Usage-Based Insurance

Understanding usage based insuranceUnderstanding Data Privacy in The Digital Insurance Age

Technology is constantly changing just about every aspect of our world, including the way we insure our vehicles. With the promise of saving you money based on your driving habits, insurance companies are more and more exploring usage-based insurance (UBI), and while you may indeed save some cash through these programs, it’s important to understand their ramifications when it comes to personal privacy, data collection and vehicle safety.

Just what is UBI? According to the National Association of Insurance Commissioners (NAIC), it allows insurance companies to set premiums based on an individual’s driving behaviors as monitored by an electronic monitoring device. Probably the most well known of these programs is Progressive Insurance’s Snapshot (although many insurance companies now offer similar programs). With these voluntary UBI programs, the insurance company sends you a small telecommunications data-recording module that you then plug into your vehicle’s On-Board Diagnostics Type 2 (OBD-II) port. Over a period of months, the module records everything that would be of interest to an insurance underwriter: miles driven; time of day; where the vehicle is driven (GPS); rapid acceleration; hard breaking; hard cornering—you name it, it can be recorded by the module. The insurance company then assesses the data and charges insurance premiums accordingly.

Privacy advocates, however, have concerns about how insurance companies could use the data collected that goes beyond establishing premiums. For example, collected data could be used against you in the event of a claim in order to minimize the financial responsibility of the insurance company. Worse, some fear the devices could someday become mandatory or be equipped to track drivers’ locations or eavesdrop on conversations—data that could eventually be sold or obtained without a warrant by law enforcement authorities.

Some states have passed or are in the process of passing so-called ‘black box legislation” to protect driver data; on the federal level, Congress passed the Driver Privacy Act of 2015 that places limitations on data retrieval and provides that information collected belongs to the owner or lessee of the vehicle. Privacy advocates, though, point to the Digital Millennium Copyright Act that criminalizes the act of circumventing access to data collected by copyrighted software, calling into question whether the vehicle owner or the software company who made the data collection device the owner of any data collected.

If privacy concerns weren’t enough, worries about actual vehicle safety exist as well. In 2014, class action lawsuits were filed against Progressive Insurance that claimed the data collection modules caused car fires, battery drain and electrical system overloads. In 2015, cyber-security researchers managed to hack into a data collection device and claimed they could then remotely control the vehicle. Researchers at Florida-based Digital Bond Labs claim they have uncovered major problems in Progressive’s Snapshot device. By reverse-engineering the module, they gained access to a network that allows control of critical vehicle functions such as steering, braking and throttle inputs.

These findings were announced on the same day as the World Economic Forum’s Global Risks 2015 report that warned about the increasing potential for digital attacks on cars. “There are more devices to secure against hackers, and bigger downsides from failure: hacking the location data on a car is merely an invasion of privacy, whereas hacking the control system of a car would be a threat to life. The current internet infrastructure was not developed with such security concerns in mind,” the report read.

It’s important to remember, though, that UBI programs are completely voluntary, and to date, there have been no reported misuses of collected data. Based on your particular driving habits, consumers have realized actual savings through participation in these programs, and only time will tell how UBI will affect future vehicle insurance trends. Still, it’s important to keep in mind that there will always be a potential for data misuse and privacy violations, and consumers should weigh those concerns against any potential savings.

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