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Consumer Group Seeks More Oversight Of Usage-Based Auto Insurance

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In its new report, the Consumer Federation of America urged strong oversight of insurance telematics by state regulators and the adoption of several consumer protections.

A consumer advocacy group has urged state regulators to do more to scrutinize the growing usage-based auto insurance business in hopes of repeating what it calls a pattern of discrimination.

Companies like State Farm have been offering versions of usage-based insurance (also known as telematics) for years, tying the cost of a customer’s insurance policy to their driving behavior. Industry experts say the pandemic prompted expansion of that technology, as insurers and customers alike sought to link reduced driving habits and reduced insurance costs. The technology also provides the foundation of Rivian’s insurance offerings.

In a new report, the Consumer Federation of America (CFA) says there needs to be more oversight of how insurers use telematics. Without effective oversight,” the group says, “telematics programs could result in unfair pricing, improper use of personal information, racial and ethnic discrimination, and data insecurity.”

That said, CFA says telematics—if done right—could actually help consumers.

“Currently auto insurers use numerous non-driving factors, like your credit history, your education, occupation, and other things, to calculate auto insurance premiums. Mostly unfairly, and this results in a lot of unfair discrimination,” said Michael DeLong, research and advocacy associate at CFA. “Telematics, theoretically, if it goes well could replace those unfair rating tools with fairer pricing systems that are dependent more on consumer driving behavior. For instance, how much you drive. Which we found is the clearest indication of how likely someone is to get into an accident.”

For example, it might make sense on paper to use telematics to track what time of day a person is often driving—crashes happen disproportionately at night—and set rates accordingly.

“But this could discriminate against people who have to work the night shift, who tend to disproportionately be low-wage workers,” DeLong said.

In its new report, CFA urged strong oversight of insurance telematics by state regulators and the adoption of several consumer protections, including:

  • Insurers must test for and minimize disparate impact on protected classes such as race and ethnicity in the offer and application of telematics programs.
  • Consumers must be able to review all collected data and access the data for use in claim settlements.
  • Third-party telematics algorithm developers should be licensed as insurance advisory organizations and subject to state insurance department regulation.

“Right now, most state governments unfortunately don’t have any specific rules or effective oversight of telematics,” DeLong said.

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Ryan Denham is the digital content director for WGLT.
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