Insurance carriers have increased their reliance on technology and connectivity to determine how much their customers pay for their auto insurance premiums. These systems, known as “telematics”, transmit data from the policy holder’s vehicle to the insurance provider. The provider then processes this data to calculate auto insurance premiums each year. While some providers in some states use the data to offer discounts to safe drivers, others apply the information as a means to raise premiums for their customers.
Auto Insurance Premiums and “Pay As You Drive”
Insurers first used telematics to determine the average daily mileage for their customers. The carriers found that drivers with longer daily commutes were more likely to be involved in accidents. They would then charge these drivers higher auto insurance premiums to cover the higher risk factors. The system earned the name “Pay As You Drive,” or “User-Based Insurance.” With modern GPS systems, carriers can also apply the data to adjust auto insurance premiums based on specific high-risk routes or intersections.
Auto Insurance Premiums and “Pay How You Drive”
As more sophisticated tracking systems became available, the “Pay As You Drive” method evolved into “Pay How You Drive.” Carriers began adjusting a customer’s auto insurance premiums based on data ranging from their compliance with local speed limits and traffic laws, to G-forces and braking behavior. Insurance providers now offer discounts on auto insurance premiums for drivers who agree to have these tracking devices installed in their vehicles.
Auto Insurance Premiums: Rewards and Punishments
Although insurance carriers offer the telematics systems as a means for drivers to get discounts on auto insurance premiums, those discounts may not last. Insurance providers can establish their own rules on how to apply the data from telematics systems to calculate auto insurance premiums. In some cases, if the data shows patterns of what the carrier could interpret as unsafe driving habits, the carrier can revoke the discounts and increase the driver’s premium payments.
Auto Insurance Premiums: Data Processing vs. Invasion of Privacy
A major concern about how carriers use on-board data to calculate auto insurance premiums stems from the extent of the data the systems accumulate. The telematics devices can transmit the exact route, time and speed a driver takes on every trip. The data can show the routes a customer takes to work, to the grocery store, and on other personal trips. In addition to applying this data toward adjusting auto insurance premiums, carriers can sell this data to third parties, or be forced to submit records to government agencies.
Source: Digital Trends
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