurers are already (unfairly, in our view) using credit scores and other financial data as proxies to measure claims risk. These tracking programs provide insurers with yet another way to set rates based on factors that are unrelated to driving behavior.

Also, insurers’ software usually has constant access to your smartphone and vehicle location data, which could be used for targeted marketing and other sources of revenue unrelated to auto insurance. Some insurers clearly are gathering extraneous information.

The industry has acknowledged that telematics programs raise privacy concerns. Even so, usage-based insurance is “gaining popularity, and many auto insurers are beginning to offer it,” said Loretta Worters, vice president of media relations at the Insurance Information Institute.

Regulations Lacking and Needed

Only a few state insurance regulators have developed rules or procedures to deal with this approach to underwriting and pricing auto insurance. The lack of regulatory safeguards creates “all sorts of possibilities for abuse,” CFA’s DeLong told Checkbook.

The CFA has called on state regulators to protect consumers by implementing the following rules:

• Limit what data insurance companies can collect and use.
• Require insurance companies to show how the data they collect are related to risk.
• Require transparency by allowing consumer groups, regulators, and customers to see how the insurer’s algorithms work. And those algorithms should be tested to make sure they do not adversely discriminate against any groups of people.
• Any data collected should be used only for evaluating risk, and should not be shared or sold.
• Telematics should not be required to get auto insurance. Those who sign up should be able to unenroll at any time.

Because telematics will undoubtedly grow more complex and widespread in the coming years, regulators must adopt rules now to ensure this technology benefits, rather than harms, consumers.