Telematics, data privacy and UBI
Susan Kuchinskas looks at how insurance telematics providers can anonymize usage-based insurance data to reassure consumers—and bolster the market
Big Brother. Electronic snoop. Nanny app. These are some of the pejoratives used in media coverage of insurance telematics. While the media may use privacy scare tactics to spice up stories, consumers do worry about being tracked. Moreover, some states, such as California, need reassurance that the privacy of their citizens won't be invaded. (For more on privacy concerns, see Telematics and legal issues with V2V technology and Telematics and privacy: The impact of ‘do not track’ proposals.)
In the United States, the industry is suffering from pushback against the ‘anything goes’ Internet era, but vendors haven't reacted well, according to Frederic Bruneteau, managing director of Ptolemus Consulting Group: "In the United States, my impression is it's not done in a way that makes consumers feel comfortable. Different service providers are used to doing what they want when they want, and assuming customers will follow."
While this strategy has worked well in some areas, such as e-commerce and online advertising, Bruneteau points out, "If you have a model that's new and generates some bad vibes, it will prevent or slow down take-up quite significantly. That's why, for insurers, it's important to give the impression that data belongs to the customer." (For more on UBI and consumer concerns, see Smartphones as an incentive for insurance telematics, Telematics and UBI: How to increase consumer acceptance, and Consumers and UBI: The power of value-added services.)
Who owns the data?
State Farm Insurance is expanding its Drive Safe & Save program using Ford SYNC in a way that clarifies the driver's ownership of that data. The program allows customers to use the Vehicle Health Report available in SYNC-equipped vehicles to report their mileage and reduce their auto insurance premiums.
Vehicle Health Report is a standard, no-subscription feature in Ford vehicles that allows owners to request a diagnostic report about their vehicle’s performance and maintenance needs. It pulls the odometer reading directly from the engine computer, so the mileage from the report is considered verified and can be shared with State Farm representatives to qualify the vehicle for Drive Safe & Save.
Because the information request must be initiated by the car owner and contains information only about the car, the data ownership question seems clear. (For more on UBI and data, see Telematics and UBI: The data challenges, Telematics and the value of data, and Telematics and probe data: The revenue opportunities.)
Customer opt ins
Doug VanDagens, director of connected services solutions at Ford Motor Company, says Sync customers already are used to opting in for services. When they do so, there's always a description of what happens to the information. Moreover, they're asked to opt in again every year, so they don't forget about it.
In the case of Drive Safe & Save, State Farm is managing the relationship with the customer; Ford's job is to confirm that the customer has opted in. "It's not even possible to send location or mileage off the car unless the customer manually requests it," VanDagens explains.
VanDagens says Ford has instituted data handling practices on the back end that preserve privacy: "We have a cloud-based traffic and direction service now where customers send GPS information to the cloud, and we are careful to not store that data or use it for any purposes."
The idea of tracking is a hot button for consumers and regulators, so location data derived from the GPS system will likely be the last factor to be used in pay-how-you-drive (PHYD) plans, which use factors in addition to miles driven to determine rates.
The privacy issue
Tim Moroney, an insurance regulatory attorney with the law firm of Barger & Wolen LLP, notes that insurance companies are subject to specific state privacy laws regarding what information can be collected and how it can be used. Those regulations vary from state to state. "In the United States, regulators have not come to terms with the issue of PHYD,” he says. "And it's the privacy issue. Regulators are very protective of consumer information."
But GPS is just one tactic for accumulating rating factors to determine the cost of auto insurance. Many systems, including Progressive's, are based on algorithms using braking patterns and driving speed, so geolocation or other personally identifying information is not necessary.
American Family Insurance offers a Teen Safe Driver Program that is perhaps the most robust consumer PHYD offering. In-car devices, provided free, capture risky driving behaviors like extreme braking, cornering, and accelerating too fast. The company says its offering has helped teens reduce risky driving behaviors by 70 percent.
Leaving aside the issue of whether a teenager can expect privacy from his or her parents, American Family uses two strategies to mitigate privacy concerns. First, the device only records events triggered by its motion sensor. So, at least in theory, the teen has control. If he chooses not to drive erratically, no footage will be stored.
In addition, parents can only view video of risky behavior, rather than being able to monitor everything the teen does behind the wheel. And only parents can log on and view the video.
VanDagens points out that, despite the caviling of journalists, consumers in general have been more than willing to opt into being tracked if they get value in return. "It's consumers's choice to decide whether they want to be watched and receive the benefits of being watched,” he says. “The only thing we can do is have as many opt-in policies as we can.”
Attorney Moroney agrees: "In coming years, why couldn't a consumer agree to allow GPS information or braking information or whatever to be collected?" The key, he adds, is, "The person collecting the information needs to be offering some real tangible benefit to the consumer."
Susan Kuchinskas is a regular contributor to TU.
For all the latest telematics trends, check out V2X for Auto Safety and Mobility Europe 2013 on February 20-21 in Frankfurt, Telematics for Fleet Management Europe 2013 on March 19-20 in Amsterdam, Telematics India and South Asia 2013 on April 17-18 in Bangalore, India, Telematics Detroit 2013 on June 5-6, Content & Apps for Automotive Europe 2013 on June 18-19 in Munich and Telematics Russia 2013 in September in Moscow.
For exclusive insurance telematics business analysis and insight, read TU’s Smart Vehicle Technology: The Future of Insurance Telematics report.