GPS-based Insurance Rates: The Devil is in the (Data) Details

By Jonathan Zittrain

Posted on February 22, 2012

A British insurance company called Motaquote has teamed up with TomTom, the GPS manufacturer to offer insurance prices based on data gathered by GPS. Fair Pay Insurance, Motaquote’s new program, is an opt-in insurance pricing scheme where drivers will get a free GPS unit in return for potentially lower (but possibly higher) premiums. The GPS unit will provide all the traditional navigational services as well  as warn drivers when they corner too sharply or brake too hard.
Data-driven insurance pricing is nothing new. Research into the viability of GPS-based pricing goes as far back as 2003. Telemetry based insurance premiums have been around in the United States since at least 2008, when Progressive started using “Snapshot.” It measured numbers of miles driven, time of day and sudden stops to set rates rewarding less hazardous driving. However, Progressive’s Snapshot program did not integrate GPS data – it used a device that plugged into the car’s OnBoard Diagnostic port. And companies with large vehicle fleets have used it to track driver safety — an automated answer to “How’s My Driving?” through such services as SmartDrive.
It’s worth noting that one of the reasons that Motaquote may be moving towards telemetric data is that the European Court of Justice ruled  last year that car insurance rates based on gender were discriminatory. Insurance companies, not known as keen innovators, have been prompted to find new ways to distinguish good drivers from dangerous drivers, and telemetric data is perhaps more accurate than generalizing based on age or gender.
Still, the move to GPS-based calculation is sensitive. One reason that programs like Progressive’s have been uncontroversial is that they have not sent locational information to car insurance providers, and users have an option to view their data before opting-in to rates based upon it.  Although the Fair Pay system was just announced, its website suggests that drivers will opt-in before they can see how their driving will measure up.
Data privacy is also a serious concern. Will insurance companies be asked to turn over GPS data to law enforcement to show where a car (or driver) was at a specific time?  There’s currently no information on Fair Pay’s website about the privacy of the locational aspects of the data – something that anyone who wants a free GPS should consider first. Such policies don’t have to say “always” or “never” — but they should spell out the standards by which a company will respond to requests or demands for information, and more generally policymakers should set up standards to shield privacy from unwarranted intrusion, metaphorically and literally.
Telemetric data-based rates also mean that insurance-holders may be locked into specific providers. If a driver’s rate is based on years of good driving data, but that information is non-transferrable, he or she may not be able to switch insurance providers without a substantial rate hike. It would be better if insurance companies provided customers with options for data portability and download.  That would also help drivers make sure that insurance company rate changes were justified — instead of being told “Sorry, poor driving means you pay a higher rate,” without more, drivers could float their data to other insurance companies who could bid lower for the driver’s insurance account if it didn’t truly indicate poor driving.  That’s real competition, and it would provide the right incentives to insurance companies to refine their algorithms.  A sudden stop might actually indicate good driving — rabbit dashes in front of car and driver shows admirable reflexes.
There’s also some intriguing possibilities for complementary crowdsourcing of driver safety.  Lior Strahilevitz has written about this using the standard “How’s my driving” toll free number system, and I’ve mused on it for a fully saturating Internet environment.  I also weighed in for Marketplace Tech Report.
Fundamentally, there’s nothing wrong with GPS-based telemetric data setting insurance rates. Consumers have become more comfortable with locational tracking, and these types of plan are currently inherently opt-in. If the programs do indeed reward better drivers, then they can make driving (and walking or biking nearby) safer. The devil is in the details of how the data is collected, what companies do with it, and how consumers can access and use it.
The preceding is re-published on TAP with permission by its authors, Professor Jonathan Zittrain and Kendra Albert. “GPS-based Insurance Rates: The Devil is in the (Data) Details” was originally published February 13, 2012 on The Future of the Internet and How to Stop It.
Jonathan Zittrain is Co-Director of the Berkman Center for Internet and Society and Professor of Law at Harvard Law School. Kendra Albert is Research Assistant to Professor Zittrain at the Berkman Center for Internet and Society, Harvard University.


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