If you haven’t already heard, so-called “usage-based insurance” is quickly becoming one of the most talked about (and controversial) technologies in the world of car insurance.
The frontrunner in this relatively new field is Progressive’s Snapshot, which is a small device drivers voluntarily install in their vehicles that tracks their driving habits.
Ideally, safe drivers who use this form of “telematics” will be rewarded with lower insurance premiums, though it can obviously go both ways if you’re a little too heavy on the pedal.
Soon, there may even be applications to determine if a driver is texting while behind the wheel, or driving while under the influence.
While all of this sounds good, there will always be unintended consequences, as pointed out in new research by consulting firm Deloitte.
A ‘Disruptive Technology’
The authors note that telematics is a “disruptive technology” that could seriously shake up the insurance market.
At first glance, it sounds simple. Drivers install a small device in their car that tracks things like speeding, cornering, braking, miles driven, and then reports back to the mothership.
Once the data is digested, the insurance company adjusts the premium accordingly.
Insurance companies win because their customers get in fewer automobile accidents, thus lowering the cost of paying out insurance claims, and drivers also win because their premiums drop.
Some even argue that the presence of such a device will lead to safer and more thoughtful driving, which presents yet another win for society at large.
So far, it sounds like the disruption is a positive one, but we all know things are never that simple, as the Deloitte consultants point out.
Big Discounts Needed
First off, a Deloitte consumer survey revealed that nearly half of respondents would require a discount of 20% or more for them to agree to install such a device.
This is on top of the cost to develop a telematics device, and then provide it to the driver free of charge. After all, you can’t expect drivers to pay for a device that tracks their every move.
And the only drivers that would agree to install the device would likely be the good ones, which researchers believe would lead to a disproportionate drop in premiums for good drivers, without an opposing rise for bad drivers.
Why? Because the bad drivers who know their “bad” would not opt-in to usage-based car insurance, knowing all too well that it would cost them money.
So without full-scale implementation of usage-based car insurance, insurers could wind up with a lopsided book of business.
Additionally, car insurance companies that don’t launch usage-based programs could see a mass exodus of good drivers to companies that do, such as Progressive.
In other words, they’d be left with just the “bad drivers,” who want nothing to do with a device that tracks their driving habits.
This would also put downward pressure on premiums as competition heated up to retain existing business.
Privacy and Regulatory Concerns
On top of all that, this new technology could lead to other issues, such as privacy concerns.
Theoretically, these devices will know if you get in a tiny fender-bender, something that otherwise wouldn’t be reported.
These types of dents and dings that often go unnoticed could lead to more unnecessary claims, which would drive up the cost of car insurance and frustrate drivers.
Imagine two friends or family members bumping into each other, but to a negligible degree. The next thing you know you’ve got your insurance agent on the phone to discuss a scratch.
There are also regulatory red flags here, especially if certain drivers are singled out as being the worst of the worst.
Think a particular social or ethnic demographic. On the other hand, it would look equally bad to “reward” a certain group as well.
But as mentioned earlier, if everyone has a Snapshot-like device installed in their vehicles, society could benefit over time and costs could go down for everyone.
Still, we’re playing with a very powerful new technology here, and its consequences are still widely unknown. Be warned.
Read more: Mileage-Based Car Insurance: A Good Idea?