Is saving money on your car insurance reason enough to trade away your privacy? Insurance companies now offer “usage-based” policies, wherein your driving habits affect your rates. How do they learn about your driving habits? Through telematics. This article explains what telematics is, how automakers and insurance companies and advertisers use telematics data, and why maybe you shouldn’t be so quick to jump on the telematics bandwagon.
What is Telematics in Cars And Auto Insurance?
Telematics is a field of data analytics that collects and analyzes data from cars, trucks and other vehicles. Trucking and shipping companies, for example, use telematics to monitor and manage their trucks, delivery vehicles and mobile workforces.
Telematics in auto insurance, meanwhile, uses artificial intelligence and machine learning to collect and analyze data about how you drive, and then create a risk profile for you based on this data. Then, if you have a “usage-based” insurance policy, your risk profile affects your insurance rates.
Here’s how it works: You install an app on your phone that monitors and records how you drive. This data includes things like turning speed, gradualness of braking, acceleration, vehicle speed, and ‘distracted driving’ (i.e. whether or not you pick up your phone while driving).
Then, the telematics company analyzes all of that data. If their AI determines that you’re a good driver? Voilà, you get a cheaper insurance rate. If not? Your insurance rate may go up.
Maybe you’ve already heard of “safe driving” discounts from big-name auto insurance companies like Progressive, State Farm, and Nationwide? Those are based on telematics. In fact, some auto insurance companies are based solely on telematics, including Root Insurance.
Who’s Making These Telematics Systems in the First Place?
In fact, the app on your phone isn’t the only device tracking your telematics data. Your car probably has an embedded telematics system already.
Berg Insight reports that “more than 32 percent of all new cars sold worldwide in 2017 were equipped with an OEM embedded telematics system, up from 23 percent in 2016.”
According to their study, 47% of new cars in North America have embedded telematics systems. In Europe, that number is 40%. Berg predicts 258 million telematics units installed by Original Equipment Manufacturers (OEMs) by 2023.
The leading adopters of embedded telematics are General Motors, BMW, and Groupe PSA (Peugeot, Citroën, DS, Opel and Vauxhall brands). Other major car brands that offer embedded telematics include Mercedes-Benz, Hyundai, FCA Group, Volvo Cars, Toyota, Renault and Tesla.
But insurance companies and auto manufacturers aren’t the only ones that we need to keep our eyes on when it comes to telematics and data privacy.
Verizon’s hum product, for example, turns regular cars into “connected cars” – that is, connected to a cellular network. Hum provides a wifi hotspot, roadside assistance, and vehicle diagnostics. It also includes various driving behavior and location tracking systems.
In 2016, Verizon spent $2.4 billion to buy GPS vehicle tracking company Fleetmatics Group. And according to one market report, “Verizon continued its steady march on the IoT/Telematics front. While the growth has slowed down, it is marching towards a $1B business in 2018.”
Indeed, Verizon’s 2018 Annual Report confirms that their telematics business (Verizon Connect) “generated revenues from contracts with customers under Topic 606 of approximately $1.0 billion for the year ended December 31, 2018.”
To put this data in perspective: More new cars were added to cellular networks than were new cellphones in 2017.
Telematics Offers Big Revenue Potential for Insurance Companies, Automakers and Others
So, why does everyone want your driving data so badly? It’s the money, of course. According to some experts, “vehicle telematics data could unlock $1.5 trillion in future revenue for automakers.”
Telematics data is not only important to automakers. It’s also hugely valuable to insurance companies, logistics companies, fleet managers and advertisers in general. All of this demand creates a big, lucrative market for the insurance, OEM, and cellular companies that are collecting your data. Back in 2015, for example, Allstate launched a standalone telematics unit to “incorporate new data sources and enhance analytical capabilities”.
The idea is sort of similar to how Google profits by collecting your information when you use their search engine and then re-selling it to advertisers and others. As Allstate Chairman and Chief Executive Officer Tom Wilson puts it,
“There are lots of people who are monetizing data today. You get on Google, and it seems like it’s free. It’s not free. You’re giving them information, they sell your information.”
Consider this: Arity, the telematics subsidiary of Allstate, has access to more than 1 billion miles of driver information each month. You don’t have to be Mark Zuckerberg to imagine how that data might be analyzed.
