Car insurance companies want to track your every move—and you’re going to let them

The proposition is simple: Install a device in your car and allow your insurance company to monitor your driving—how fast you drive, how hard you brake, how sharply you corner, and so on. In exchange, it will give you a discount on your premiums.

That might sound alarming, but it shouldn’t be surprising. Considering internet users already happily trade data on every online move they make in exchange for free services, the only surprise is tracking-based insurance isn’t already more widespread. Progressive Insurance, the biggest such insurer in the United States, says it found that

After analysis of billions of miles in driving data, Progressive has found that key driving behaviors—like actual miles driven, braking, and time of day of driving—carry more than twice the predictive power of traditional insurance rating cameraboys variables, like a driver’s age, gender and the year, make and model of the insured vehicle.

The average discount on premiums for a Progressive customer who agrees to be tracked is between 10% and 15%.

In future, if you don’t agree to be tracked, you may not only pay higher premiums; perhaps you won’t even be eligible for insurance from most companies. It could be like having a shady credit history, or failing to provide the basic “know-your-customer” information required to open a bank account. “In the end, serving the ‘naysayers’ may become a specialty market niche for some carriers,” suggests a recent report (pdf) on usage-base insurance programs from Deloitte.

For “specialty market niche,” read: very expensive.

Usage-based insurance (UBI) or telematics-based insurance is not new. One of the oldest companies in the business, Octo Telematics, has been around since 2002. But the idea has never really taken off (though Octo has flourished, and was recently  mycams com acquired by a large Russian business conglomerate). In the US, Progressive has signed up some 2 million customers to its program since 2008. But there are more than 250 million vehicles on the road, according to IHS Automotive, a research firm.

Italy and the United Kingdom have been more enthusiastic adopters; between 15% and 18% of insurance policies there are telematics-based, according to Deloitte. Ptolemus, another consultancy, has lower estimates, but forecasts (pdf) that nearly 40% of British policies will include telematics by 2020.

The telematics tipping point
But a big change may be about to happen, says John Lucker of Deloitte. Telematics-based insurance could finally gain traction, he says, because instead of requiring physical devices that must be manually installed in a car, it can now be done through mobile-phone apps that are much easier to download and install.

An app is less cumbersome for the customer than climbing under the dashboard and fiddling around. It’s cheaper for the company: A telematics device can cost around $100, and it may need to be retrieved and recycled to another customer if the contract ends. Finally, phones are made for communications, while in-car devices need a separate transmitter of some sort. In the UK, a company called Marmalade already sells an app-based insurance product for young motorists who are learning to drive on their family car.

But telematics does involve a big leap for mytrannycams insurance companies. Auto insurance has historically been based on group proxies. Young men drive more hazardously than young women (though gender-based prices are illegal in some parts of the world). Young people are worse drivers than older people. People who drive certain types of sports cars are riskier than those with grandpa cars. And so on. Yet those remain broad-brush categories. “The ability to get down to how drivers drive is a bit of a holy grail for companies,” says Lucker.