Today, nearly every major insurance provider in the United States features its own telematics program. These programs, which use the Global Positioning System (GPS) and other technologies to monitor policyholders’ mileage and driving habits, typically promise big savings on insurance policies. Insurance companies share that they can provide those savings because consistently practicing safe driving habits reduces a driver’s risk of an accident, and telematics data provides evidence of those habits.
While it’s hard to argue with that reasoning at face value, these programs — also known as usage-based insurance (UBI) — work by collecting massive amounts of user data. Insurance companies use this data to calculate new rates for policyholders, often on a rolling basis. But is that all they use the data for?
The Use of Telematics Systems is on the Rise
Progressive first began experimenting with UBI programs in the 1990s, but it wasn’t until smartphones started to become ubiquitous that the programs took off. Having smartphones with built-in GPS systems, gyrometers, accelerometers and other technologies in cars with drivers gave insurance companies an opportunity to monitor the habits of their policyholders.
Sales of telematics systems grew from 4 million in 2010 to 16.3 million in 2020, a nearly 308% increase in just a decade. Such a rapid and dramatic increase in the sales of these programs suggests that they have become a significant insurance product.
Telematics Programs Collect Large Quantities of Data
The nature of UBI programs requires them to collect data constantly. As a result, insurance companies hold the keys to a massive amount of data about their policyholders. That data isn’t limited to how fast someone drives, for example. Telematics programs track a range of user behavior and other data, including:
- Braking habits
- Acceleration
- Phone usage
- Cornering speed
- Time of day
It’s also possible that companies could collect other types of data tangentially related to driver safety — or perhaps already do. The weather at the time of driving, for example, could be one factor. Location data could also be part of the dataset collected by telematics programs, indicating which businesses a driver tends to frequent.
Telematics Data is a Rapidly-Growing Market
Given the growth of the consumer data market, it should come as no surprise that telematics and the data they generate is also a booming industry in and of itself.
Worldwide, the value of the telematics market has exploded. In 2014, the global market was worth $28 billion. By 2022, the value of the telematics market worldwide is estimated at $103 billion.
Insurance Companies Are Jumping on the Opportunity
In 2010, insurance giant Allstate formed Arity, a company that collects and synthesizes driving data. The company immediately had access to Allstate’s backlog of claims data and related information and other user data going forward.
Allstate uses data and data analysis from the Arity platform for its own operations to calculate insurance premiums more accurately. However, it also sells this data to other insurance providers.
“We have 6 billion miles of data, we’re a risk scoring operation,” said Tom Wilson, chair, president and CEO of Allstate, on a third-quarter earnings call in 2021. “We help people do marketing more effectively and efficiently, and so we’re really building quite a platform that will do a number of things.”
Arity’s Data Operations are Expanding
Through Arity, Allstate is offering its telematics data — for marketing purposes — to entities other than insurance companies. In October of 2021, the company announced that it would make data from more than 100 million drivers available through Transparent.ly, an online advertising platform. The platform allows insurance marketers to sort customers by risk levels and find specific drivers they want to target.
Earlier in 2021, Arity struck a deal with GasBuddy, a gas price monitoring app. The partnership allowed GasBuddy to offer suggestions to drivers based on previous driving habits and, perhaps more importantly, to deliver targeted advertisements. In a column in the New York Times’ Wirecutter, one writer described GasBuddy as a “privacy nightmare” due to the amount of data the app collects and sells.
Driving Data Can Also Have Legal Ramifications
The world of targeted advertising isn’t the only zone in which telematics data is being used. Data from these programs are increasingly being used in the legal system, both in criminal and civil cases.
In criminal investigations, law enforcement officials and prosecutors can retrieve telematics data with a court order. The ability to see precisely when and where an accused suspect was during a particular crime can provide hard evidence to support the case against them. Some apps can even use voice recognition to confirm that a certain person was, in fact, the person driving the car.
Civil litigants can also subpoena telematics data in certain cases. Similar to how this data is used in criminal cases, attorneys could use location and time data to prove a person’s whereabouts or patterns of behavior in civil cases like divorces and custody battles.
Attitudes Towards Telematics Programs Are Still Mixed
The increased adoption of telematics programs is a sign that sentiment among drivers is trending towards acceptance. A Q2 report from TransUnion found that opt-in rates rose from 49% to 65% between surveys, which is a 32% increase.
But that doesn’t necessarily mean that people are ready to wholeheartedly embrace telematics and the data collection that goes with it. While opt-ins have increased, many consumers appear to remain dubious.
A study by Arity found that while a majority of those surveyed said they didn’t mind their insurer tracking their mileage, that majority was a very slim 54%. The same study found that only 47% of those surveyed wanted their insurer to know their speed.
As data harvesting becomes more a part of the status quo, some people may have begun to see it as inevitable. That’s an attitude that Alli Cooke, a telematics user in Michigan, seemed to reflect.
“My understanding is that I receive a discount on my car insurance bill as a result of careful driving, which is a great perk — although I don’t monitor that discount to track how much I’m actually saving,” she said. “I’m sure they use that data for other purposes as well, including selling it to interested parties. I don’t appreciate that because, unlike free social media sites, I am paying for this service, but I understand that’s how business is done these days, so I try not to get upset about it.”
Governments are Beginning to Take Notice
Issues around telematics programs and personal privacy have not gone unnoticed by some governments. The state of California currently has a ban on such programs, a law that caught the attention of Tesla CEO Elon Musk.
Tesla recently launched Tesla Insurance, a usage-based program designed for Tesla owners but available to owners of other select vehicles. Musk has announced that he will push the California government to adjust its laws to allow for telematics-based insurance programs.
The federal government has also recently taken up driving data as an issue. On September 20 of 2022, U.S. Rep. Earl Carter (R-GA) announced the formation of a congressional caucus on vehicle data access. Carter invited House members from both parties to take part in the caucus, later telling reporters that he hopes the parties will “work collaboratively and on a bipartisan basis to weigh the positions of these stakeholders and come up with draft vehicle data access legislation that will be supported through regular order.”
Telematics Programs are a Trade-off
Like most digital services, users of UBI programs agree to a company’s data harvesting and selling policies when they opt-in to the program. To that end, drivers are consenting to handing over their data.
However, most insurance companies tend to focus heavily on safe driving habits as the reason for a policyholder’s savings. Insuring a verifiably less-risky driver does reduce an insurance company’s financial risk, but selling a policyholder’s data gives a company an additional revenue stream. That stream remains intact whether a policyholder’s rates go up or down.
With adoption of these programs on the increase, insurers and the brokers they sell data to will have increasing amounts of driver data. Short of the implementation of new regulations, businesses are likely to find more and more ways to use that data, making it more and more profitable as a result.
At an individual level, drivers should assume that their telematics data is being sold to third parties, and perhaps re-sold after that. People may want to factor this into their decisions, along with whatever potential savings may be available to them.