Slow Down and Look Both Ways Before You Cross Telematics Avenue
Why do telematics systems track your location? In fact, there are two answers: one for industrial fleet telematics systems, which we won’t cover here. The other answer, for consumer vehicles like you and I buy, comes down to money – again.
According to Hakan Kostepen, former Executive Director of Product Strategy at Panasonic Automotive Systems America, “The key is to connect time-, space-, and place-relevant telematics information with the car and the consumer’s lifestyle.” In other words, advertisers want to use your driving data – including your location – to serve you more-targeted ads.
Experts have speculated that retailers and restaurants could tailor advertisements to drivers that drive by each week. Telematics information is also useful to auto dealers and auto part repair businesses.
Imagine you’re on a road trip with some friends. One day, around noon your Facebook app starts showing you ads for nearby lunch restaurants that offer food that’s similar to orders you’ve placed on DoorDash last week. How did it know to show you these ads? GPS telematics, of course.
Then, a few days later, you get a flat tire and pull over to the side of the road. While you and one friend stand around wishing you’d learned how to change a tire in school, your friend opens up Reddit. Lo and behold, he sees two ads: one for a local towing service, and another for an auto parts store just up the road.
We could spend hours debating whether this sort of ad targeting is a good thing or not. But the point remains: corporations are tracking and selling mountains of data about how you drive and where you drive. And it’s really hard to argue that they’re doing this with your complete, informed consent.
Using Telematics in Insurance: A Complex Relationship
The growth of telematics in consumer vehicles is creating a veritable tsunami of data. And as one expert puts it, all of this data is immediately useful.
“All of this data becomes actionable. It can be used immediately at the site of an accident to help the driver get the claims process started immediately. It can be used in accident reconstruction to enable insurers to build a more accurate assessment of what actually happened, rather than relying on witness testimony. And finally, it can be used to develop a more complete and personalized risk profile, which will ultimately have an impact on insurance rates for consumers.”
But what if customers opt out of telematics? Will their insurance rates go up?
Some certainly think so. John Verdi, Vice President of Policy at the Future of Privacy Forum, aired his skepticism to CNBC:
“Is it the case moving forward that folks who choose not to be tracked will pay a penalty? Yeah. Is it the case the insurance will be so disproportionately priced to drive people to telematics? I’m skeptical.”
Telematics can also come into play in police investigations. But it’s not clear how law enforcement can use actually this information.
Let’s say that you are in an accident and your car’s telematics box says that you were going 6 mph over the speed limit. Could a court use that against you?
Remember, most newer cars actually come with telematics devices built in — similar, as we’ve said, to “black boxes” in the aircraft industry. It’s not too much of a reach to think of these as spying machines you can’t “opt out” of.
The Legal Implications of Telematics and New Fourth Amendment Caselaw
The usage of data from telematics black boxes is a huge legal and ethical gray area. But a 2017 Florida case does set some precedent for its use in court.
In State v. Worsham, Charles Worsham was the driver of a car in a high-speed accident wherein his passenger was killed. Police impounded his vehicle following the accident. Twelve days later, without a warrant, the police downloaded data from his car’s event recorder. Then based on that data, they charged Worsham with DUI manslaughter and vehicular homicide.
In court, the police wanted to use the event data recorder (black box) as evidence. But Worsham’s lawyers moved to suppress the data, arguing that the police should have obtained his consent or a search warrant before downloading it. The state countered that Worsham had no privacy interest int he downloaded information, and therefore the Fourth Amendment didn’t apply.
Worsham won the appeal. According to the court majority:
“A car’s black box is analogous to other electronic storage devices for which courts have recognized a reasonable exception of privacy.”
“Extracting and interpreting the information from a car’s black box is not like putting a car on a lift and examining the brakes or tires. Because the recorded data is not exposed to the public and because the stored data is so difficult to extract and interpret, we hold there is a reasonable expectation of privacy in that information, protected by the Fourth Amendment…”
The Future of Telematics in Cars and Auto Insurance
The court system has ruled that the Fourth Amendment protects telematics data in automotive black boxes. So how can telematics providers sell this data so flippantly? And what should we do about it?
Firstly, as with healthcare data, governments need to step up and pass strict regulations covering how telematics data is collected, sold and used.
Meanwhile, insurance companies need to do a better job informing their customers about how exactly they use their telematics data.
Lastly, cellular companies need to be more upfront about the driver data they collect and store when they try to sell people on “connected cars”.
And, critically, people should have a choice on whether or not their car comes equipped with a spying machine.