Insurers’ monitoring of drivers a concern

Some worry practice may lead to higher rates.

Flo, the overly eager Progressive Insurance employee of television commercial fame, might not be riding along with policy-holders, but her company is planting devices under customers’ steering wheels to record their driving habits.

The idea is to collect data on how a vehicle is driven and use it to calculate the owner’s premiums. While the program gives better drivers lower rates, it has raised privacy concerns and worries that data collection someday might lead to higher rates for some drivers.

Progressive isn’t the only insurer seeking to collect driving data, but it is leading the insurance industry’s effort with its Snapshot device, which the company is pushing on TV ads. Other companies – such as State Farm, Allstate and GMAC – are also exploring so-called usage-based insurance.

Progressive says when customers agree to plug Snapshots into their cars’ data ports, they can end up saving up to 30 percent on rates. The Snapshot device, which can be installed in any car built after 1996, offers Progressive a way to see how often customers are hardbraking (often a characteristic of speeders and tailgaters), when they are on the road (do they drive during dangerous hours after bars close?), and how far they are driving (because more hours behind the wheel correspond with a higher likelihood of getting in an accident).

The international consulting firm Towers Watson reports that the U.S. is on the brink of an insurance revolution with usage-based insurance. A Towers Watson report says that early adopting insurance companies “are gaining an enormous competitive advantage.”

Mark Hanna, a spokesman for the Insurance Council of Texas, agreed there are advantages to usage-based insurance, but he noted a downside.

“The big benefit is low insurance premiums,” Hanna said. “The opposite viewpoint is basically Big Brother is watching me.”

Hanna said low-mileage drivers, particularly elderly ones, often are drawn to usage-based insurance programs. But younger drivers might not be as enthusiastic, Hanna said.

“Their driving habits are not going to parallel those of their parents or grandparents,” he said, adding that younger drivers often won’t want to share the details of how they drive.

Progressive’s Snapshot uses telemetric technology, which allows for wireless data collection, that is also found in the so-called “black boxes,” the data recorders installed by some auto manufacturers. But unlike black boxes, which one day could be standard in all cars, Progressive’s devices are voluntarily installed and collect limited data, said Richard Hutchinson, usage-based insurance general manager at Progressive.

The plug-ins do not use global positioning system technology, Hutchinson said.

“We don’t care where you drive,” said Scott Spriggs, senior product manager for Progressive in Texas.

Progressive wouldn’t say how many Texans are participating in the program, which has been many years in development. The current iteration has been around since January 2011, the company said.

Spriggs said his company is seeking to get a better idea about customers’ true driving habits and offer them a risk-free way to lower their rates.

Now, the program is voluntary and risk free, Spriggs said. Customers’ rates won’t go up for participating, he said, but he added that “it may not be like this forever.” Also, the company has never dropped a customer because of information gathered from a Snapshot device, and it doesn’t share any information it gathers, Spriggs said.

Deeia Beck, who runs the state’s Office of Public Insurance Counsel and is an advocate for consumers, said some people could see benefits from Snapshot and other similar devices if they are gentle drivers, such as ones who drive primarily during daylight hours, follow the traffic laws and don’t travel too many miles.

But there might be a downside too, Beck said.

“On the minus side, there may be things that weigh against you that are not your fault,” she said. “For example, a sudden stop because someone cuts you off in traffic.”

Beck also signaled that she has other worries about usage-based insurance.

“My major concern surrounds how this data can be used and for how long,” Beck said. “The answer is we do not really know.”

Insurance companies’ “creative actuaries” come up with new predictive models all the time, Beck said.

“There may be data captured that you think is harmless but in fact may lead to a higher rating scheme,” she said.

Devices like Progressive’s Snapshot might be in a small portion of today’s autos, but Towers Watson consultants think similar and more sophisticated devices soon could become much more pervasive — and so probably will be the debate over usage-based insurance.