Will Drivers Trade Privacy for Discounts?

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Low-mileage drivers who install this gadget in their cars could get a discount from their insurance company in exchange for letting the firm track some of their driving behavior.

Of all the things that seem unfair about auto insurance, this is perhaps the worst: Infrequent drivers who log less than 5,000 miles a year, are charged roughly the same as long-distance commuters who cover 30,000 miles a year.

High-tech advances may end this inequity soon, but the cure could be worse than the disease – if it’s not carefully regulated. Occasional drivers will soon have a chance to lower their insurance rates, but only if they agree to extensive electronic tracking of their driving habits.

New gadgets installed in cars will be able to tell insurers how many miles drivers have logged, what times of the day they drive, and even how frequently they abruptly stop and start. Other incarnations of the technology involve GPS devices that can even tell insurers precisely where drivers have traveled, and if they obeyed local speed limits.

So-called "pay as you drive" auto insurance pricing has been in the works since 1988, when California state legislators passed sweeping insurance reform that required insurers to weigh actual miles driven when setting rates. Years of industry appeals and technological hurdles postponed the pay as you drive provisions of the law, but the stage was set in 2006 when the California Department of Insurance gave firms two years to submit proposals for compliance with the 1988 law. The deadline passed in July.

In the meantime, insurers around the country began asking consumers to volunteer mileage information, offering small discounts to occasional drivers. But the self-reporting system has obvious limitations, so the industry began exploring electronic mileage monitoring systems.

Now, Progressive Casualty Insurance Co. is poised to offer the first nationwide Pay As You Drive insurance plan, called MyRate. The program is already available in seven U.S. states – Alabama, Louisiana, Maryland, Minnesota, Michigan, New Jersey and Oregon.

Customers who sign up for MyRate get an immediate 5 to 10 percent discount and the promise of up to 25 percent reduction in exchange for installing a small electronic device under the hood of their car. There’s no guarantee of additional savings: In some markets, Progressive says it could raise rates up to 9 percent for drivers who log too many miles or engage in other risky behavior.

The device connects with the car’s diagnostic computer through the OBD II port included in all cars since 1996. In earlier test versions, consumers had to download data from the gadget every six months and send it to Progressive, but now the device comes with an attached cell phone that "phones home" every day, said Richard Hutchinson, MyRate program manager.

(The Progressive gadget connects to the same auto computer that’s used by the ScanGauge device to help drivers optimize gas mileage. It was featured on MSNBC earlier this year)

Progressive’s electronic mileage tracking system — formerly called TripSense — has been under development since 1998. It does not include a GPS device and Progressive does not have access to location information, Hutchinson said. Auto insurance rates are impacted by only three criteria — miles driven, time of day and abrupt stops and starts.

For example, drivers on the road from midnight to 5 a.m. — the most dangerous time — get dinged. Rush hour driving is considered moderately risky, while other times are the least risky, Hutchinson said. Having access to that information allows Progressive to more accurately price its risk, the company claims. But early feedback from consumers gave the firm a clear message that it must balance the need for more data and consumers’ privacy concerns, Hutchinson said.

"Their biggest concern is, ‘Do you know where my whereabouts?’ And so we’ve stayed away from the GPS," he said.

California-based Consumer Watchdog wants to make sure GPS or location-based information doesn’t creep into any insurers’ plans. It has lobbied the California Department of Insurance to make sure consumers won’t be required to participate in location-based tracking. It wants insurance companies to offer low-tech alternatives for pay as you drive discounts, such as regular manual odometer inspections.

"We don’t have a problem with them knowing your mileage, it’s the broader possibilities here," said Carmen Balber of Consumer Watchdog. The group objects to proposals that require anything beyond mileage data, including Progressive’s “time of day” tracking. “We think you should be able to give these discounts without putting people in a situation where they have to choose between a fair insurance rate and their privacy, Balber said.”

Balber compared insurance driving data collection to Easy Pass and other electronic toll payment mechanisms. Both store information about drivers that can end up being used as evidence in lawsuits or other legal actions, she said.

Balber also argued that while Progressive’s MyRate is an optional service, the firm offers automatic discounts to all participants, meaning those who don’t sign up will be forced to pay more.

But other analysts say mileage-based discounts will lower costs for the insurance industry as a whole, and most consumers will benefit. The programs also encourage motorists to drive fewer miles annually, reducing the number of accidents, pollution and national infrastructure costs, they say. A Brookings Institution report published earlier this year said nationwide implementation of pay as you drive insurance would result in savings of $52 billion – and low-mileage drivers would save an average of $256 each year. Of course, high-mileage drivers would pay more.

But the program has other, more subtle benefits, Hutchinson said. Drivers who sign up with MyRate get access to a Web site that lets them monitor their mileage usage and other driving habits. So far, consumers enjoy the service, he said, and they learn from it how to reduce their insurance bill and lower their risk of having an accident.

About one-third of customers who are offered the MyRate plan chose it, Hutchinson said.

Of course, some customers do find the service a little unnerving.

"A minority (or our customers) is philosophically opposed to this tracking behavior and our response to that is ‘fine,’" he said. The firms plans to keep MyRate voluntary and be clear about what it’s doing with all the data it collects. “We want people to be comfortable with what we’re doing. We believe in complete transparency,” Hutchinson said.

Read msnbc.com’s special report, Privacy Lost

So far, GMAC Insurance is the only other insurer to announce plans for a major low-mileage discount based on electronic tracking. GMAC uses the OnStar system to track miles driven, and offers discounts to drives who log less than 15,000 miles per year.

Other insurance firms are in various stages of testing (for more information see a detailed analysis at Insure.com)

But with California regulators forcing the issue – the state’s requirements will be finalized next year – mileage tracking devices will likely be available to most drivers very soon.

Consumer Watchdog
Consumer Watchdoghttps://consumerwatchdog.org
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