California is turning into a battleground for technology that allows auto insurers to track their customers' driving behavior and offer them lower premiums, but that privacy advocates reject as an excessive intrusion with serious consequences.
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Insurance companies are increasingly installing small boxes in clients' cars that monitor everything from how much customers drive to their average speeds to where they drive.
Auto insurer Progressive Corp, which leads the market for so-called usage-based insurance, estimates that about 70% of the people who sign up for the program drive well enough to get a discount.
But privacy advocates say the lower premiums are not worth the tradeoffs, because the data could be used for unexpected purposes like penalizing drivers who visit unsafe neighborhoods. That argument holds sway with the California Department of Insurance, which is opposed to expanding the technology.
"While there are occasional discussions with certain insurers and vendors, the Department has no imminent plans to initiate usage-based rating factors," said Pat McConahay, a spokeswoman for the California Department of Insurance, in an email.
The state's opposition is a problem for insurers. Nearly 10% of the cars on the road in the United States are in California, and nearly 13% of all auto insurance policies are written there (more than twice the next-largest state), making it a crucial market for the highly fragmented industry.
"We've been trying for quite some time now to get some movement," said Richard Hutchinson, general manager of the usage-based insurance program at Progressive, in a recent interview. "It may in fact require the legislature."
REVEALING FAST-FOOD BREAKS?
In California, changing insurance rules is complicated. California voters approved a law known as Prop 103 in 1989, setting strict rules for how auto insurance could be priced. At the time, few imagined a day when insurers could plug a small box into their cars and track how, when and where they drive.
As it stands, the only metric the state allows to be tracked is miles driven -- admittedly a crucial component of any usage-based program, but not the only factor for most of them. Most programs consider distances driven, stop and start speeds, time of day driven, and host of other variables.
The state insurance commissioner has at least two concerns about the technology: privacy issues, and fears that insurance companies will penalize drivers for factors outside of their control, such as charging more for a person whose occupation forces them to drive at night.
Lawmakers could overrule the commissioner, but it would be difficult. To change Prop 103, the legislature would have to show any bill furthered the original aims of the proposition, and then pass that bill with a two-thirds majority, an all-but-hopeless task in the fractious California Assembly and Senate.
As far back as 10 years ago, privacy advocates sounded alarms about the misuse of automotive tracking data. The Electronic Frontier Foundation, which focuses on digital privacy issues, has aggressively opposed any changes to California law that would allow driver tracking.
"There is real danger that this information would not only be used to ascertain the political or associational affiliations of drivers, but also to charge more if you drive and park in neighborhoods with high vehicle theft and crime rates," the group said in a 2009 statement.
Insurers could also "link your health insurance rates with location data that reveals your lunchtime trips to McDonald's," the group added.
PROGRAMS IN DEMAND
These may be legitimate concerns, but many Americans seem to have either ignored or discounted the risks. At least eight of the country's top 10 auto insurers have some sort of program either in full rollout or in trials.
Many customers end up with lower premiums-- most insurers promise savings of up to 30%. And drivers may be willing to settle for even less. A recent Deloitte survey found 52% of insured consumers would accept a discount of 20% or less to install the necessary hardware.
A spokesman for Ron Calderon, the chairman of the state Senate's insurance committee, said his office was not aware of any planned legislation to allow usage-based insurance in California, though he backs the idea.
One industry source said insurers and their representatives are talking to the insurance department and that officials there are "open to listening to input from the industry," but that any actual progress is quite a way off.