Insurance companies have started offering reduced insurance premiums for drivers who agree to have a telematics device installed in their car. While this might seem tempting, you should fully understand the implications before agreeing.
To qualify for reduced premiums, you must install a telematics device in an on-board diagnostic port you mount in your car. The device records information about your driving habits; i.e. the number of miles you drive; your speed; how quickly you brake or accelerate; how you corner your vehicle; the time of day that you drive. Some of the devices (which vary between insurers) will also record information as to your location.
By choosing to participate and installing the diagnostic port, you agree to allow the device to send such information to your insurance company. If the data shows that you practice safe driving (as defined by the insurer), you may become eligible for car insurance discounts of up to 25%. If the device shows that your driving habits are not as safe, you are not supposed to be penalized with higher premiums.
Most Insurance companies allow you to access and monitor which information is being recorded. You will see the total discount that your “good” driving habits have obtained and the changes made to your premiums. The hope behind such monitoring is that it will help you learn what you need to do to become a safer driver, which will lead to better driving habits, less accidents and reduced insurance costs.
This is all part of a new trend toward "usage-based insurance” which lets the driver control (to some extent) their own insurance premium rates through their driving behaviour. There are certainly positive points about participating in such a program, including safer driving habits; reduced premiums; obtaining a more immediate reward for safe driving practices; better fuel efficiency, etc. Such programs will likely be most attractive to drivers with clean records and to new drivers, whom have not yet established driving record with insurers. Using a telematics device quickly establishes their “good” driving habits and enables them to be entitled to premium reductions.
There are, however, some issues with these devices that you should understand and accept before opting in to such a program. Some of the problems such technology poses include:
- Privacy concerns – depending on the type, these telematics devices will transmit a range of information to the insurer. Be sure to determine exactly what information the device offered will transmit and ensure you are comfortable with sharing such information. While some companies offer devices that are not GPS tracking devices, other devices perform that role. Be aware that the information stored can be used or distributed for other purposes – such as being subpoenaed in a lawsuit or used by the police through a search warrant. If you opt into the program, have the insurer agree in writing that it will only use it for purposes of administrating the program and information will not be used or released for any other purpose.
- Definition of good or bad driving – it is the insurer who analyzes the data and then decides what constitutes good or bad driving. The standard is set by the insurer without guidelines and they can set the standard at whatever is in the insurers best interest. Ask for a written set of standards and a disclosure undertaking in the event those standards change.
- Telematics Devices measure the vehicle data (not driver data). Therefore, if multiple family members use the same vehicle, the device does not distinguish between drivers. If your spouse or child has a lead foot, you as the “named insured” may be flagged as a poor driver regardless of your driving habits;
- Punishment Premium adjustments - Insurers claim the data will not be used to punish poor drivers with higher premiums and will not use the data when renewing policies. Without specific legislation prohibiting that, it is not difficult to envision an insurer using such information to identify high-risk drivers and make insurance coverage and premiums decisions accordingly. Note that in Nova Scotia, the Utility and Review Board (which regulates the insurance industry) has approved the use of telematics devices on the condition that insurers will not penalize through increased premiums or refusal to insure “poor” drivers disclosed by the devices. How that can be effectively monitored or controlled is unknown, as insurers are in the business of making profit.
- Cost of Devices - Who pays for the costs of the devices and installation? Insurers claim the consumer will not be asked to pay – maybe not directly (unlike some USA insurance companies that directly charge their customers) but ultimately the cost of such a program will be reflected in overall premiums charged.
- Big Brother - Mandatory Install could become a requirement in the future. If insurers can show that these devices do lead to safer driving, expect that at some point in the future these devices could be made mandatory by governments who seek to control insurance rates and road safety. Perhaps with slight changes to technology, the police could access such devices to collect evidence and prosecute driving offences. Could “poor” drivers be monitored by licensing authorities and made to take driving courses or even lose driving privileges? Where all this could lead is unknown – but some people fear it could lead to a George Orwell dystopian society where “BIG BROTHER IS WATCHING YOU” and citizens are unsure when they are being monitored for “poor” driving habits.