Are car insurance safe-driving discounts worth the cost of giving up your privacy?
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Michael Aminov-Tobin almost forgot a car insurance company was tracking his driving. He wasn’t paying extra attention to how fast he drove or how hard he hit his brakes. So he was astonished when the company offered to insure his 2016 Hyundai Veloster Turbo for $100 a month less than he’d been paying.
“When it popped up with the price that it did, I was like, ‘Holy crap, that’s awesome!’” says Aminov-Tobin, 25, who operates a video production firm from his home near Columbus, Ohio.
He benefited from a growing trend known as usage-based insurance, or UBI, in which auto insurance companies electronically monitor a customer’s driving and offer discounts in exchange.
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Such programs can be a great deal for careful drivers and low-mileage users, but they also present significant privacy concerns, experts say. Before agreeing to be monitored, drivers should understand the risks and ask the right questions.
“The data is so rich,” says Ting Zhu, an associate professor for Purdue University’s Krannert School of Management who studies UBI. “They know exactly where you go and when you go.”
The draw for drivers
Letting people prove they’re safe drivers makes auto insurance pricing more fair, advocates say.
Traditional car insurance rates are based on your driving record, plus demographic factors like age, location and marital status. While usage-based policies still consider these factors, they base part of the rate on your driving behavior using telematics technology. Data are typically gathered via a plug-in device for your car’s diagnostic port or a smartphone app.
“Good drivers should pay less,” says Robert Hunter, director of insurance for the Consumer Federation of America. “How you drive, and not who you are, should determine your rate.”
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Discounts can be significant for good drivers. With Nationwide’s SmartRide, discounts can reach 40 percent, says David Arango, senior vice president of personal lines, which include auto and home. At Root Insurance, the startup that insures Aminov-Tobin, the best drivers can cut their rates nearly in half, says CEO Alex Timm. At both companies, the executives say, typical savings are around 20 percent.
Low-mileage drivers can benefit, too. Evan Makovsky, 42, of Hoboken, New Jersey, estimates he saved $1,000 a year by switching to Metromile, which charges a monthly base rate plus a per-mile rate. Makovsky drives his 2009 Volkswagen Passat mostly on weekends.
But rates aren’t always better with usage-based insurance. For instance, if you change jobs and have a longer commute, a pay-per-mile policy could become costly. And with Progressive’s Snapshot program, which monitors how you drive, rates go up for about 20 percent of drivers, according to the insurer. Bad drivers won’t pay extra at Nationwide, Arango says, but they can lose their initial discount.
Data privacy concerns
Whether the price break is worth the privacy you relinquish by having your driving monitored depends on how you view the risks.
Aminov-Tobin wasn’t concerned: “If you want the best rates, I guess you have to sacrifice a little,” he says.
But privacy expert Jen King fears drivers may sacrifice more than they realize.
“Where you go every day can tell people a lot about what you’re interested in, where you live, who you’re associating with,” says King, director of consumer privacy for the Center for Internet and Society at Stanford Law School.
Even if the information isn’t sold, she says, it might be used in ways the driver didn’t anticipate.
A data breach is another danger, says Purdue’s Zhu. She points to the 2013 Target breach in which cyberattackers stole the personal information of millions of customers. Zhu says her research found that after the breach, drivers were more likely to drop usage-based auto insurance.
Nevertheless, UBI seems to be gaining traction. A J.D. Power study showed 10 percent of insurance customers used such programs in 2018, up from 8 percent the previous two years. Though the policies aren’t universally available, the National Association of Insurance Commissioners estimates 7 in 10 auto insurers will use monitoring technology by next year.
Ask before you buy
Usage-based insurance policies vary. Some track braking, idling and acceleration; others focus on mileage. Some monitor driving for a limited time; others keep on tracking. So it’s important to shop around and ask questions.
The CFA’s Hunter says to find out exactly what information the insurer will collect and whether it’s really related to good driving. Also ask:
- How each bit of data affects your rate.
- If you can decline to share the information without penalty.
- If the company will share or sell your data.
And remember that driving data makes up only part of your insurance rate, says Janet Ruiz, director of strategic communication for the Insurance Information Institute.
“The most important thing consumers can do about their auto insurance is have a good, safe driving record,” she says.
More from NerdWallet:
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Lisa Green is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org. Twitter: @lisaccgreen.
NerdWallet is a USA TODAY content partner providing general news, commentary and coverage from around the web. Its content is produced independently of USA TODAY.
A GasBuddy study examined the 30 largest metropolitan areas by population and concluded these cities have the most aggressive drivers. USA TODAY